2016 (7) TMI 55 - HC - Income Tax

Court Upholds ITAT Decision to Delete Penalty under Section 158BFA(2)

COMMISSIONER OF INCOME TAX-III Versus BIPINCHANDRA K BHATIA

The Court upheld the decision of the ITAT to delete the penalty of &8377; 25,29,100 imposed under Section 158BFA(2). It emphasized that penalty ... Penalty u/s 158BFA (2) - Held that:- The levy of penalty u/s.158BFA(2) in the context of the facts discussed above is not justified. The facts are on record. The appellant makes certain claims about deductions, exemptions and inclusions in the declared undisclosed income. These claims are to be processed in the course of assessment proceedings resulting in acceptance and rejection of claims. The rejection of claim does not make it mandatory to levy penalty in every case of such rejection. On a proper consideration of the facts of the case, the order of penalty deserves to be cancelled. - Decided in favour of assessee Issues:Challenging ITAT order dismissing revenue's appeal, confirmation of CIT (Appeals) order, imposition and deletion of penalty under Section 158BFA(2), justification for penalty deletion.Analysis:1. The appellant-revenue challenged the ITAT order dated 27/03/2008 dismissing the revenue's appeal and confirming the CIT (Appeals) order dated 28/01/2005. The respondent was engaged in the gold business, and a search operation under Section 132 of the Income Tax Act led to the recovery of gold. The Assessing Officer determined undisclosed income at &8377; 3,97,51,081/-. The CIT (Appeals) partly allowed the appeal, leading to appeals by both the assessee and revenue before the ITAT. The ITAT confirmed an addition of &8377; 42,15,287/-, and penalty proceedings were initiated under Section 158BFA(2) for alleged concealment of income.2. The A.O. imposed a penalty of &8377; 25,29,100/-, which was deleted by the CIT (Appeals) in 2005. The Revenue appealed to the ITAT, which dismissed the appeal in 2008, leading to the current tax appeal. The substantial question of law framed was whether the ITAT was justified in deleting the penalty of &8377; 25,29,100/- under Section 158BFA(2) when the addition was justified but no case existed for the penalty levy.3. The appellant contended that the ITAT misinterpreted the law and should have entertained the Department's appeal, emphasizing the non-disclosure of true income by the assessee. The respondent argued that the CIT (Appeals) and ITAT findings were detailed and should not be disturbed. The Court examined the CIT (Appeals) findings, emphasizing the discretionary nature of penalty imposition under Section 158BFA(2) and the necessity for proper evaluation of relevant facts.4. The Court noted that the appellant was found in possession of certain items by the Customs department, and the penalty order was based on the rejection of a claim for deduction, not concealment of income. The Court agreed with the CIT (Appeals) interpretation that penalty imposition is not automatic and cannot be mechanical. The Court found the CIT (Appeals) and ITAT conclusions just and proper, leading to the dismissal of the tax appeal in favor of the assessee and against the department.