2016 (9) TMI 548 - AT - Income Tax

Tribunal dismisses Revenue's appeal, deletes penalty on undisclosed income. Assessee's appeal allowed due to reasonable cause.

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, deleting the penalty imposed on the excess undisclosed income. The Tribunal ... Penalty under section 158BFA(2) - first proviso to section 158BFA(2) - second proviso to section 158BFA(2) - reasonable cause - block assessment under Chapter XIV B - undisclosed income determined in excess of return - immunity from penalty on returned incomeFirst proviso to section 158BFA(2) - reasonable cause - immunity from penalty on returned income - Applicability of the first proviso to section 158BFA(2) where the assessee did not pay full tax on the block return before filing because recoverable amounts were restrained/attached by the Department. - HELD THAT: - The Tribunal accepted that the first proviso exempts from penalty that part of undisclosed income shown in the block return only if all its conditions are strictly met. However, where the assessee could not pay the tax on the returned income because significant receivables were under restraint/attachment by the Department and the assessee had applied for recovery/adjustment (and subsequently paid the balance when funds became available), such inability constituted a reasonable cause. On the facts the assessee had paid part of the tax with the return, sought adjustment from restrained debtors, and later discharged the balance; therefore the assessee was prevented from paying by circumstances beyond his control and did not merit penalty on the income declared in the block return. [Paras 11]No penalty under section 158BFA(2) is leviable in respect of the undisclosed income declared in the block return because the assessee had a reasonable cause for not paying the full tax before filing the return.Second proviso to section 158BFA(2) - undisclosed income determined in excess of return - block assessment under Chapter XIV B - Whether penalty under the second proviso to section 158BFA(2) is sustainable on the portion of undisclosed income determined by the Assessing Officer in excess of the amount declared in the block return. - HELD THAT: - Chapter XIV B requires the Assessing Officer to base block assessment on seized material and affords the assessee an opportunity to compute true undisclosed income from that material. Where the Assessing Officer's determination is grossly at variance with the seized material and subsequent appellate reductions show the assessee's computation to be closer to the truth, the allegation of deliberate understatement is not established. On the facts the major additions upheld by the Assessing Officer were either unsupported or satisfactorily explained by the assessee; the Tribunal found the AO's original estimate excessive and not indicative of mens rea sufficient to sustain penalty on the excess. Consequently the Tribunal dismissed Revenue's challenge and deleted the penalty confirmed by the CIT(A). [Paras 12]Penalty under the second proviso is not sustained on the excess undisclosed income determined by the Assessing Officer; the Tribunal deleted the penalty confirmed by the CIT(A).Final Conclusion: The Revenue's appeal is dismissed and the assessee's appeal is allowed: no penalty is leviable on the income declared in the block return (reasonable cause for non payment before filing accepted) and penalty on the excess undisclosed income determined by the Assessing Officer is not sustained; the penalty confirmed by the CIT(A) is deleted. Issues Involved:1. Applicability of penalty under section 158BFA(2) of the Income-tax Act, 1961.2. Conditions for immunity from penalty under the first proviso of section 158BFA(2).3. Reasonable cause for non-payment of tax before filing the block return.4. Penalty on undisclosed income determined in excess of returned income.Detailed Analysis:1. Applicability of Penalty under Section 158BFA(2):The case revolves around the penalty imposed under section 158BFA(2) of the Income-tax Act, 1961, for the block period from FY 1996-97 to 2001-02 and 1/4/2002 to 25/7/2002. The assessee disclosed an income of Rs. 20,00,000 in the block return, while the Assessing Officer assessed the income at Rs. 6,56,39,749, later reduced to Rs. 28,03,600 by the Tribunal. The Assessing Officer levied a penalty of Rs. 17,15,803 under section 158BFA(2).2. Conditions for Immunity from Penalty under the First Proviso of Section 158BFA(2):The first proviso to section 158BFA(2) provides immunity from penalty if the assessee:- Furnishes a return under section 158BC.- Pays the tax payable on the basis of such return or offers to adjust the seized money against the tax payable.- Furnishes evidence of tax paid along with the return.- Does not file an appeal against the assessment of the income shown in the return.The Assessing Officer noted that the assessee paid only Rs. 5 lakhs against the tax liability of Rs. 12 lakhs on the disclosed income of Rs. 20 lakhs, thus not fulfilling the conditions of the first proviso.3. Reasonable Cause for Non-Payment of Tax Before Filing the Block Return:The assessee argued that the non-payment of the full tax was due to the Department's restraining orders on recoverable loans and advances. The CIT(A) accepted this explanation, noting that the assessee had shown intent to pay the tax and had paid Rs. 5 lakhs before filing the return. The CIT(A) held that the assessee had a reasonable cause for not paying the full tax before filing the return and thus, no penalty was leviable on the disclosed income of Rs. 20 lakhs.4. Penalty on Undisclosed Income Determined in Excess of Returned Income:The second proviso to section 158BFA(2) states that if the undisclosed income determined by the Assessing Officer exceeds the income shown in the return, penalty shall be imposed on the excess amount. The CIT(A) upheld the penalty on the excess undisclosed income of Rs. 8,03,600, citing clear mens rea and the assessee's failure to disclose this income in the block return. The Tribunal, however, found that the assessee's computation of undisclosed income was closer to the true figure than the Assessing Officer's assessment and deleted the penalty of Rs. 4,82,160 confirmed by the CIT(A).Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, deleting the penalty imposed on the excess undisclosed income. The Tribunal held that the assessee had a reasonable cause for not paying the full tax before filing the return and that the assessee's computation of undisclosed income was more accurate than the Assessing Officer's assessment. The order was pronounced in the open court on 3 August 2016.