2016 (10) TMI 586 - AT - Income Tax

Tribunal recalibrates penalty calculation under Income Tax Act, emphasizes correct application of provisions

The Tribunal upheld the imposition of penalty under Section 158BFA(2) of the Income Tax Act but directed the recalibration of the penalty calculation to ... Penalty u/s 158 BFA (2) - quantum of penalty - penalty order assessment u/s 158BC of the Act was completed at an income of ₹ 6,62,880/- against the returned income of ₹ 3,43,404/- and thus addition of undisclosed income was made of ₹ 3,19,475/- - Held that:- From the para 7 of the penalty order it is vivid that the A.O has imposed penalty on the entire assessed income i.e. on ₹ 6,62,880/- which is not correct as per mandate of second provision to Section 158BFa(2). In our considered opinion penalty u/s 158 BFA(2) of the Act can only be imposed on that portion of undisclosed income determined which is in excess of the grant of undisclosed income shown in the return i.e on ₹ 3,19,475/- as the assessed income u/s 158BC of the Act ₹ 6,62,880/- includes returned amount of ₹ 3,43,404/- and total additions uphold by the CIT(A) on 5 issues, as noted by the A.O in the penalty order para 2, are of ₹ 3,19,475/-. Therefore, we are inclined to hold that the penalty was wrongly calculated and imposed on the total assessed income and penalty u/s 158 BFA (2) of the Act can only be imposed on the amount of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return filed by the assessee for the relevant block period. From the penalty order is apparent that the penalty u/s 158BFA(2) has been imposed by observing that the assessee has not filed the return showing his correct income before the search and thereafter he imposed penalty on the assessed income including returned income which is not a proper approach and application of the mandate of secured proviso to Section 158BFA(2) of the Act. Since in the earlier part of this order we have observed that the penalty u/s 158BFA (2) of the Act can be imposed on the income assessed u/s 158BC of the Act which was in excess to the returned income. From the relevant operative part of the First Appellate order we also observe that it was the argument of the assessee that since the undisclosed income assessed by the A.O was not in excess of the returned income penalty u/s 158 BFA (2) of the Act cannot be imposed. But there were no other arguments on the imposition of penalty on the merits showing that the penalty imposed on the additions made in excess to returned amount cannot be imposed. As there was additions in excess of returned income which is clearly undisclosed income not purely based on the estimation but was based on the seized material found during the counsel of search those penalty u/s 158BFA (2) of the Act is leviable. On the account of additions made as undisclosed income. But not on the entire taxable amount assessed u/s 158BC of the Act including returned income as per second proviso to Section 158 BGFA (2) of the Act. Thus penalty u/s 158 BFA (2) of the Act is directed to be imposed only on the account of additions made in excess to returned income and thus the A.O is directed to recalculate the penalty. Accordingly, therefore, appeal of the assessee is dismissed with the above directions to the A.O to recalculate penalty as per letter and spirit of second proviso to Section 158BFA (2) of the Act. Issues:1. Imposition of penalty under Section 158BFA(2) of the Income Tax Act, 1961.2. Proper application of proviso 1 & 2 appended to Section 158BFA(2).3. Calculation and imposition of penalty on undisclosed income determined by the Assessing Officer.Issue 1: Imposition of penalty under Section 158BFA(2) of the Income Tax Act, 1961:The appeal was filed against the order of the CIT(A) regarding the penalty imposed under Section 158BFA(2) of the Income Tax Act. The appellant contended that the penalty was wrongly upheld as the Assessing Officer (A.O) imposed it on the total assessed income, including the returned amount, which was not in line with the provisions of Section 158BFA(2) of the Act. The Tribunal noted that the penalty should only be imposed on the undisclosed income determined, which is in excess of the amount shown in the return. In this case, the penalty was wrongly calculated and imposed on the total assessed income, contrary to the provisions of the Act.Issue 2: Proper application of proviso 1 & 2 appended to Section 158BFA(2):The Tribunal analyzed the first and second provisos to Section 158BFA(2) of the Act. It highlighted that the penalty should not be imposed on the total assessed income but only on the portion of undisclosed income determined, which exceeds the amount shown in the return. The Tribunal emphasized that the penalty must be calculated in accordance with the provisions of the Act and directed the Assessing Officer to recalculate the penalty as per the second proviso to Section 158BFA(2).Issue 3: Calculation and imposition of penalty on undisclosed income determined by the Assessing Officer:The Tribunal examined the facts of the case where the Assessing Officer had assessed income under Section 158BC of the Act, which was in excess of the returned income. It observed that the penalty should be imposed on the undisclosed income determined, which is beyond the amount shown in the return. The Tribunal considered various cases cited by the appellant to support the argument against the penalty imposition. However, it concluded that the penalty was justified in this case due to the additions made as undisclosed income based on seized material, not on estimation. The Tribunal dismissed the appeal but directed the Assessing Officer to recalculate the penalty only on the additions made in excess of the returned income, in line with the provisions of the Act.In conclusion, the Tribunal upheld the imposition of penalty under Section 158BFA(2) of the Income Tax Act but directed the recalibration of the penalty calculation to align with the provisions of the Act. The judgment emphasized the importance of correctly applying the provisos and calculating the penalty based on undisclosed income exceeding the amount shown in the return.