2008 (1) TMI 478 - AT - Income Tax

Tribunal Cancels Penalty: Assessee's Appeal Allowed

Ch. Suresh Reddy. Versus Assistant Commissioner Of Income-Tax.

The Tribunal allowed the appeal of the assessee, holding that the levy of penalty under section 158BFA(2) was unwarranted. The Tribunal emphasized the ... Search And Seizure Issues Involved:1. Levy of penalty under section 158BFA(2) of the Income Tax Act, 1961.2. Validity of additions made towards cash found during the search.3. Validity of additions made towards undisclosed investment in jewellery.4. Validity of additions made towards income declared below the taxable limit.Detailed Analysis:1. Levy of Penalty under Section 158BFA(2):The assessee argued that the penalty under section 158BFA(2) is not automatic and must be considered independently, even if the additions were accepted to avoid litigation. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings and should be evaluated based on the evidence and circumstances. The Tribunal highlighted the discretionary nature of section 158BFA(2), noting that the word 'may' suggests that the Assessing Officer (AO) has the discretion to impose or not impose the penalty. The Tribunal referred to the Supreme Court's observation in Hindustan Steel Ltd. vs. State of Orissa, which states that penalty should not be imposed unless there is deliberate defiance of law or contumacious conduct.2. Additions Towards Cash Found During the Search:The AO made an addition of Rs. 18,22,000 towards cash found during the search, as the assessee's explanation was deemed unsatisfactory. The assessee argued that the cash was received from his brother-in-law, supported by letters from the latter. The Tribunal found the assessee's explanation bona fide and noted that the assessee accepted the addition to avoid litigation and buy peace with the Department. The Tribunal concluded that the acceptance of the addition does not automatically justify the levy of penalty.3. Additions Towards Undisclosed Investment in Jewellery:The AO added Rs. 3,00,000 towards undisclosed investment in jewellery, valuing the excess jewellery found during the search. The assessee provided affidavits from family members and photographs to support the claim that the jewellery was received from his in-laws and grandmother. The Tribunal noted that the jewellery belonged to the assessee's wife and accepted the explanation as genuine. The Tribunal referred to the Supreme Court's judgment in Dy. Superintendent of Police vs. K. Inbasagaran, which held that joint possession of jewellery between husband and wife should not automatically lead to the conclusion that it belongs to the husband.4. Additions Towards Income Declared Below Taxable Limit:The AO added Rs. 1,64,946 towards income declared below the taxable limit for the block period. The assessee argued that these amounts were below the taxable limit and should not be included as undisclosed income. The Tribunal referred to the Kerala High Court's judgment in CIT vs. M.M. Thomas, which held that income below the taxable limit cannot be included as undisclosed income for the block period. The Tribunal concluded that the addition itself was unwarranted, and hence, the penalty could not be levied.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the levy of penalty under section 158BFA(2) was unwarranted. The Tribunal emphasized the discretionary nature of the penalty provision and the need to consider the bona fide conduct of the assessee. The Tribunal relied on various judgments, including those of the Supreme Court and High Courts, to support its decision. The appeal was allowed, and the penalty levied was deleted.