TaxTMI 
TaxTMI 
2008 (1) TMI 478
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....sp; 2,186.4 gms. (gross) 2. Locker at Chennai 2,714.4 gms. (gross) 3. Locker at Hyderabad 1,731.7 gms. (net) After that notice under s. 158BC was issued and the assessment was completed under s. 143(3) r/w s. 158BC on 24th March, 2005, determining the undisclosed income at Rs. 22,86,950 as follows: Towards cash balance Rs. 18,22,000 Undisclosed investment in jewellery Rs. 3,00,000 Undisclosed income out of income Rs. 1,64,946 shown by the assessee ------------- &n....
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....bmitted that only because the assessee has offered Rs. 17,50,000 to tax during the course of search proceedings, he does not want to litigate the issue and to conclude the case at the earliest, he accepted the addition. 6. Regarding the addition towards jewellery, learned Authorised Representative submitted that the AO called for valuation report and valued the jewellery. He submitted that a major portion of jewellery has been received by the assessee from his in-laws at the time of marriage and on subsequent occasions such as his daughter's birth or on their subsequent birthdays. He submitted that the assessee had also furnished some photographs but the same were not believed by the AO. He further submitted that the assessee's wife received 100 Tolas (1,166 gms.) of gold jewellery which belonged to her grandmother Smt. Ratnamma who died on 2nd Jan., 2002. The assessee has also filed affidavits from the three brothers-in-law in support of the fact that Smt. Aparna Reddy (assessee's wife) was their only sister and that the jewellery which belonged to their grandmother Smt. Rathnamma, were given to Aparna Reddy after the grandmother's death. Also he submitted that affidavits have ....
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.... IT(SS)A No. 69/Mad/2007, dt. 27th Sept., 2007. 8. Learned Departmental Representative submitted that there is a difference between the undisclosed income declared by the assessee and the undisclosed income assessed by the AO and hence levy of penalty under s. 158BFA(2) is automatic and mandatory. He submitted that there is no question of giving any explanation by the assessee and he supported the orders of lower authorities on this issue. 9. We have heard and perused the materials on record. The provisions of s. 158BFA are as follows: "158BFA. (1) Where the return of total income including undisclosed income for the block period. in respect of search initiated under s. 132 or books of account, other documents or any assets requisitioned under s. 132A on or after the 1st Jan., 1997 as required by a notice under cl. (a) of s. 158BC. is furnished after the expiry of the period specified in such notice, or is not furnished. the assessee shall be liable to pay simple interest at the rate of (one) per cent of the tax on undisclosed income, determined under cl. (c) of s. 158BC. for every month or part of a month comprised in the period commencing on the day immediately follow....
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....es later; (d) in a case where the assessment is the subject-matter of revision under s. 263, after the expiry of six months from the end of the month in which such order of revision is passed; (e) in any case other than those mentioned in cls. (c) and (d), after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later; (f) in respect of search initiated under s. 132 or books of account, other documents or any assets requisitioned under s. 132A, after the 30th June, 1995 but before the 1st Jan., 1997. Explanation: In computing the period of limitation for the purpose of this section: (i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to s. 129; (ii) the period during which the immunity granted under s. 245H remained in force; and (iii) the period during which the proceedings under sub-s. (2) are stayed by an order or injunction of any Court, shall be excluded. (4) An IT authority on making an order ....
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....ribunal or the assessee himself has accepted the additions does not create a situation for levy of penalty. The provisions of s. 158BFA(2) give a scope for exercising the discretion of the AO. This section which allows the AO to impose a penalty begins with the word 'may' and not 'shall'. In our opinion, the AO has a discretion to impose or not to impose the penalty. The words 'may direct' in the s. 158BFA(2) do indicate that a discretion is available with the AO and CIT(A) to levy penalty even where technically the provisos are attracted. We have to remind ourselves of the classic observation made by the Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) with reference to the basic principles that govern the levy of penalty. It will be appropriate to reproduce relevant observations of the Supreme Court which have now become, with respect, the locus classicus on the nature of the penalty. "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law was guilty of condu....
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....nd not contested the addition and extended co-operation at the stage of assessment. The assessee deliberately has not concealed the particulars. 14. Regarding the addition on account of jewellery also, the assessee has produced evidence in the form of affidavits from his brothers-in-law and mother-in-law in support of the fact that he has received jewellery from his grandmother on her death and also during his marriage and on other occasions for which he has also produced photographs. On this issue also, he has accepted the addition to avoid further litigation. Further, when husband and wife stay together, the jewellery of wife cannot be presumed to belonging to the husband. As per Hindu custom, especially in the Reddy community to which the assessee belongs, possession of jewellery is common and explanation given by the assessee is genuine and it should be considered. In our opinion, levy of penalty is unwarranted. We place reliance on the judgment of the Hon'ble Supreme Court in the case of Dy. Superintendent of Police vs. K. Inbasagaran (2006) 200 CTR (SC) 624 : (2006) 282 ITR 435 (SC) wherein it is held that when there was a joint possession between wife and husband or fathe....
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....ulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In view of the above observation of the apex Court, it is very clear that each and every addition made in the assessment proceeding cannot be a basis for levying penalty." 18. We have also gone through the order of the Co-ordinate Bench in the case of Rakesh Kumar Jain, cited supra, wherein the Tribunal held as follows: "(i) Penalty provision should be interpreted as it stands and in case of doubt in a manner favourable to the taxpayer. If the Court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt the interpretation which favours the assessee, more particularly so, where the provision relates to the imposition of penalty. Useful reference may be made in this regard to the observations in the decisions in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC), C.A. Abraham vs. ITO & Anr. (1961) 41 JTR....
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.... in a number of provisions of the Act. It must necessarily be so. In a taxing statute of this nature the legislature must envisage and provide for cases, where the assessees attempt to contravene the provisions of the Act and to evade payment of rightful tax levied thereunder. If such contingencies are not visualized and such leaks are not plugged, no taxation law can be effective and satisfactorily implemented. In order to satisfactorily and effectively implement their provisions, penalties are generally provided for in all taxation laws. Without such a sanction, there is the danger of evasion of tax. Thus, provision for levy and collection of penalties for contravening their requirements, has become an integral part of such enactments and one of their purposes. The argument that it does not form part of the purposes of the Act, is thus a wholly untenable one.' (iv) We draw support from the Maxwell on Interpretation of the Statutes at p. 239 under the caption head "Strict construction of penal laws." It has been stated that in Kartar Singh vs. State of Punjab JT 1994 (2) (SC) 432. p. 466 : 1994 (3) SCC 569, it is held that it is the basic principle of legal jurisprudence that a....