TaxTMI 
TaxTMI 
2004 (12) TMI 309
X X X X Extracts X X X X
X X X X Extracts X X X X
.... his return for the block period on 23-10-1998 disclosing undisclosed income at Rs. 50 lakhs. However, the assessment was completed at an income of Rs. 75,63,300 vide order dated 28-6-1999 passed under section 158BC(c)/143(3) of the Income-tax Act and no appeal was preferred by the assessee against the said assessment. In the penalty proceeding under section 158BFA(2), it was submitted by the assessee that the disclosure of Rs. 50 lakhs was bona fide, the regular income for the assessment years 1996-97 and 1997-98 totalling to Rs. 10,66,222 is also added in the undisclosed income, the total income as determined by the Assessing Officer has been accepted and no appeal has been filed and the assessee is a very old man, co-operated in the assessment and in making the payment of tax, therefore, penalty initiated be dropped. The Assessing Officer was of the view that the undisclosed income determined is in excess of the amount of undisclosed income shown by the assessee in the return by Rs. 25,63,300 and, accordingly, he imposed penalty under section 158BFA(2) amounting to Rs. 15,37,980 equivalent to the amount of tax so leviable in respect of undisclosed income determined under section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ipulates that penalty shall be imposed. It is important to note that in itself it does not lay down any condition or default for imposition of penalty. Why is this so? Is it because penalty is to be imposed in all cases of undisclosed income? The first proviso is a saving provision for assessee's benefit. It lays down four conditions which have to be fulfilled cumulatively, in order to avoid the imposition of a penalty. Thus, even if one of these requirements is not satisfied, penalty is to be imposed. Thus, in such a situation penalty would be imposable even if there is no enhancement to the returned undisclosed income. All these conditions are very innocuous or simple conditions: return to be filed within the time allowed in the notice, tax to be paid on the returned undisclosed income, evidence of payment to be attached with the return and returned income not to be contested in appeal. In other words the intention is that the tax evader must comply promptly and wholeheartedly with his duty to pay tax on the income he has concealed so far. But if there is any dithering, slackness or recalcitrance on his part in strictly complying with these requirements then he has t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under section 277 with a minimum mandatory rigorous imprisonment of 6 months, extendable up to 7 years. If a person wishes to avoid prosecution, he is permitted under administrative guidelines, to compound his offence by paying a big compounding fee. Earlier this was 5 times the tax default (now it has been reduced). Though it must be mentioned that in concealment cases, generally proceedings were not compounded, unless there were exceptional circumstances. Thus it is clear that in this case we are dealing with a situation where the assessee has concealed the income and is liable for a mandatory RI sentence. However, for undisclosed income taxed under Block Assessment, there is apparently no prosecution provision. He is offered one chance to come clean by paying his taxes at the higher rate of 60 per cent. But his behaviour now has to be exemplary. He must make a full disclosure, perhaps even erring on the side of caution, as after all in the past he has been a tax evader. He must redress this imbalance. He must also not enter into litigation on the disclosed amount. As a measure of good behaviour he must also furnish the block return in time, pay the tax on the returned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion between 100 per cent to 300 per cent. Operative part of Ld. CIT(A)'s order is in the last para of page 15. He has based his view on the case law relating to section 27 (1)(c). This is completely incorrect. The foregoing analysis of section 158BFA(2) would show that far from operating on a common premise, the two provisions are a study in contrast. They cover entirely different ground. Thus, under section 158BFA(2) Assessing Officer is not required to establish that the explanation given by the assessee is false and mala fide. There is also no requirement to prove that the assessee is guilty of contumacious conduct. Therefore, Ld. CIT(A) has completely misdirected himself in appreciating the provisions of section 158BFA(2). He has allowed relief on the basis of considerations which are totally irrelevant to the scheme of section 158BFA(2). The order of the Ld. CIT(A) should be set aside and Assessing Officer's order restored. I, therefore, rely fully upon the Assessing Officer's order." 5.1 The Ld. D.R. further submits that:- 'Written submissions in the above case were filed on 24-9-2004. Subsequently the question where this provisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....76C, 276CCC, 276D, 277, 278 and 278A. However, as per section 278 AA, only in respect of 3 provisions, i.e., 276A, 276AB and 276B can a person escape punishment on the ground of "reasonable cause". Thus, for the remaining provisions "reasonable cause" is not a ground for exoneration. In view of this scheme of the Act for dealing with tax offences, it would be wholly incorrect to read in an exception of "reasonable cause", where none has been specifically provided in the Act. If law has not specifically provided an exception, it must be taken to mean that none was intended by the Legislature. The Hon'ble Bangalore Bench, has also held that in case of penalty reasonable cause has always to be inferred. If this is so, then section 273B becomes redundant. Therefore, this observation of the Hon'ble Bench does not appear to be correct. In para 5 (almost end of page 51), it has been observed that '. . .To put in different words, since penalty is for concealment of particulars of income. . . .' Para 6 makes it apparent that the concealed income under contemplation is income not disclosed even in the Block return. This appreciation does no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions specified in this provision are fulfilled, the mandatory penalty has to be imposed. The order of the Ld. CIT(A) should be set aside and Assessing Officer's order restored. I, therefore, rely fully upon the Assessing Officer's order.' 6. On the other hand, the Ld. Counsel for the assessee submits that the penalty is not an automatic. The assessment proceedings and penalty proceedings are two distinct things. The Ld. Counsel for the assessee further submits that in this case the assessee has not filed any appeal against the assessment order passed by the Assessing Officer but that does not mean that the addition made by the Assessing Officer in the assessment has been accepted by the assessee. He further submits that only because the amount of difference in the income returned and income assessed, the same does not amount to conceal the income for the purpose of section 158BFA(2). He further submits that under section 158BFA(2) there is a word "may" and not "shall" which indicates that the authority concerned has a discretion either to levy penalty or not to levy penalty. Thus, the levy of penalty is not mandatory but depends upon the facts and circumstances of e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in the undisclosed cash is on estimate basis as it was not possible to work out the exact amount due to the large number of loose papers found during the course of search. 7.2 As regards FDR interest he submits that the FDR interest was shown by the assessee as per Bank Accounts, however, the Assessing Officer has taken the same on higher amount. At this stage, he submits that the Ld. CIT(A) has treated the entire amount of FDR interest amounting to Rs. 33,749 for assessment year 1995-96, Rs. 93,351 for assessment year 1996-97 and Rs. 1,40,014 for assessment year 1997-98 aggregating to Rs. 2,67,114 as concealed income whereas the assessee has duly disclosed the interest income as per Bank Account including the interest income Rs. 45,010 for assessment year 1996-97 which was also considered by the Assessing Officer at page 7 of the assessment order while determining the undisclosed income for the assessment year 1996-97. 7.3 As regards the income shown in the returns for the assessment years 1996-97 and 1997-98 filed by the assessee after the search, the Ld. Counsel for the assessee submits that all the particulars of income disclosed in the returns are on the record of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2) before the word "shall" is "may" unlike the word "shall" in subsection (1). We further find that same expression that "he may direct that such person shall pay by way of penalty" is contained under section 271(1)(c) of the Act. In the context of section 271(1)(c),it is settled that first "may" is discretionary while the other word "shall" i.e., quantum of penalty-is fixed, certain and mandatory. The income-tax authorities have been empowered to impose penalty only if there exists one or more of the circumstances enumerated in clauses (a), (b) and (c) of section 271(1)(c) but not otherwise. But where any of these circumstances exist the authority has power to impose penalty. Under clause (c) it is for the authority to decide whether there has been concealment of particulars of income or that there was any inaccurate furnishing of the particulars. If the Assessing Officer is satisfied that under clause (c) there was concealment or inaccurate furnishing of the particulars, he may impose the penalty. 9. According to the Ld. Author Chaturvedi & Pithisaria's Income Tax Law, 5 Volume, Fifth Edition, at page 8642, the "Discretion" means when it is said "that something is to be do....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also apply. Therefore, respectfully following the decision of ITAT, Bangalore Bench, "C" in the case of Smt. Mala Dayanithi, we do not find any merit in the plea of the Ld. D.R. that the penalty under section 158BFA(2) is mandatory and not discretionary and accordingly, the same is rejected. 14. With regard to the merits of the case, we find that the penalty was imposed by the Assessing Officer on the difference of undisclosed income shown and assessed, i.e., Rs. 25,63,300 which is comprised of undisclosed cash of Rs. 13,55,000, difference in FDR interest Rs. 82,090, income disclosed in the returns after the search for assessment years 1996-97 and 1997-98 Rs. 10,66,210 and income from Tokai seeds at Rs. 60,000. We find that the assessee after considering all the documents including the bunch containing loose papers found at the time of search has disclosed unaccounted income for the block period at Rs. 50 lakhs. In the course of assessment the Assessing Officer on the basis of the same has worked out the undisclosed cash at Rs. 63,55,000 plus Rs. 60,000 income from Tokai seeds aggregating to Rs. 64,15,000 as against Rs. 50 lakhs disclosed by the assessee. Since no particular it....