TaxTMI 
TaxTMI 
2006 (8) TMI 232
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.... Tribunal are that a search and seizure operation was. conducted in the residential and business premises of the assessee-company and its directors on 14th December, 1999 under section 132 of the Act. It was brought to the notice of the Bench by the assessee's learned counsel that, as a matter of fact, the appellant-group faced several search and seizure proceedings conducted by various authorities from time to time. Owing to the frequent raids the entire accounting system of the company went haywire. The records seized by the DGAE Department were released only in November, 1999. A month thereafter the same records were again seized by the IT Department making it extremely difficult for the appellant to reconcile the pending accounts in a reasonable time. Copies of the voluminous seized documents could not also be obtained from the Department within the prescribed time-limit for filing the block return. In the circumstances the appellant could file its return for the block period only on 14th August, 2001 (sic) declaring a net loss of Rs. 1,29,57,430/-. As the said return was based only on available records which gave incomplete information, the appellant subsequently filed an ....
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....e assessee there was no revised return and there is also no provision in the law for filing the revised return in case of block assessment. He further observed as under in para 15 of his order: "15....The original return disclosed loss of Rs. 1,29,57,430/-. The disclosure petition-if there is any such thing in the law-offered to agree for the assessment of income of the block period at Rs. 14,25,052/-. The revision of income in this manner is to the extent of Rs. 1,43,82,482/-. The appellant found out that the disclosure made in the return under section 158BC had been short by an amount of Rs. 1,43,82,482/-. Now instead of loss there is some income. The non-disclosure of such huge amount in the return under section 158BC has not been explained. There is no way in which it can be treated as a voluntary disclosure. It is made after the search action and after the appellant had already made application for settlement of his case. There is no provision under which such disclosure can be treated as revision of the return under section 158BC and there is no scope under the law for any promise that penalty shall not be levied. Even the disclosure thus made was further revised to ....
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....summarised as below: (i) That it is an admitted fact that due to frequent search by various authorities, the accounting system of the assessee got totally dislocated. In p. 2 of the block assessment order, the Assessing Officer acknowledged this fact and observed that due to this reason the books of account maintained in the computer were found incomplete and there were other information gaps in the various accounts maintained by the assessee which needed reconciliation. The non-availability of the copies of the seized books of account created further obstacles for the appellant and furnishing of the correct return of income for the block period proved an extremely difficult task. The loss return filed by the assessee in response to notice under section 158BC has to be viewed in this background. As soon as the assessee could lay its hands on the relevant materials needed to determine its correct income during the block period. It filed an application before the Settlement Commission disclosing the said income. Subsequent to the filing of the settlement application the Authorised Representative of the appellant had occasions to meet the learned CIT, Central-I, Kolkata, as w....
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....the disclosure petition filed by it. (iii) That the above facts would show that the appellant-company acted in good faith and made a bona fide disclosure of its income during the block period as soon as it was in possession of the material necessary for computing its correct income. It was in fact a sincere effort on its part to remove the shortcomings and defects from which the return filed for the block period suffered. It has been held by the Madras High Court in the case of CIT v. Best Supply Agency [2000] 241 ITR 208 that where the assessee endeavoured to correct the mistake in accounting occurring due to extraneous factor (death of the accountant) by agreeing to additions to income and filing revised return, no penalty for concealment is leviable. The ratio of the above decision squarely applies to the facts of the appellant's case. (iv) That the learned CIT(A) has stated that there is no provision of filing a revised return under Chapter XIV-Band the disclosure petition filed by the assessee has no legal sanctity. It has never been the contention of the appellant that the disclosure petition filed by it should be construed as a revised return. In fact t....
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....per SS-24, SS-33 and 34 54,93,464/- Unaccounted sales (a/c Shree Ganesh Enterprise) 9,54,682/- Unaccounted sales (a/c Shree Ganesh Enterprise) 9,84,682/- Disallowance on donation (1997-98) 58,601/- Disallowance on donation (1998-99) 1,500/- Disallowance on expenses (1999-2000) 1,00,000/- Disallowance on expenses (2000-01) 3,00,000/- 2,29,95,146/- 2,51,45,996/- Difference = Rs. 21,50,850/- (Rs. 2,51,45,996/- - Rs. 2,29,95,146/-) (vii) That as far as the disallowances of donations and estimated expenses are concerned, by no stretch of imagination these can be cons trued as undisclosed or concealed income of the appellant on which penalty under section 158BFA(2) could be levied. Similarly the ad hoc increase by Rs. 30,000/- to the amount surrendered as "Unaccounted sales" of Shree Ganesh Enterprises, without mentioning any reason therefor, can hardly be regarded as addition of concealed income. The Assessing Officer made another addition of Rs. 5,47,000/- to the income surrendered as "Excess purchase written back (sundry cre....
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....01. The assessee, in order to buy peace and put a quietus to the proceedings, is willing to accept the proposed assessment figures of Rs. 35,75,439/- (rupees thirty five lakh seventy five thousand four hundred thirty nine only) provided no penalty and/or prosecution proceedings are initiated. It may be recalled that the assessees of the group were assured of full immunity from penalty and prosecution proceedings in case they came out with voluntary disclosure of undisclosed income and, accordingly, disclosure petition dated 20th December, 2001 was filed with your Department. The assessee is offering enhanced tax appropriation against seized KVP vide separate petition enclosed herewith". (ix) That, moreover, the mere fact that the appellant did not challenge the addition would not necessarily mean that it accepted that the impugned amount represented its concealed income detected during the course of block assessment. Therefore, by a letter dated 4th January, 2002, the appellant objected to the initiation of penalty proceedings under section 158BFA(2) and urged the Assessing Officer to drop the same on the ground that a conditional surrender of cash credits or agreement to ....
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....uences under section 158BFA(2) of the Act. The CIT(A), therefore, was perfectly justified in treating the difference between the disclosure made originally and the subsequently revising the same by way of further declaration after filing of the block return under section 158BC as assessee's hidden income during the block period. The CIT(A) after examining the case thoroughly in terms of all the seized documents came to the conclusion that the case laws relied upon by the assessee are distinguishable on facts. That it is an admitted position that return under section 158BC(1) was filed by the assessee only after detection of concealed income during the course of a search. Therefore, it is a return of the income concealed by it and detected through the efforts of the Department and this block return cannot be equated with a return under section 139(1). According to the learned Departmental Representative, although penalty is not mandatory, but when the addition to the declared undisclosed income is not disputed, levy of penalty is justified even if the addition proceeds on the basis of admission in the course of block assessment proceedings. Referring to judgment of Hon'ble S....
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.... that there was no provision for filing of revised return under Chapter XIB-B. So the disclosure petition of the assessee had no legal sanctity. Therefore, penalty should have been levied on the difference between the income disclosed in the block return and the income ultimately assessed. Accordingly, he enhanced the quantum of penalty. 6.1 Now the question is whether the direction of the CIT(A) for enhancing penalty and Assessing Officer's passing of consequential order giving effect of the said order was, on the facts and in the circumstances of the case, justified or not. Elaborate arguments have been made by the assessee's learned counsel on this issue. It is a fact that the appellant-group faced several search and seizure proceedings conducted by several authorities consecutively. The seized material included apart from valuables and books of account, about 6000 loose sheets under different Panchnamas. Therefore, it is evident that the accounting system of the assessee due to these frequent searches by different authorities got dislocated. Even the Assessing Officer has acknowledged this fact by stating that due to this reason the books of account maintained in the....
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....02 and CIT, Central Circle-I, Kolkata, dated 21st December, 2001. The facts and submissions written in those letters are more or less similar. For convenience of understanding the factual position, we quote relevant portion of the assessee's Authorised Representative's letter dated 21 st December, 2001 written to CIT, Central Circle-I as under: "In course of block assessment proceedings of the abovenamed assessee-company and the concerned group (Santhalia) concerns and individuals, the undersigned had occasion to be present before your honour as well as before the Addl. CIT and the Dy. CIT. It was explained to your honour that the case(s) of the group was peculiar and full of complexities since complete particulars and/or information were not available and there was no other way than to approach the Hon'ble Settlement Commission for a practical and judicious adjudication of the complex case(s) and avoiding protracted litigations. Accordingly, an application for settlement under section 245C(1) of the IT Act, 1961 was already filed by Enfield Industries Ltd. for the block period as well as for the assessment year 2000-01 and the individuals, namely. Sri Satyadeo....
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....of incomplete information and seized documents showing loss. After thorough scrutiny, reconciliation and efforts when the assessee found its earlier disclosure untrue and defective, it volunteered the additional income arrived at on the basis of subsequent checking and reconciliation of documents during block assessment proceedings at the suggestion of the CIT, Central-I, Kolkata. The Department could not bring on record any letter of document to discard the written confirmation by the assessee's learned counsel that acting on the advice/suggestion of the CIT, Central-I to make a true and full disclosure of their income before the Department itself and assurance of granting full immunity from penalty and prosecution, the assessee came forward with the disclosure petition surrendering further undisclosed income, which ultimately resulted in income instead of loss originally shown in block return under section 158BC. The above facts would thus show that the assessee acted in good faith and made a bona fide disclosure of its income during the block period as soon as it was in possession of the material necessary for computing its correct income. 6.3 It has been held by Hon'....
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....ted as an unconditional admission and, therefore, cannot be relied upon for imposing penalty. In the said case, the assessee filed a revised return including therein certain cash credit amounts as his income. The ITO completed the assessment by including the income offered by the assessee and the IAC levied penalty under section 271(1)(c) treating the said income as concealed income since the revised return was filed only after the ITO started investigation. On appeal, the Tribunal found that the income was offered voluntarily as the assessee failed to prove genuineness of the credits by adducing satisfactory evidence. He admitted the amount to be his undisclosed income only with a prayer that no penalty was to be levied. On these facts, the Tribunal cancelled the levy of penalty. The Calcutta High Court held, affirming the decision of the Tribunal, that the admission made by the assessee was a conditional admission and could not be relied upon for imposing penalty as an unconditional admission. Further, in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705, the Hon'ble Supreme Court also held that mere acceptance by an assessee of certain amount as h....
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....n the facts and circumstances of the case, I am of the view that the first part of the concealed income cannot be treated as part of undisclosed income for levy of penalty. Therefore, no penalty is imposed in respect of the undisclosed income of Rs. 14,25,052/- out of the assessed income of Rs. 35,75,902/-." Therefore, on the above facts and circumstances of the case, it cannot be said that there was concealment on the part of the assessee in not declaring true income in the block return but determined in the block assessment. The Assessing Officer completed the assessment on the basis of declaration filed by the assessee, excepting an addition of Rs. 21,50,850/- said to have been detected from the seized documents. 6.6 It is pertinent to mention here that while penalty proceeding initiated under section 158BFA(2), the assessee's learned Authorised Representative vide his letter dated 4th January, 2002 explained to the Dy. CIT, CC-VII the reasons for not contesting the addition made to the undisclosed income in the block assessment in the following manner: "(2) While passing the assessment order, your goods elf has initiated penalty proceedings under section 158B....
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....the assessee claimed that he offered additional income only to buy peace and avoid litigation and the Department did not prove concealment but simply rested its conclusion on the voluntary surrender of income by the assessee in good faith, no penalty for concealment of income can be levied. In our opinion, on the given facts, the case of the appellant-company is fully covered by this decision of the Apex Court. In this particular case, the assessee originally filed its return showing a meagre income but after action under section 132 of the IT Act, 1961, a notice under section 148 was served on him. In response to the said notice he filed revised return showing higher income. Eventually assessment orders were passed on the basis of return submitted under section 148. In the penalty proceeding under section 271(1)(c) the assessee claimed that he had offered additional income to buy peace of mind and avoid litigation. On the above facts, the High Court held that no penalty could be levied for concealment. The Hon'ble Supreme Court affirmed the order of the High Court. 6.9 The CIT(A) observed in p. 14 of his order that the return under section 158BC is filed only after detectio....
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....lanation to section 271(1)(c) which was inserted by section 40 of the Finance Act, 1964 w.e.f. 1st April, 1964. The Explanation reads as under: "Explanation-Where the total income returned by any person is less than eighty per cent of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section". From a plain reading of the above it would be clear that the observation of the CIT(A) that the said Explanation clause is applicable to the facts of the instant case is erroneous. As a matter of fact, these two provisions i.e. sub-section(2) of section 158BFA and the Explanation to section 271(1)(c) as inserted....
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....hat the Tribunal and the High Court had rightly rejected the Department's applications for a reference. The Tribunal's conclusion on relevant and sufficient material that the respondent had discharged its onus to prove that the difference was not owing to gross or wilful neglect or fraud, was a conclusion of fact and no question of law arose. The Tribunal had borne in mind the relevant principles of law and had also judged the facts on record. This was not a case where there was no evidence nor a case where no reasonable person could have accepted the explanation of the respondent. Clearly, the facts in the appellant's case are poles apart from those in Mussadilal Ram Bharose's case. In the case of J.K.A. Subramania Chettiar the Hon'ble Madras High Court held that it is implicit in the word "concealed" used in section 271(1)(c) that there has been a deliberate act on the part of the assessee. The word "omission" occurring in section 139(5) connotes an unintentional act. Equally, the words "wrong statement" will not take in "a statement known to be false to the person who made the statement". However, the word "discovers" occurring in section 139(5) will make it ....
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.... ITR 2031 (Mad.) In the said case, for the assessment year 1966-67, the assessee had disclosed the purchase of a site for a consideration of Rs. 25,000/- and, subsequently, admitted the fact that the real consideration was much more but, however, the Tribunal held that there was no concealment. On a reference the Madras High Court held that the approach of the Tribunal could not be approved. The assessee could not make a false declaration knowing the real facts and after a raid and seizure, admit the real facts and claim that such subsequent admission takes away the effect of the wrongful conduct earlier displayed. The assessee was liable for penalty and the Tribunal was in error in setting aside the penalty. In the assessees's case before us, there was no question of prior knowledge of real facts since even the Assessing Officer admitted that due to frequent searches by various Government Agencies the accounts of the appellant were in total disarray. So the facts in these two cases are hardly comparable. 6.13 Even otherwise also, penalty for concealment is not warranted merely because the assessee has disclosed certain additional amount as his income. It is well-settled pri....
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....iculars of his income or furnished inaccurate particulars of such income he may direct that such person shall pay by way of penalty etc. (emphasis, italicized in print, supplied). It may be noticed that the identical expression "may direct that such person shall pay by way of penalty" occurs in both the sections. So levying of penalty under both these sections is not mandatory. Since the imposition of penalty under section 158BFA(2) is, like that under section 271(1)(c), discretionary, such discretion has to be exercised judicially, as has been held in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC). In the case of CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 (SC), the Hon'ble Supreme Court had held that before levying penalty the Department must have before it cogent material or evidence to show that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of the same. Similar is the position dealt in by the jurisdictional High Court in the case of CIT v. Bengal Iron Galvanising Works [1987] 165 ITR 249 (Cal.) where the Court observed that it was not mandatory under section 271 o....
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....losure of income prior to assessment. (ii) There is nothing on record to confirm that the CIT, Central-I, Kolkata had granted full immunity from penalty and prosecution if full and true disclosure is made before the Department. (iii) In the order'sheet there is no reference to any meeting in which the CIT, Central-I, Kolkata indicated that the conditional disclosure by the appellant was acceptable to him. (iv) There is no provision of filing a revised return under Chapter XIV-B of the Act. So the disclosure petition of the appellant had no legal validity. We find that in the first three grounds the CIT(A) sought to give a lie to the assertion of the assessee/learned Authorised Representative that in a meeting with the CIT, Central-I, Kolkata, it offered to make a full and true disclosure of its income before the Department (as already done in the petition filed before the Settlement Commission) provided it was promised immunity from penalty and prosecution, because he did not find any documentary evidence thereof. Incidentally, for reasons best known to him, he did not consider the letters of the appellant/learned Authroised Representative dated 20....
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....enalty order was passed by the Assessing Officer with the approval of the Addl. CIT, Range-II, Kolkata. The CIT, Central-I, Kolkata, had also acknowledged the contents of the disclosure petition dated 21st Dec., 2002 submitted to him, as his letter dated 23rd Dec., 2002 apparently implies. Thus, apart from the CIT(A), all other concerned officials of the Department accepted the letters of the appellant dated 20th Dec., 2002 and 21st Dec., 2002, addressed to the Dy. CIT and the CIT, respectively, as incorporating the conditional disclosure of income made by the assessee. Merely because the Department did not reply to the letters referred to above would not negate the fact that the assessee did make a conditional disclosure, which was acted upon by the Department. As far as the fourth ground is concerned, as the cost of repetition, the appellant never said that the disclosure petition filed by it should be construed as a revised return. All it sought to do by filing the disclosure petition was to make good the deficiencies in the block return filed by it, which crept in because of non-completion of accounts due to frequent searches by various Government agencies, non-receipt of the c....