The ITO, Ward-8(3), Ahmedabad V. Shrinath Spinners Pvt.Ltd., Ahmedabad

ITSSA 488/AHD/2010

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 8933 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 15-10-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-08-2010
• Assessment Year: misc
• Appeal Filed On: 13-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Keywords: Business income; Income from undisclosed sources; Search and seizure; Block assessment; Documents seized
• Section: 12

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI G.D. AGARWAL (VICE PRESIDENT) & SHRI MU KUL SHRAWAT (JM) I.T.(SS)A. NO.488/AHD/2010 (BLOCK PERIOD 1988-89 TO 1988-89 AND UPTO 09-09-199 8) ITO, WD.8(3) VS SHRINATH SPINNERS PVT LTD AHMEDABAD HP HOUSE, OPP TOWN HALL ELLISBRIDGE, AHMEDABAD PAN : AAECS0478H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KM MAHESH RESPONDENT BY : SMT. URVASHI SHODHAN O R D E R PER MUKUL SHRAWAT : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WHICH HAS EMANATED FROM THE ORDER OF LD.CIT(APPEALS)-XV, AHME DABAD DATED 18-02-2010 AND THE ONLY GROUND IS AS UNDER :- THE LD.COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDAB AD HAS ERRED IN LAW AND ON FACTS IN DELETING THE PENALTY OF RS.7000 00/- LEVIED U/S 158BFA(2). 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING PENALTY ORDER PASSED U/S 271(1)(C )DATED 19.10.2009 AND THE ASSESSMENT ORDER PASSED U/S 158BC DATED 30.11.2000 WERE THAT A SEARCH WAS CARRIED OUT ON 9. 9.98 AND THEREUPON A DOCUMENT MARKED AS ANX.A-5 WAS SEIZED FROM THE RESIDENCE OF ONE SRI ARVIND J.GOSWAMY. THIS SEIZED DOCUMENT HAS REVEALED UNACCOUNTED PURCHASES , SALES AND EXPENSES PERTAINING TO THE ASSESSEE COMPANY FOR THE PERIOD O F APRIL 98 TO JULY 98. AS A CONSEQUENCE THE ASSESSMENT WAS MADE ON THE BASIS OF THE SAID SEIZED MATERIAL BY THE A.O IN THE FOLLOWING MANNER: 15. THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTAB LE FOR THE REASONS THAT IT IS NOT THE CASE OF THE ASSESSEE THAT IT HAD NOT MADE THE SALES AS INDICATED ABOVE. THE ASSESSEE HAS MADE SALES WHICH ARE NOT REFLECTED ITSS 488/AHD/2010 2 IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE HAS NOT DIS CLOSED ANY PROFIT ON THE AFORESAID SALES IN THE RESPECTIVE YEARS FOR WHI CH IT HAS FILED THE RETURNS OF INCOME. THEREFORE, IT CANNOT BE SAID TH E ASSESSEE HAS NOT EARNED ANY PROFIT ON THE AFORESAID SALES TRANSACTIO NS. IN VIEW OF THIS THE PROFIT ON THE AFORESAID SALES IS REQUIRED TO BE BRO UGHT TO TAX. IT IS NOTICED THAT THE ASSESSEE HAS DISCLOSED NET PROFIT IN A.Y. 1998-99 AT THE RATE OF 1.98% I.E. AROUND 2%. THEREFORE, THE RATE OF NET P ROFIT IS TAKEN AT THE RATE OF 2%. ADOPTING THE RATE OF NET PROFIT AT THE RATE OF 2% ON THE AFORESAID SALES THE UNDISCLOSED INCOME IS WORKED OU T AS UNDER: SALES A.Y. RATE AMOUNT -------- ----------- ---------- ---- ------- 30100606 98-99 2% 6,02,012/- 8554668 99-2000 2% 1,71,093/- -------------- 7,73,105/- ======== IN VIEW OF THE ABOVE AN AMOUNT OF RS.7,73,105/- IS TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE AS MENTIONED ABO VE. 3. THE SAID ADDITION WAS CONTESTED UPTO THE STAGE O F SECOND APPEAL AND THEREIN THE RESPECTED COORDINATE BENCH HAS VIDE AN ORDER D ATED 6.3.2009 BEARING IT(SS)A NO.71/AHD/2002 & CO NO.189/AHD/2002 HAS AFFIRMED TH E ACTION OF THE A.O,.AS UNDER : 6. IN THE CROSS OBJECTION FILED BY THE ASSESSEE AG AINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DA TED 15-01-2002, GROUND NOS.1 AND 2 RELATE TO UPHOLDING OF THE ADDIT ION OF RS.7,73,105/- BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) . THE FACTS RELATING TO THESE GROUNDS ARE THAT THE ASSESSING OF FICER ADDED RS.6,02,212/- AS PROFIT ON UNRECORDED SALES OF RS.3 ,01,00,606/- AND RS.1,71,093/- AT THE RATE OF 2% AS UNACCOUNTED PROF IT ON SALES OF RS.85,54,666/- FOR THE ASSESSMENT YEAR 1998-99 AND 1999-2000 RESPECTIVELY TOTALING TO RS. 7,73,105/-. THE ASSES SEE HAS WORKED OUT THE NET LOSS FOR THE PERIOD 1-4-98 TO 9-9-98 AND SUBMIT TED TO THE ASSESSING OFFICER AMOUNTING TO RS.9,72,150/- AGAINST THE PROF IT OF RS.7,73,105/- DETERMINED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER REPRODUCED THE ENTIRE WORKING AT PAGE 8 OF THE ASSESSMENT ORDE R. THE ASSESSEE WENT IN APPEAL BEFORE THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) AND CONTENDED BEFORE THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) THAT THE FIGURES OF SALES OF COTTON Y ARN HAS BEEN ADOPTED BY THE ASSESSING OFFICER AS PER SHOW CAUSE NOTICE. THE SALES OF WASTE ITSS 488/AHD/2010 3 UPTO 31-03-98 ARE ACCOUNTED FOR IN THE BOOKS. RAW M ATERIAL CONSUMED IS ALSO BEING ACCOUNTED FOR, AS THERE IS NO UNACCOUNTE D PURCHASE OF RAW MATERIAL. THE ASSESSEE ALSO POINTED OUT THAT WHILE WORKING OUT THE LOSS HE HAS CLAIMED THE EXPENDITURE AS PER THE SHOW CAUS E NOTICE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS CONFIRMED THE ORDER OF THE ASSESSING OF FICER AFTER NOTING THAT THE DOCUMENTS ON THE BASIS OF WHICH UNACCOUNTE D SALES ETC. WERE WORKED OUT WERE FOUND FROM THE RESIDENCE OF SHRI AR VIND GOSWAMI WHO WAS ACCOUNTANT OF THE ENTIRE GROUP. IT WAS ALSO NO TED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASSES SEE HAS WORKED OUT THE LOSS IN THESE TRANSACTIONS FOR THE BLOCK PE RIOD BASED ON ACTUAL SALES AND EXPENSES AND ON THE BASIS OF ESTIMATED RA W MATERIAL CONSUMED. THE RELEVANT FINDINGS OF THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) ARE GIVEN UNDER PARA 6.2 OF HI S ORDER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y CONSIDERED THE SAME. WE NOTED THAT THE SALES HAVE BEEN TAKEN BY THE ASSE SSING OFFICER AS PER THE DOCUMENTS SEIZED. NO EVIDENCE ETC. WAS BROUGHT TO OUR KNOWLEDGE WHICH MAY PROVE THAT THE SALES WER E NOT AS PER THE SEIZED RECORD. THE ASSESSING OFFICER HAS ESTIMATED THE NET PROFIT AND ADDED THE SAME AS PER THE PAST RECORD I.E. AT THE R ATE OF 2%, NOT ONLY RESTRICTING THE DEDUCTION OF THE EXPENSES TO THE EX TENT THE EXPENSES WERE RECORDED IN THE SEIZED MATERIAL BUT T HUS ALLOWED 98% OF THE SALES AS EXPENSES . IN OUR OPINION, THE ASSESSING OFFICER WAS FAIR ENOUGH AND REASONABLE IN ESTIMATING THE PR OFIT AT THE RATE OF 2%. IT IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSE E HAS SHOWN LESS PROFIT IN THE EARLIER YEAR. UNDER THESE CIRCUMSTAN CES WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND WE ACCORDI NGLY CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS). THUS, BOTH THESE GROUNDS STAND DISMISSED. 4. ONCE THE MATTER HAD REACHED UPTO THE LEVEL OF I TAT AND THE ADDITION WAS CONFIRMED, THEN THEREAFTER THE PENALTY PROCEEDINGS WERE ALSO COMPLETED. IN THE PENALTY ORDER THE AO. HAS MENTIONED THAT THE ASSESS MENT WAS MADE AT THE UNDISCLOSED INCOME OF RS. 1,78,66,375/- AS AGAINST THE DECLARED INCOME OF RS.81,35,709/. THE A.O. HAS REITERATED THAT ON THE UNACCOUNTED SALES OF RS.3,86,55,274/- AN ADDITION OF RS.7,73,105/- WAS U PHELD BY THE TRIBUANL. NARRATING THE FACTS OF THE CASE THE A.O. HAS CATEGORICALLY N OTED THAT IT WAS CONCLUSIVELY PROVED THAT THE IMPUGNED SALES WERE NOT REFLECTED BY THE ASSESSEE IN THE REGULAR BOOKS OF ACCOUNT. FURTHER GIVING THE BIFURCATION OF THE SALES HE HAS MENTIONED THAT FOR THE F.Y 1997-98 ( A.Y. 1998-99)THE UNACCOUNTED SALES WERE DETECTED OF ITSS 488/AHD/2010 4 RS.3,01,00606/; AND FOR THE F.Y. 1998-99(A.Y.1999-2000) THE UN-ACCOUNTED SALES WERE RS.85,54,668/ . THUS THE TOTAL SALES UNEARTHE D CONSEQUENT UPON THE SEARCH WERE OF RS.3,86,55,274/-. 5. THE ASSESSING OFFICER HAS THUS CONCLUDED THAT TH E FACTS OF THE CONCEALED SALES CAME TO THE KNOWLEDGE OF THE REVENUE DEPARTME NT ONLY AFTER THE SEARCH CONDUCTED. ACCORDING TO THE ASSESSING OFFICER, IT HAD PROVED THE INTENTION OF THE ASSESSEE THAT THE SALES WERE NOT GOING TO BE DISCLO SED BY HIM VOLUNTARILY FOR INCOME- TAX PURPOSES. HAD THE SEARCH WAS NOT CONDUCTED, UN DOUBTEDLY, THE INCOME OF RS.7,73,105 WOULD HAVE ESCAPED THE TAX. HE HAS ALS O MENTIONED THAT THE ASSESSING OFFICER HAD TO ESTIMATE THE PROFIT ARISING OUT OF T HE HUGE CASH SALES WHICH WAS NOT DISCLOSED IN THE BOOKS OF ACCOUNT, THE EXPLANATION OFFERED BY THE ASSESSEE DID NOT CARRY ANY MERITS. BY INVOKING THE SECOND PROVISO TO SUB SECTION (2) O F SECTION 158BFA(2) HE HAS HELD THAT THE PENALTY WAS LEVIABLE ON THE UNDISCLOSED INCOME AS DETERMINED BY THE ASSESSING OFFICER. WITH THE R ESULT, A PENALTY OF RS.7 LAKH WAS IMPOSED. HOWEVER, THE MINIMUM PENALTY AS COMPUTED BY HIM WAS LEVIABLE AT RS.4,63,863 ONLY . 6. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, THE ACTION OF THE ASSESSING OFFICER WAS REVERSED. THE MAIN PLANK OF REASONING WAS THAT THE PENALTY IN QUESTION WAS ON THE QUANTUM WHICH WAS DE TERMINED ON THE BASIS OF AN ESTIMATION FOR THE PURPOSE OF COMPUTING THE UNDISCL OSED INCOME OF THE ASSESSEE. ACCORDING TO HIM, SINCE THE ADDITION HAD BEEN MADE ON THE BASIS OF AN ESTIMATE ONLY, IT COULD NOT BE LINKED WITH THE UNDISCLOSED INCOME RETURNED U/S 158BC OF THE ACT. IN HIS OPINION, IN ALL SUCH CASES WHERE AN UNDISCLOSED INCOME IS DETERMINED, SHOULD NOT FOLLOW AS A NATURAL CONSEQUENCE OF LEVY OF PENALTY. FOR THIS PROPOSITION, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS PLACED REL IANCE ON CIT VS SK DOSHI 18 DTR. HE HAS ALSO RELIED UPON AN ORDER OF THE TRIBU NAL PRONOUNCED IN THE CASE OF SMT. MALA DAYANIDHI 92 TTJ 270 FOR THE PROPOSITION THAT THE PENALTY U/S 158 BFA(2) IS NOT MANDATORY. ONE MORE DECISION OF ITAT, LUCKN OW BENCH HAS BEEN CITED BY LD.CIT(A) IN THE CASE OF SMT. BITOLIDEVI VS ACIT 11 0 TTJ 735 FOR THE LEGAL PROPOSITION ITSS 488/AHD/2010 5 THAT IN THE ABSENCE OF ANY MATERIAL ON RECORD SUGGE STING HIGHER ESTIMATE OF NET PROFIT RATE COULD NOT BE SAID TO BE THE CONCEALMENT OF THE PARTICULARS OF INCOME, THAT TOO PRIMARILY BECAUSE OF THE REASON THAT A LOWER NET RA TE OF PROFIT WAS APPLIED BY THE ASSESSEE. FINALLY HE HAS CONCLUDED THAT THERE WAS NO JUSTIFICATION FOR THE LEVY OF PENALTY ON THE IMPUGNED ADDITION WHICH, ACCORDING T O HIM, HAD BEEN SUSTAINED MERELY ON THE BASIS OF AN ESTIMATE. SINCE THE PENA LTY WAS DELETED BY THE LD.CIT(A) THE REVENUE IS NOW IN APPEAL. 7. FROM THE SIDE OF THE REVENUE, LD.CIT(DR), MR.SHE LLY JINDAL AND SHRI KM MAHESH APPEARED AND VEHEMENTLY PLEADED THAT THIS IS A FIT CASE FOR LEVY OF PENALTY BECAUSE A HUGE CASH SALES HAVE BEEN DETECTED CONSEQ UENT UPON THE SEARCH. THE REVENUE DEPARTMENT WAS FAIR AND JUSTIFIABLE IN NOT TREATING THE ENTIRE SALES AS UNDISCLOSED INCOME OF THE ASSESSEE, BUT ADOPTED A V ERY REASONABLE APPROACH OF APPLYING A RATE OF PROFIT WHICH WAS BASED UPON THE TRADE OF THE ASSESSEE. THE SAID APPROACH OF THE REVENUE DEPARTMENT HAS ALSO BEEN CO NFIRMED WHEN THE MATTER IN QUANTUM APPEAL HAD GONE BEFORE THE TRIBUNAL. THIS IS NOT THE CASE WHERE NO INCRIMINATING MATERIAL WAS FOUND CONSEQUENT UPON TH E SEARCH BUT THE FACTS HAVE CLEARLY DEMONSTRATED THAT THE CASH SALES WERE UNEAR THED AS PER THE SEIZED PAPER FROM THE ACCOUNTANT OF THE ASSESSEE. AN ESTIMATION WAS ONLY TO DETERMINE THE QUANTUM OF UNDISCLOSED INCOME WHICH H AD A DIRECT NEXUS WITH THE UNDISCLOSED SALES. THEREFORE, THE CASE LAWS CITED BY THE FIRST APPEL LATE AUTHORITY HAS NO RELEVANCE. FINALLY LD. CIT MR. JIN DAL HAS VIGOROUSLY PLEADED THAT THE PROVISIONS OF SEC. 158BFA(2) SECOND PROVISO SQUAREL Y COVERS THE CIRCUMSTANCES OF THE CASE THEREFORE THE ACTION OF THE A.O. DESERVES TO BE UPHELD. 8. FROM THE SIDE OF THE RESPONDENT ASSESSEE,LD.AR S MT. URVASHI SHODHAN HAS RESOLUTELY PLACED RELIANCE ON THE CASE-LAWS AS CITE D BY LD.CIT(A). PARTICULARLY A DECISION OF ITAT, LUCKNOW BENCH HAS BEEN REFERRED B Y HER, DECIDED IN THE CASE OF SMT. BITOLI DEVI 110 ATTJ 735 AND ARGUED THAT MEREL Y ON AN ESTIMATION OF NET PROFIT A CONCEALMENT PENALTY SHOULD NOT BE IMPOSED. IN SUPP ORT OF THE ORDER OF LD.CIT(A) SHE HAS ALSO ARGUED THAT THE REVENUE DEPARTMENT HAS NOW HERE ESTABLISHED THAT THE ITSS 488/AHD/2010 6 ASSESSEE HAD AN INTENTION NOT TO DISCLOSE THOSE SAL ES AND THOSE SALES HAVE BEEN ACCEPTED BY THE ASSESSEE ONLY TO BUY PEACE. THE INC OME WHICH WAS SUBJECTED TO TAX SHOULD BE MADE THE BASIS FOR THE LEVY OF PENALTY AN D NOT THE SURROUNDING REASONS. LD.AR HAS THUS CONCLUDED THAT IN THOSE CIRCUMSTANCE S THE LD.CIT(A) HAS RIGHTLY DELETED THE PENALTY. 9. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH AND ALSO CAREFULLY PERUSED THE MATERIAL PLACED BEFORE US IN THE LIGHT OF THE CASE- LAWS CITED. UNDISPUTED FACTS ARE LIKE THIS, THAT A SEARCH WAS CARRIED OUT ON 09-09-1998. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF YARN. THEREAFTER IN CO MPLIANCE OF THE STATUTORY NOTICE ASSESSEE HAS FILED THE RETURN AT RS.81,35,709. HOW EVER, THE ASSESSMENT U/S 158BC VIDE AN ORDER DATED 30-11-2000 WAS FRAMED ON AN UND ISCLOSED INCOME OF RS.1,78,66,375. TAX ON THE UNDISCLOSED INCOME WAS DETERMINED AT RS.1,07,19,825 AND SINCE NIL TAX WAS PAID, THE ENTIRE AMOUNT WAS H ELD AS TAX PAYABLE BY THE ASSESSEE. THE PENALTY PROCEEDINGS HAVE ALSO BEEN I NITIATED U/S 158BFA(2) OF THE I.T. ACT.AS PER THE ASSESSMENT ORDER. FURTHER, THIS IS ALSO NOT IN DISPUTE THAT UNACCOUNTED SALES WERE DETECTED AS PER A DOCUMENT S EIZED FROM THE RESIDENCE OF ONE SHRI ARVIND GOSWAMI, ACCOUNTANT OF THE ASSESSEE . SALES HAVE BEEN ADOPTED ON THE BASIS OF THE SAID SEIZED DOCUMENT. FACTS OF TH E CASE HAVE ALSO REVEALED THAT THE QUANTUM OF SALES WERE NOT IN DISPUTE. THE ASSESSIN G OFFICER HAS ESTIMATED THE NET PROFIT BASED UPON THE PAST RECORD OF THE CASE. THE ASSESSING OFFICER HAS ADOPTED RATE OF PROFIT AT 2% ONLY WHICH WAS CONFIRMED BY TH E TRIBUNAL IN QUANTUM APPEAL IN ASSESSEES OWN CASE CITED SUPRA ORDER DATED 06-03-2 009. THE RELEVANT PORTION HAS ALREADY BEEN EXTRACTED HEREINABOVE IN THIS ORDER. WITH THIS FACTUAL BACKGROUND NOW WE HAVE TO EXAMINE THE LEGAL ASPECT OF THE MATTER. 10. AS NOTED HEREINABOVE THE PENALTY HAS BEEN IMPOS ED U/S 158BFA(2) OF THE ACT. THE PROVISIONS OF SECTION 158BFA(2) ARE EXTRA CTED BELOW: 158BFA (1) XXXXXXXXXXXXXXXX ITSS 488/AHD/2010 7 (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY D IRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT B E LESS THAN THE AMOUNT OF TAX LEVIABLE BUT WHICH SHALL NOT EXCEED T HREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UNDISCLOSED IN COME DETERMINED BY THE ASSESSING OFFICER UNDER CLAUSE OF SECTION 158BC: PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MADE IN RE SPECT OF A PERSON IF (I) SUCH PERSON HAS FURNISHED A RETURN UNDER CLAUSE (A) OF SECTION 158BC; (II) THE TAX PAYABLE ON THE BASIS OF SUCH RETURN HA S BEEN PAID OR, IF THE ASSETS SEIZED CONSIST OF MONEY, THE ASSESSEE OF FERS THE MONEY SO SEIZED TO BE ADJUSTED AGAINST THE TAX PAYA BLE; (III) EVIDENCE OF TAX PAID IS FURNISHED ALONG WITH THE RETURN; AND (IV) AN APPEAL IS NOT FILED AGAINST THE ASSESSMENT OF THAT PART OF INCOME WHICH IS SHOWN IN THE RETURN: PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDING PROVISO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY TH E ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RET URN AND IN SUCH CASES THE PENALTY SHALL BE IMPOSED ON THAT PORTION OF UND ISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDI SCLOSED INCOME SHOWN IN THE RETURN. 10.1) ON CAREFUL READING OF THE LANGUAGE O F THE SECTION IT IS APPARENT THAT THE ASSESSING OFFICER, IN THE COURSE OF ANY PROCEEDINGS UNDER CHAPTER XIVB MAY DIRECT THAT A PERSON SHALL PAY BY WAY OF A PENALTY ON THE TAX LEVIABLE ON THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER U/S 158B C(C) OF THE I.T. ACT. HOWEVER, AN EXCEPTION AS PER FIRST PROVISO IS APPENDED TO THE EFFECT THAT NO ORDER IMPOSING PENALTY SHALL BE MADE IN RESPECT OF A PERSON, IF SU CH PERSON HAS FURNISHED A RETURN U/S 158BC(C) AND TAXES HAVE BEEN DULY PAID AND EVID ENCE OF TAX PAID IS FURNISHED AND THE ASSESSMENT SO FRAMED IS NOT CHALLENGED IN A N APPEAL OR NO APPEAL HAS BEEN FILED AGAINST THE ASSESSMENT OF THAT PART OF INCOME WHICH IS SHOWN IN THE RETURN. HOWEVER, IN CONFORMITY WITH THE MAIN PROVISION OF T HE SECTION, AGAIN A PROVISO HAS BEEN ADDED,I.E. SECOND PROVISO, ACCORDING TO WHICH, WHERE THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN, THEN THE PENALTY SHALL BE IMPOSED ON THAT PORTION O F UNDISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INC OME SHOWN IN THE RETURN. ITSS 488/AHD/2010 8 THEREFORE, IT IS CLEAR THAT THE SECOND PROVISO TO S ECTION 158BFA(2) IS APPLICABLE TO CASES WHERE THE FIRST PROVISO TO THE SECTION SHALL NOT APPLY. IN OTHER WORDS, BOTH THE PROVISOS HAVE TWO DISTINCT AREAS OF OPERATION. IN V IEW OF THIS DISCUSSION AT THE OUTSET WE CAN EXPRESS OUR OPINION THAT THE PRESENT CASE CAN BE SAID TO BE FULLY COVERED BY THE SECOND PROVISO TO SUB SECTION (2) OF SECTION 158BFA OF THE ACT . WE MAY SUPPLEMENT THE REASONING IN THE FOLLOWING PARA GRAPHS. 11. THE TOTAL INCOME WAS ASSESSED AT RS.2,60,02,084 AGAINST WHICH THE ASSESSING OFFICER HAS GIVEN THE BENEFIT OF THE INCO ME RETURNED OF RS. 81,35,709. THUS, THE BALANCE UNDISCLOSED INCOME WAS DETERMINED AT RS.1,78,63,375. EVEN THEN THE QUANTUM IN DISPUTE ON WHICH THE PENALTY IN QUESTION HAS BEEN LEVIED WAS NOT THE ENTIRE UNDISCLOSED INCOME AS DETERMINED AS PER THE BLOCK ASSESSMENT CONSEQUENT UPON THE SEARCH BUT THE PENALTY IN QUEST ION IS ONLY IN RESPECT OF THE UNACCOUNTED SALES WHICH WERE KEPT UNDER WRAPS OR HI DDEN AMOUNTING TO RS.3,86,55,274. THE CONDITIONS AS ALSO THE CIRCUMS TANCES ARE FULLY COVERED BY SECOND PROVISO TO SECTION 158BFA(2) OF THE ACT. FO R LEVY OF CONCEALMENT PENALTY IT IS ESSENTIAL TO EXAMINE THE CONDUCT OF A TAXPAYER. ONCE THE ADMITTED POSITION IS THAT THE ASSESSEE WAS INDULGED IN TRANSACTIONS WHICH WER E NOT RECORDED IN THE BOOKS OF ACCOUNT IN THE REGULAR COURSE OF BUSINESS, THEN, ON ONE HAND, IT HAS BEEN CLEARLY ESTABLISHED THAT THE CONDUCT OF THE ASSESSEE WAS NO T FAIR AND AGAINST THE EXPECTED NORMS DEFIED UNDER THE I.T. ACT. WE CAN, THEREFOR E, ENDORSE THE VIEW EXPRESSED BY THE ASSESSING OFFICER WHILE LEVYING THE PENALTY THA T HAD THE RAID BEEN NOT CONDUCTED AT THE PREMISES OF THE ASSESSEE, THE IMPUGNED SALES WOULD NEVER HAVE BEEN DISCLOSED TO THE REVENUE DEPARTMENT AND THE INCOME EARNED THEREON WOULD DEFINITELY HAVE ESCAPED THE TAX NET. 12. NEXT IS THE Q1UESTION WHICH HAS BEEN VEHEMENTLY ARGUED BEFORE US THAT IN A CASE WHERE AN ESTIMATED PROFIT HAS BEEN ASSESSED AS UNDISCLOSED INCOME, THEN AN ESTIMATION SHOULD NOT BE MADE A GOOD BASIS FOR LEV Y OF CONCEALMENT PENALTY. IN THIS REGARD, A DECISION OF THE LUCKNOW BENCH OF THE TRIB UNAL IN THE CASE OF SMT. BITOLI DEVI (CITED SUPRA) HAS BEEN STRONGLY RELIED UPON. WE HAVE CAREFULLY PERUSED THE ITSS 488/AHD/2010 9 SAID DECISION AND HAVE NOTICED THAT THE PROFIT ON U NDISCLOSED SALES WAS ESTIMATED BY THE ASSESSEE AT 3.3%. HOWEVER, THE ASSESSING OFFIC ER HAS APPLIED THE NET PROFIT RATE AT 4.5%. IN THAT CASE AS WELL THERE WAS NO DISPUTE ABOUT THE TOTAL FIGURE OF THE UNDISCLOSED SALES. ON APPEAL, THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) HAS REDUCED THE NET PROFIT TO 4% AS AGAINST THE NET PROFIT RATE APPLIED BY THE ASSESSING OFFICER AT 4.5%. IN SECOND APPEAL, THE T RIBUNAL HAS CONFIRMED THE VIEW OF THE LD.CIT(A), HENCE RATE OF 4% HAD BECOME FINAL. WHEN THE MATTER WAS BEFORE THE TRIBUNAL IN RESPECT OF THE LEVY OF PENALTY ON THE D IFFERENCE BETWEEN THE INCOME RETURNED AND THE INCOME ASSESSED, THE RESPECTED COO RDINATE BENCH HAS OPINED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL EITHER FROM THE SEIZED PAPERS OR OTHERWISE SUGGESTING THAT THE ESTIMATED PROFIT AS D ISCLOSED BY THE ASSESSEE HIMSELF AT 3.3% WAS UNFAIR. THE QUESTION WHICH WAS ADDRESS ED TO THE TRIBUNAL WAS WHETHER THE ESTIMATION OF PROFIT AS DISCLOSED BY THE ASSESS EE CAN BE SAID TO BE A CONCEALED ESTIMATION WHICH WAS ENHANCED MARGINALLY TO 4.5% BY THE ASSESSING OFFICER AND THAT TOO WAS REDUCED TO 4% BY THE FIRST APPELLATE AUTHOR ITY WHICH HAD BECOME FINAL FOR THE PURPOSE OF COMPLETION OF ASSESSMENT. THERE WERE TWO ESTIMATIONS, ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE , SO FOR THE PENALTY PURPOSE ONE WAS MADE THE BASIS OUT OF THE TWO ESTIMATION. BECAUSE THE QUESTION BEFORE THE TRIBUNAL WAS ALTOGETHER DIFFERENT, THE RELIANCE ON THE SAID DECI SION CAN BE SAID TO BE MISPLACED. ON THE OTHER HAND, IN THE PRESENT CASE, THE QUESTIO N IS NOT THAT THE ASSESSEE HAS DISCLOSED NET PROFIT ON UNACCOUNTED SALES AND THAT ESTIMATION OF NET PROFIT WAS UNFAIR OR UNREAOSNABLE. IN THE PRESENT APPEAL, NO DISCLOS URE OF THE NET PROFIT HAD EVER BEEN MADE BY THE ASSESSEE HENCE THE SITUATION CAN N OT BE EQUATED WITH THE CITED DECISION. IN THE PRESENT APPEAL THE ESTIMATION HAS A DIRECT NEXUS WITH THE INCRIMINATING MATERIAL UNEARTHED CONSEQUENT UPON TH E SEARCH AND THAT ESTIMATION WAS THE COMPULSION, RATHER INEVITABLE, TO ARRIVE AT THE FIGURE OF CONCEALED INCOME THEREFORE THE SAME HAS CLEARLY FALLEN WITH IN THE A MBITS OF THIS SECTION. 13. AS FAR AS THE NATURE OF EXPLANATION OFFERED BY THE ASSESSEE IS CONCERNED IT SEEMS THAT AN UNACCEPTABLE EXPLANATION WAS GIVEN TH AT THE INCOME BEING ITSS 488/AHD/2010 10 DETERMINED ON AN ESTIMATION THEREFORE THE CONCEALME NT PENALTY SHOULD NOT BE IMPOSED. THIS IS NOT THE CASE WHERE AN ESTIMATION W AS MADE WITHOUT ANY BASIS OR AN ADHOC METHOD WAS ADOPTED BY THE AO, BUT THE FACT S HAVE REVEALED THAT THE PERCENTAGE WAS ALSO AS PER THE PAST RECORD OF THE A SSESSEE. NEVERTHELESS, IT WAS EXPECTED FROM THE ASSESSEE TO GIVE AN EXPLANATION A BOUT THE UNACCOUNTED SALES. AS SEEN FROM THE ABOVE DETAILS THE ASSESSEE HAS NOT WHISPERED A WORD ABOUT THE REASON OF NON DISCLOSURE OF THE UNACCOUNTED SALES. NONETHELESS, THE FACTS HAVE CLEARLY REVEALED AS ALSO ESTABLISHED THAT THE CONCE ALMENT IS IN RESPECT OF THE UNACCOUNTED SALES. MERELY FOR THE PURPOSES OF QUAN TIFICATION OF UNDISCLOSED INCOME A PERCENTAGE WAS ADOPTED AND THAT PERCENTAGE WAS AL SO MADE THE BASIS FOR THE QUANTIFICATION OF LEVY OF PENALTY. THEREFORE, THE EXPLANATION OR THE REASONING GIVEN BY THE ASSESSEE IS NOT ACCEPTABLE TO US AND SUCH AN EXPLANATION IS POSITIVELY BEYOND ANY COMPREHENSION .. 13.1 THE THEORY OF ALLEGED LOSS HAS ALSO TO BE RULED OUT BECAUSE THERE WAS NO EVIDENCE FOUND PERTAINING TO THE RAW MATERIAL CO NSUMPTION AS CLAIMED DURING THE COURSE OF ASSESSMENT. AT PRESENT THAT CLAIM OF ALL EGED LOSS BEING DISMISSED BY THE TRIBUNAL THUS STOOD SETTLED AND NO REVIEW IS POSSI BLE. 13.2 LD.AR HAS PLACED RELIANCE ON THOSE CASES WHICH WERE CITED BY LD.CIT(A). THE DECISION SMT. MALA DAYANIDHI 91 ITD 46 (92 TTJ 270) IS ONLY IN RESPECT OF AN ADDITION WHICH WERE NOT BASED UPON A MATERIAL FOUND DURING THE SEARCH BUT BASED UPON THE DIFFERENCE IN A VALUATION OF A PROPERTY AS DISCLOSED BY THE ASSESSEE AND AS ESTIMATED BY THE DVO. CONTRARY TO THIS IN THE PRESENT CASE THE PENALTY OF CONCEALMENT HAS A DIRECT LIVE LINK WITH THE CONCEAL ED SALES. RELIANCE HAS ALSO BEEN PLACED ON JASWANT D PARMAR 109 TTJ 56 (AHD) BU T THE FACTS HAVE REVEALED THAT THE REVENUE HAS REJECTED AN EVIDENCE WHICH WER E FOUND WITH THE ASSESSEE AND BEFORE REJECTION NONE OF THE AUTHORITIES HAVE EXAMI NED THE FAMILY MEMBERS IN RESPECT OF THE SAID EVIDENCE AND ARBITRARILY HELD T HE SAID EVIDENCE AS SELF-SERVING DOCUMENT. ON ACCOUNT OF THE SAID APPROACH OF THE R EVENUE DEPARTMENT IT WAS HELD UNJUSTIFIABLE FOR THE PURPOSE OF ATTRACTING THE PEN ALTY U/S 158BFA(2). ON THE OTHER ITSS 488/AHD/2010 11 HAND, FACTS OF THE CASE IN HAND REVEALED THAT THE A SSESSEE WAS GIVEN SUFFICIENT OPPORTUNITY TO FURNISH THE EVIDENCE IN SUPPORT OF T HE UNACCOUNTED SALES BUT INTERESTINGLY THE ASSESSEE HAS ACCEPTED THE FACT TH AT THE SALES HAVE NOT BEEN ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNT. LIK EWISE, RELIANCE ON S.K. DOSHI 18 DTR 236 CAN BE SAID TO BE MISPLACED BECAUSE THE QUE STION BEFORE THE HON'BLE RAJASTHAN HIGH COURT WAS WHETHER THE PROVISIONS OF SECTION 158BFA(2) WERE DISCRETIONARY OR MANDATORY IN NATURE. 13.3 THE PURPOSE OF THIS SECTION AS ENUNCIATED BY T HE LAW MAKERS IS TO PROVIDE AN EFFECTIVE DETERRENT AGAINST THE EVASION OF TAX. IN A CASE LIKE THIS WHEN THE UNACCOUNTED SALES WERE DETECTED, THE REVENUE HAS BE EN GIVEN POWERS NOT ONLY TO TAX THE UNACCOUNTED INCOME BUT ALSO TO PENALIZE A D EFAULTING ASSESSEE. BY ACCEPTING SUCH A LAME EXCUSE WE CANNOT MAKE SECTION 158BFA(2) INOPERATIVE. IN THIS SECTION THE ELEMENT OF CONCEALMENT IS TO BE DE TERMINED ON THE BASIS OF THE INCRIMINATING MATERIAL FOUND AND SEIZED DURING THE COURSE OF SEARCH AND IF THAT NEXUS IS ESTABLISHED, THEN THE REVENUE AUTHORITIES ARE EM POWERED TO IMPOSE PENALTY U/S !58BFA(2). THERE ARE FEW CASES WHERE THE IMPUGNED PENALTY HAS BEEN DELETED BY THE JUDICIAL AUTHORITIES BUT THE FUNDAMENTAL BASIS WAS THAT THE REVENUE WAS NOT IN A POSITION TO DEMONSTRATE CONCLUSIVELY THE CONNECTION OF INCRIMINATING MATERIAL WITH THE LEVY OF PENALTY. ONLY ON THAT GROUND IT WAS HELD N OT TO IMPOSE THE PENALTY. HOWEVER, THIS IS NOT THE CASE OF THE ASSESSEE BEFOR E US BECAUSE THERE WAS SUFFICIENT MATERIAL AND THE CIRCUMSTANCES WHICH HAVE LEAD TO A REASONABLE CONCLUSION THAT THE IMPUGNED AMOUNT REPRESENTED THE UNACCOUNTED INCOME OF THE ASSESSEE. THEREFORE, WE CAN CONCLUDE THAT THE UNDISCLOSED INC OME WHICH WAS FINALLY SUSTAINED BY THE TRIBUNAL WAS NOT MERELY ON ESTIMATE BUT THER E WAS A POSITIVE FINDING REGARDING THE CONCEALMENT OR SUPPRESSION OF INCOME HAVING DIRECT LINK WITH THE INCRIMINATING MATERIAL. THEREFORE, DUE TO THE PRES ENCE OF SUCH A POSITIVE FINDING, THE PENALTY HAS TO BE AFFIRMED. 14. BEFORE WE PART WITH IT IS ALSO WORTH TO MENTION THAT THE LANGUAGE OF SECTION 158BFA IS NOT AT PAR WITH THE LANGUAGE AS PRESCRIBE D IN SECTION 271(1)(C) OF THE ACT. ITSS 488/AHD/2010 12 THE SECTION FOR OUR CONSIDERATION IS LIMITED IN ITS SCOPE THAT THE ASSESSING OFFICER MAY DIRECT THAT A PERSON SHALL BE BY WAY OF PENALTY ON THE AMOUNT WHICH WERE FOUND TO BE UNDISCLOSED CONSEQUENT UPON THE SEARCH OPERAT ION. RATHER, A RELIEF HAS BEEN GRANTED BY THE STATUTE ITSELF THAT IF A TAXPAYER WA NTS TO SURRENDER THE UNDISCLOSED INCOME VOLUNTARILY THEN HE SHOULD BE GIVEN A CHANCE TO AVOID THE PENALTY PROCEEDINGS IF HE DISCLOSES THE UNDISCLOSED INCOME WHILE FILING A RETURN AS PRESCRIBED U/S 158BC OF THE ACT WITH PAYMENT OF TAX THEREON. THEREFORE, THE FIRST PROVISO TO SUB SECTION (2) OF SECTION 158BFA(2) GIV ES AN OPPORTUNITY TO THE ASSESSEES TO AVOID THE PENALTY PROCEEDINGS, BUT THE PRESENT ASSESSEE HAS NOT EVEN AVAILED THAT OPPORTUNITY. WITH THE RESULT, THIS PE NALTY CLEARLY FALLS WITHIN THE AMBITS OF THE SECOND PROVISO TO SECTION 158BFA(2). 15. IN THE LIGHT OF ABOVE DISCUSSION AND CONSIDERIN G THE TOTALITY OF THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THIS IS A FIT CASE FOR LEVY OF PENALTY UNDER THE STATUTE AS DISCUSSED HEREINABOVE. WE, TH EREFORE, REVERSE THE FINDINGS OF THE LD.CIT(A) AND ALLOW THE GROUND OF THE REVENUE. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN TE COURT ON 15 TH OCTOBER, 2010. SD/- SD/- (G.D. AGARWAL) (MUKUL SHRAWAT) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD, DT : 15 TH OCTOBER, 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -XV, AHMEDABAD 4. THE CIT-IV, AHMEDABAD 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE C (TRUE COPY) BY ORDER DEPUTY.REGISTRAR, ITAT, AHMEDABAD BENCHES