SH. J.K. SINGH,NEW DELHI V. ACIT, NEW DELHI

ITSSA 29/DEL/2014

AI Insights

The case involves a penalty imposed on the assessee, Late Shri J.K. Singh, following a search and seizure operation under section 132 of the Income-tax Act, 1961. The operation led to the discovery of shares and a subsequent addition to the assessee's undisclosed income. The Assessing Officer (AO) levied a penalty under section 158BFA(2) for the undisclosed income, which was confirmed by the Commissioner of Income Tax (Appeals) but was contested before the Income Tax Appellate Tribunal. The Tribunal examined whether the penalty was justified given the circumstances and the explanations provided by the assessee regarding the shares found in his possession.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470703 (ITAT-DELHI)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 19-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Other Referred Cases: Shanti Bai Yadav 25 Taxmann.com 462, ITSSA No. 22/DEL/2014 in the case of Elite Promoters Pvt Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAVED AKHTAR; CITDR
• Assessee Lawyers: SALIL AGGARWAL
• Keywords: Set aside; Unexplained investment; Search and seizure; Block assessment; Share purchase agreement
• Section: 271(1)(c); 132; 158BC

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘C’ BENCH, NEW DELHI BEFORE SHRI CHALLA NAGENDRAM PRASAD, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER IT[SS]A No. 29/DEL/2014 [BLOCK A.Y 1987-88 TO1996-97] Late Shri J.K. Singh Vs. The I.T.O L/H Smt. Rita Singh Ward -1(3) Mesco Tower Ghaziabad PAN: AYVPG 6708 N (Appellant) (Respondent) Assessee By : Shri Salil Aggarwal, Sr. Adv Shri Sailesh Gupta, CA Department By : Shri Javed Akhtar, CITDR Date of Hearing : 27.01.2025 Date of Pronouncement : 19.02.2025 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appealby the assessee is directed against the order of Commissioner of Income Tax (Appeals)-XXV, New Delhi dated 12.03.2014, for Block A.Ys 1987-88 to 1996-97. 2 2. The assessee has raised the following grounds of appeal: “1That the learned Commissioner of Income Tax (Appeals) XXV, New Delhi has grossly erred both in law and on facts in confirming the levy of penalty of Rs. 3,75,000/- under section 158BFA(2) of the Act. 1.1 That the learned Commissioner of Income Tax (Appeals) whileconfirming penalty under section 158BFA(2) of the Act, has also failed to appreciate the facts and circumstances of the case of the appellant and, provisions of law. 1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that sum of Rs. 6,25,000/- represented the addition sustained on alleged unexplained investment in shares which addition had on the basis of mere possession of share transfer deed and, there was no evidence to show that, appellant had made any investment and hence, the same cannot be held to be a sum in respect of which, penalty is leviable. 1.3 That furthermore the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that, mere fact that such sum had been held to be taxable as undisclosed income of the appellant and, that too on estimated basis, the same could not be made a basis for levy of penalty under section 158BFA(2) of the Act. 3 1.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that, penalty levied is otherwise wholly unsustainable in as much as no satisfaction has been recorded in the course of block assessment proceedings and therefore, the same is otherwise not sustainable. It is, therefore, prayed that, it be held that the penalty confirmed of Rs. 3,75,000/- by the learned Commissioner of Income Tax (Appeals) is not leviable on the facts of the case and as such, appeal of the appellant be allowed.” 3. Briefly stated, the facts of the case are that the assessee, an individual, was an employee of M/s Mideast Shipping Company India Limited, since 1983-84 and has duly been furnishing the return of his total incomefor each of the A.Ysrelevant to the block period. 4. A search and seizure operation u/s 132 of the Income-tax Act, 1961 [the Act, for short] was conducted on 26.2.1997 at the premises located at K-259, Dagar Farm House, Chattarpur, New Delhi which premises was used for the purposes of Mesco Group of Companies and, mainly used by Mesco Airlines Limited. 4 5. Thereafter, a notice was issued u/s 158BC of the Act to furnish his return of undisclosed income. Pursuant to the notice issued u/s 158BC of the Act, the assessee filed his return of income disclosing an income of Rs. 75,71,774/- on 01.01.1997. 6. However, the Assessing Officer computed the total undisclosed income of the assessee at Rs. 1,51,83,515/- which was reduced by the CIT(A) to Rs 82,63,260/-. The decision of the CIT(A) was affirmed by the ITAT, Delhi. The AO had also made an addition of Rs. 6,25,000/- on account of investment in shares found in the course of search. The assessee did not contest this addition before the ITAT and the AO consequently levied penalty of Rs 3,25,000/- under section 158BFA(2). 7. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) who confirmed the penalty of Rs. 3,75,000/- imposed by the Assessing Officer u/s 158BFA(2) of the Act. 8. Now the further aggrieved assessee is in appeal before us. 5 9. Before us, the ld. counsel for the assessee vehemently stated that the quantum addition was not appealed against before the ITAT owing to the paltry amount involved. The ld AR argued that the penalty proceedings are distinct and separate proceedings and that the assessee’s explanation was not proved to be false. It is the say of the ld AR that the case of the assessee is squarely covered in favour of the assessee by the decision of the co-ordinate bench in assessee’s own case for block period A.Y 1987-88 to 1997-98. The ld. counsel for the assessee also relied upon the decision in the case of Shanti Bai Yadav 25 Taxmann.com 462 and ITSSA No. 22/DEL/2014 in the case of Elite Promoters Pvt Ltd on identical issue. 10. Per contra, the ld. DR relied upon the orders of the authorities below. 12. We have heard the rival submissions and have perused the relevant material on record. The facts of the case are that in the course of search, 7500 shares of Mideast India Ltd in name of Arun Kumar Paliwal were found. Out of these, 5000 shares were purchased from 21st Century Finance Ltd. during FY 95-96 by Arun Kumar Paliwal and the remaining 2500 shares were bonus shares. These shares were 6 purchased at the rate of Rs 125/- per share. The blank transfer deed signed by Mr. Arun Kumar Paliwal were also seized alongwith these shares. The assessee explained that Shri Arun Kumar Paliwal was company Secretary of M/s Mideast Integrated Steels Limited and it was he who had invested in the shares of M/s Mideast India Limited. As to why the same was found from the assessee’s place, it was submitted that the assessee’s HUF had advanced an amount of Rs 3,25,000/- to the wife of aforesaid Shri Arun Kumar Paliwal on 5th October 1995. Since Shri Arun Kumar Paliwal was leaving the employment of the company and the assessee had to recover the aforesaid amount advanced to him, it was considered appropriate in order to safeguard the interest, to have possession of the share certificates along with the transfer deeds and that is how, the share certificates along with the transfer deeds were found from the assessee's possession. This explanation was not accepted by the AO/CIT(A). 13. We find that in the instant case, the assessee’s explanation that the shares found from his premises belonged to Arun Paliwal and that the same was kept as a collateral for the debt extended to him, was disbelieved by the AO/CIT(A) in the quantum proceedings. The same inference was carried forward in the penalty proceedings. We are of the considered view that he penalty proceedings being different and 7 distinct proceedings, required the AO to prove the assessee explanation as false and the onus was on the AO to establish that the assessee had made investment in the 7500 shares of Mideast India Ltd. 14. Though the decision in the case of Shanti Bai Yadav is distinguishable on facts as the addition there was not made on the basis of evidence found during search, the decision of the co-ordinate bench in the case of Elite Promoters [supra], however is applicable where it has been held as under: “5. We have heard the rival submission and have also perused the material on record. It is settled law that penalty proceedings u/s 158BFA(2) are akin to section 271(1)(c) of the Act. A perusal of the orders of the lower authorities shows that the AO has accepted the books of accounts of the assessee and the assessee’s book shows availability of cash during the assessment year 2001-02 when the impugned cash payment was made to Sh. Ram Ujagar Chauhan to the tune of Rs. 9,55,415/-. It is also apparent that the explanation of the assessee has not been proved false. It is also a settled law that quantum proceedings and penalty proceedings are separate and distinct proceedings and therefore penalty could not have been levied only for the reason that the quantum, by turn of events, stood confirmed. In the given facts, the assessee has discharged its burden by giving explanation and it was incumbent upon the department to thereafter discharge its burden by proving that the explanation of 8 the assessee was false. Since 158BFA(2) proceedings are akin to 271(1)(c) proceedings, the same caution and care has to be exercised by the department while imposing the penalty and it is not automatic. We are afraid, the department has not discharged the onus cast upon it. Accordingly, in view of the facts of the case we set aside the order of the Ld. CIT (A) and direct the AO to delete the impugned penalty.” 15. In the given facts, we find that the assessee has furnished an explanation which the AO/CIT(A) has not shown it be false. Since 158BFA(2) proceedings are akin to 271(1)(c) proceedings, it was incumbent upon the Revenue not to simply rely on the quantum order for the purpose of levy of penalty. Since the import of penalty provisions u/s 158BFA(2) is similar to the provisions of section 271(1)(c), the AO was required to examine the ‘undisclosed income’ from a different prism than that used in the assessment proceedings for the reason that the quantum and penalty proceedings are two different and separate proceedings. We are of the considered view that the Revenue has failed toduly discharge the onus cast upon it to demonstrate that the investment in shares were actually made by the assessee. In view of the above discussionand facts of the case, we hold that the penalty levied u/s 158BFA(2) legally invalid. Accordingly, we 9 set aside the order of the Ld. CIT (A) and direct the AO to delete the impugned penalty. 16. In the result, appeal of assessee in ITA No. 29/DEL/2014 is allowed. Order pronounced in open court on 19.02.2025. Sd/- Sd/- [CHALLA NAGENDRAM PRASAD] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19th February, 2025. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi "