THE COMMISSIONER OF INCOME TAX, HYD V. M/S BAGGA DISTILLERIES HYDERABAD

ITTA/712/2017

AI Insights

The case involves an appeal by the Commissioner of Income Tax-I, Hyderabad against M/s. Bagga Distilleries Hyderabad (P) Ltd., where the Revenue challenged the Tribunal's decision to set aside a penalty of Rs.1.27 Crores imposed under Section 158 BFA(2) of the Income Tax Act, 1961. The penalty was initially levied following a search and seizure operation that revealed discrepancies in the respondent's reported and actual undisclosed income over a block period from 1996-1997 to 2001-2002. The Tribunal found that the penalty was not justified as the undisclosed income was determined on an estimate basis, influenced by breakage rates of bottles, and not through deliberate concealment by the respondent. The High Court upheld the Tribunal's decision, emphasizing the discretionary nature of penalty imposition under Section 158BFA(2).

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 729378 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 21-11-2017
• Assessment Year: misc
• Other Referred Cases: CIT vs. Satyendrakumar Dosi (315 ITR 172), CIT vs. Dodsal Limited (312 ITR 112)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: J V PRASAD
• Keywords: Assessment; Block period; Estimate basis; Penalty; Search and seizure; Undisclosed income
• Section: 271(1)(c); 158(BC); 158 BFA(2); 158 BGA(2)

Judgement Text

"The Hon’ble Sri Justice C.V.Nagarjuna Reddy and The Hon’ble Sri Justice T.Amarnath Goud I.T.T.A. No.712 of 2017 Dt: 21-11-2017 Between: The Commissioner of Income Tax-I, Hyderabad ….Appellant and M/s.Bagga Distilleries Hyderabad (P) Ltd., Hyderabad ….Respondent Counsel for the Appellant: Mr.J.V.Prasad Sr.Standing Counsel for IT Dept., The Court made the following: CVNR, J & TA, J ITTA.No.712 of 2017 Dt: 21-11-2017 2 Judgment: (per Hon’ble Sri Justice C.V.Nagarjuna Reddy) This Appeal is filed by the Revenue against Order, dated 14-03-2012, in IT(SS)A.No.28/Hyd/2011 on the file of the Income Tax Appellate Tribunal, Bench ‘B’, Hyderabad (for short ‘the Tribunal’), whereby it has set aside the imposition of penalty of Rs.1.27 Crores under Section 158 BFA(2) of the Income Tax Act, 1961 (for short ‘the Act’). In the Appeal, the Revenue has raised the following substantial questions of law: “1. Whether in the facts and circumstances of the case and in law, Hon’ble ITAT is justified in deleting the penalty imposed u/s. 158BFA (2) on the basis that the undisclosed income has been determined on estimate basis without appreciating that the estimation of undisclosed income was based on the material seized during the course of search at the premises of the Assessee ? 2. Whether in the facts and circumstances of the case and in law, Hon’ble ITAT is justified in deleting the penalty imposed u/s. 158BFA(2) without appreciating that the spirit of provisions of Sec. 158BGA(2) is differing from the provisions of Sec. 271(1)(c) ?” Following a search and seizure operation conducted at the premises of the respondent-assessee on 03-01-2002, a CVNR, J & TA, J ITTA.No.712 of 2017 Dt: 21-11-2017 3 notice was issued under Section 158 BC of the Act, in response to which the respondent has filed returns showing its undisclosed income as NIL. In the course of assessment for the block period from 1996-1997 to 2001-2002, huge difference between the number of bottles issued and the number of bottles sold was found. The respondent claimed that the difference was on account of breakage of bottles and that the percentage of breakage varies for different sizes of bottles. Adopting the breakage of 6%, the Assessment Officer (AO) has made an addition of Rs.4,35,60,320/-. While examining the cost of purchases of bottles, the AO has observed that the respondent has inflated the cost of purchases. Accordingly, he has determined the undisclosed income at Rs.10,20,51,830/- and levied the penalty. In the appeal filed by the respondent, the Commissioner of Income Tax (Appeals) confirmed the order of the AO. The Tribunal, however, set aside both the orders in the appeal filed by the respondent. In support of its conclusion that the respondent is not liable for penalty, the Tribunal held as under: CVNR, J & TA, J ITTA.No.712 of 2017 Dt: 21-11-2017 4 “A reading of section 158BFA(2) makes it clear that imposition of penalty under this provision is not mandatory in each and every case where undisclosed income has been determined. This provision allows the assessing officer to use his discretion either to impose or not impose penalty after taking into consideration the undisclosed income will not automatically result in imposition of penalty under section 158BFA (2) of the Act. The Hon’ble Rajasthan High Court in the case of CIT vs. Satyendrakumar Dosi (315 ITR 172) and Hon’ble Bombay High Court I the case of CIT vs. Dodsal Limited (312 ITR 112) (Bom) have also decided the law as such. Therefore, considering the fact that the undisclosed income has been determined purely on estimate basis and keeping in mind the order passed by the Jaipur Bench of ITAT, and the law laid down by the Bombay High Court and Rajasthan High Courts discussed above, we are of the considered opinion that no penalty can be imposed under section 158BFA (2) of the Income Tax Act, 1961 against the appellant. In view of the above, we delete the penalty imposed and allow the claim of the assessee.” After hearing Mr.J.V.Prasad, learned Senior Standing Counsel for Income Tax Department, we agree with the opinion of the Tribunal that the addition of undisclosed income was due to determination of income on estimate basis rather than on account of deliberate suppression of income by the respondent. In our opinion, the Tribunal’s finding in this regard is proper and sound. The substantial CVNR, J & TA, J ITTA.No.712 of 2017 Dt: 21-11-2017 5 questions of law are, accordingly, answered against the Revenue. The Appeal is, accordingly, dismissed. ______________________ (C.V.Nagarjuna Reddy, J) ___________________ (T.Amarnath Goud, J) Date: 21-11-2017 lur CVNR, J & TA, J ITTA.No.712 of 2017 Dt: 21-11-2017 6 "