COMMISSIONER OF INCOME TAX, JALANDHAR V. GURKAMAL SINGH

ITA/182/2007

AI Insights

The case involves an appeal by the Commissioner of Income Tax, Jalandhar II against Sh. Gurkamal Singh concerning a penalty imposed for undisclosed income during a block assessment period from April 1, 1987, to April 17, 1997. Following a search and subsequent assessments, a penalty was levied on the additional income assessed beyond what was declared by the respondent in his return. The primary legal question was whether the penalty should be calculated on the total undisclosed income or just the portion exceeding the declared amount. The Tribunal and the High Court both ruled that the penalty should only apply to the excess amount of ` 3,60,774/-, aligning with the provisions of Section 158BFA(2) of the Income Tax Act, 1961.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 718788 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 05-10-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: VIVEK SETHI
• Keywords: Appeal; Assessment; Block period; Penalty; Undisclosed income
• Section: 158BC; 260A; 158BFA(2)

Judgement Text

"ITA No.182 of 2007 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 182 of 2007 Date of decision: 05.10.2012 The Commissioner of Income Tax, Jalandhar II, Jalandhar -----Appellant Vs. Sh.Gurkamal Singh ----Respondent CORAM:- HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE GURMEET SINGH SANDHAWALIA Present:- Mr. Vivek Sethi, Advocate for the appellant. None for the respondent. Ajay Kumar Mittal,J. 1. The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 23.10.2006 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for brevity, “the Tribunal”) in IT (SS) A.No.26(ASR) 2004 for the block period 1.4.1987 to 17.4.1997 whereby the penalty amounting to ` 3,60,774/- only has been upheld and sustained by the Tribunal. 2. On 12.10.2007, the appeal was admitted to consider the following substantial question of law:- “Whether on the facts and in the circumstances of the case, the ITAT was correct in law in directing the AO to quantify penalty on tax sought to be evaded on the sustained addition of ` 3,60,774/- only by CIT(A) and not on the assessed income when the return was not furnished under Section 158BC(a) of the Income Tax ITA No.182 of 2007 2 Act?” 3. Briefly, the facts as narrated in the appeal may be noticed. The respondent is an individual in whose case search was conducted on 17.4.1997. Notice under Section 158BC of the Act was issued on 15.1.1998 which was served on the assessee on 16.1.1998 for filing the return for the block period 1.4.1987 to 17.4.1997 within sixteen days of the service of the said notice. The assessee filed his return for the said block period on 10.8.1998. The assessment was framed under Section 158BC(c) of the Act on 29.4.1999, Annexure P.1 at an income of ` 47,45,121/- as against the returned income of `14,50,000/-. On appeal by the assessee, the income was determined at ` 18,10,774/-. Penalty under Section 158BFA(2) of the Act was levied at ` 10,86,464/- on 31.7.2002, Annexure P.2 by Additional Commissioner of Income Tax, Range III, Jalandhar by treating the income assessed as income from undisclosed sources. Thereafter, against the penalty order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 10.3.2004, Annexure P.3, the CIT(A) directed the Assessing Officer to quantify the penalty at 100% of tax sought to be evaded on the concealed amount of ` 3,60,774/- only and not on `18,10,774/- i.e. the returned income plus addition sustained by the CIT(A). Aggrieved by the order, the revenue went in appeal before the Tribunal. Vide order dated 23.10.2006, Annexure P.4, the appeal was dismissed. Hence the instant appeal by the revenue. 4. Learned counsel for the revenue submitted that the case ITA No.182 of 2007 3 of the respondent-assessee was not governed by Second Proviso to Section 158BFA(2) of the Act. According to the learned counsel, the assessee was liable to pay penalty on the total amount of undisclosed income determined amounting to ` 18,10,774/-. 5. After hearing learned counsel for the appellant, we do not find any merit in the aforesaid contention. 6. It will be expedient to reproduce sub section 2 of Section 158BFA relating to imposition of penalty which reads thus:- “158BFA (1) xx xx xx xx xx xx (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of Section 158BC: Provided that no order imposing penalty shall be made in respect 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 has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (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 ITA No.182 of 2007 4 determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. xx xx xx xx xx xx xx” 7. Sub-section (2) of Section 158BFA of the Act prescribes the penalty which is imposable in certain cases. It empowers the Assessing officer or the Commissioner (Appeals) in the course of any proceedings to levy penalty equal to the sum which shall not be less than the amount of tax leviable but shall not exceed three times the amount of tax so leviable in respect of undisclosed income determined by the Assessing Officer under Clause (c) of Section 158BC. Further, first Proviso has been appended, according to which no penalty is imposable on a person if inter alia such person has furnished a return under clause (a) of Section 158BC; has paid the tax payable on the basis of such return or got the adjustment of the seized assets against the tax payable; has also produced the evidence of tax paid alongwith the return and has not filed any appeal against the assessment of that part of income which is shown in the return. Second proviso relates to where first Proviso is not applicable and the undisclosed income determined by the Assessing Officer is found to be in excess of the income which is declared in the return. It has been provided that in such cases, the penalty shall be imposed on that portion of the undisclosed income which is in excess of the amount of undisclosed income declared in the return. ITA No.182 of 2007 5 8. In the present case, the assessee had declared an undisclosed income of ` 14,50,000/- in the return and the assessed income was determined at `18,10,774/-. Thus, the case of the assessee was covered under the Second Proviso and the assessee was liable to pay penalty on the concealed income of ` 3,60,774/- as quantified by the CIT(A) and sustained by the Tribunal. The observations recorded by the Tribunal read thus:- “3. The question here is as to whether since the assessee did not file the return of income within the time prescribed in the notice under Section 158BC, the penalty was to be imposed on the whole of the assessed undisclosed income, as done in the penalty order and not only on the amount which was in excess of that shown in the return. Section 158BFA(2) provides that the AO may direct a person to pay penalty, in terms of the said section. As per the first proviso to the said section, no penalty shall be imposed if, inter alia, such person has furnished a return under section 158BC(a) of the Act and where evidence of tax paid is furnished alongwith the return. The second proviso to Section 158BFA(2) stated that the first proviso to Section 158BFA(2) will not apply where undisclosed income determined by the A.O. is in excess of income shown in the return and that in such cases, the penalty shall be imposed on that portion of the undisclosed income determined which is in excess of the amount of the undisclosed income shown in the return. As such, as per the second proviso to section 158BFA(2), where the undisclosed income determined by the AO exceeds that shown by the assessee in the return of income, the penalty to be imposed is to be on the portion of the ITA No.182 of 2007 6 undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. In the present case, the undisclosed income shown by the assessee in his return of income was ` 14,50,000/-, whereas addition on account of undisclosed income as confirmed by the learned CIT(A) amounted to `3,60,774/-. It is this later amount which is in excess of the amount of undisclosed income shown by the assessee in his return of income. It is on this amount that penalty has to be imposed, in keeping with the second proviso to Section 158BFA(2) of the Act, as discussed above. Therefore, the learned CIT(A) cannot be said to have committed any error in directing the Assessing officer to quantify 100% of tax sought to be evaded on the amount of ` 3,60,774/- only. Hence, the grievance of the Department is without force and is rejected as such.” 9. Learned counsel for the revenue is unable to show that the findings so recorded are either perverse or erroneous warranting interference by this Court. Consequently, the substantial question of law is answered against the revenue and in favour of the assessee. Accordingly, the appeal is dismissed. (Ajay Kumar Mittal) Judge October 05, 2012 (Gurmeet Singh Sandhawalia) 'gs' Judge "