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Saturday, 05 March 2016 14:42

Penalty u/s 158BFA - The fact that the addition has been confirmed in the quantum proceedings would not by itself be the basis for sustaining the penalty u/s. 158BFA(2) of the Act - Cochin Tribunal Featured

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Penalty u/s 158BFA - Estimated Addition

The fact that the addition has been confirmed in the quantum proceedings would not by itself be the basis for sustaining the penalty u/s. 158BFA(2) of the Act. Merely because the explanation of the assessee was rejected by the Assessing Officer with respect to the materials seized, penalty cannot be levied in the case of the present case, that too when the additions have been made on the basis of estimation

Facts

1. Assessee is a partnership firm consisting of three partners and is engaged in the business of money lending and chit fund business

2. On 28th June, 2001, a search u/s. 132 of the Act was conducted in the premises of the assessee

3. Subsequently notice u/s. 158BC was issued to the assessee on 16/11/2001

4. On the basis of the statement given by one of the partners u/s. 132(4) of the Act and the material seized during the course of search, the Assessing Officer, vide order dated 27/06/2003 determined the undisclosed income at Rs.31,00,724/-

5. The Assessing Officer observed from the books of account seized during the course of search that it was clear that the unaccounted transactions were carried out. It was further observed that the entries recorded were 1/100th of the real figures. To determine the addition, the AO multiplied the figures by 100 and arrived at the addition of Rs.37,51,374/- on account of unaccounted business

6. Similarly, for gold loan business, the Assessing Officer made an addition of Rs.6,28,850/- with respect to unaccounted gold loans. Further, on the basis of statement given u/s. 132(4) and the books of account seized, the undisclosed gold interest income was determined at Rs.6,26,145/-

7. The assessee challenged the quantum addition before the Ld. CIT(A) who vide order dated 02.08.2005 confirmed the additions made by the Assessing Officer

8. Aggrieved by the same, the assessee challenged before the ITAT. However, the appeal of the assessee was dismissed for non prosecution vide order dated 14/07/2010

9. Penalty proceedings were initiated against the assessee by issuance of notice u/s. 158BFA(2) of the Act on 27/03/2003

10. The Assessing Officer vide order dated 30/03/2011 imposed penalty of Rs.18,60,043/- u/s. 158BF(2) of the Act

11. It was observed by the Assessing Officer from the statement of the partner of the assessee and the books of account seized during the course of search that there was a clear case of suppression of income by the assessee

12. The assessee challenged the penalty order dated 30-03-2011 before the Ld. CIT(A).

13. The Ld. CIT(A) vide the impugned order dated 24/09/2014 dismissed the appeal of the assessee and observed that the language of section 158BFA(2) makes it obligatory upon the Assessing Officer to impose penalty on the portion of the undisclosed income determined

14. Assessee moved to the ITAT against the penalty order u/s 158BFA confirmed by the CIT(A)

15. Honb. Tribunal deleted the penalty 

Arguments by Assessee

The Ld. AR has argued that the penalty levied on the assessee should be deleted as there was no evidence to suggest that the assessee had earned unaccounted income except for the statement made by one of the partners. The Ld. AR further argued that the addition has been made on an estimation basis and therefore, penalty cannot be levied.

Arguments by Revenue

The ld. DR on the other hand has rebutted the submissions made by the Ld. AR. He relied upon the orders passed by the Assessing Officer and the Ld. CIT(A) to support his submissions.  

Adjudication

The Assessing Officer had only deduced that the entries had been represented in the aforesaid manner. There is no other evidence to suggest that the gold loans and other advances were 100 times the accounted income. None of the parties to whom the loans had been advanced by the assessee had been examined. It is not the case of the Revenue that the unaccounted cash balance was recovered during the course of search from the premise of the assessee, so as to suggest the earning of unaccounted income. Also, the Assessing Officer has not brought on record any document pertaining to loan transaction which was executed for a higher amount than what is reflected in the books of account. The Assessing Officer had computed the addition on lumpsum basis rather than making separate additions for each year.

As regards the interest income is concerned, the Assessing Officer had relied upon the statement made by one of the partners of the assessee and the addition is not made on the basis of concrete documentary evidence found during the course of search. This clearly shows that the additions made in the case of the assessee were on the basis of estimation. There is no independent determination of the undisclosed income. Merely because the explanation of the assessee was rejected by the Assessing Officer with respect to the materials seized, penalty cannot be levied in the case of the present case, that too when the additions have been made on the basis of estimation.

In view thereof, we direct the Assessing Officer to cancel the penalty imposed u/s. 158BFA(2) of the Act and accordingly, the order of the Ld. CIT(A) is reversed. Accordingly, all the grounds raised by the assessee are allowed.

Cases referred to

1. CIT vs. Satyendra Kumar Dosi (2009) 315 ITR 172

2. CIT vs. Dodsal Ltd. (2008) 218 CTR 430

Additional Info

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