Case Law Details
Brief of the Case
Delhi High court in the case of JRD Stock Brokers (P) Ltd. vs. CIT. held that the admission of assessee under Section 132(4) where he admitted about the possession of incriminating material would suffice to initiate the necessary proceedings.
Facts of the Case
The brief facts are that a search operation was carried in the office of assessee. The books of accounts, documents and other materials were seized. The assessee, when called upon to file the return, filed a NIL return for the relevant block period, on 11.10.2002. The AO completed assessment under Section 158BC(c) which comprised of inter alia undisclosed provisional income arrived at by adopting a flat rate of 1.5% on the aggregate of all credit entries in the bank account statements of the assessee. Other than this amount, the AO also added sums of money on the basis of unexplained cash deposits and negative balances; the CIT(A) directed the cancellation of the sums added on account of negative balances. However, the CIT(A) rejected the assessee’s contentions with respect to addition. The assessee had, in the original returns, declared the amounts to be derived on account of share trading transactions. The assessee’s contentions were rejected because the AO and the CIT(A) found that in the statement recorded under Section 132(4) of theIncome Tax Act, 1961 (hereafter referred to as “the Act”), the assessee had admitted that the said sum of Rs. 1,04,76,94,004/- was actually not entirely based on share transactions but was also based on accommodation entries. The assessee had stated in the returns that the commission received on the share transactions ranged between 0.25% and 0.5%. The CIT(A), found commission of upto 1% even on the share transactions. In these circumstances, the estimated income added back by the AO on the basis of his assessment of the true income (on the business activity of providing accommodation entries which the assessee was engaged in) was to the extent of 1.5% of the total turnover indicated.
Contention of the Assessee It was submitted on the behalf of the Ld. Counsel that the pre-condition for imposition of penalty under Section 158BFA(2) is that the “undisclosed income” determined by the AO is necessarily linked with the undisclosed income found which in turn is based on some material. Arguing that in the present instance, the assessee had concededly declared a sum of Rs. 1,04,76,94,004/- in the books of accounts, learned counsel highlighted that in the circumstances, the penalty could not have been imposed. It was argued in this context that any income determined in the course of block assessment proceedings must necessarily relate to that adjudicated upon and must be based on objective material found. In other words, it cannot be based on an estimation or a voluntary act of the assessee such as surrender. By relying on some Judgments it was submitted that Section 158BFA(2) textually empowers the AO to levy penalty on the undisclosed income determined by him but that the power does not extend to imposing penalty in the cases excluded in the first proviso.
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