Case Law Details
RELEVANT PARAGRAPH
5. The assessee was subjected to search assessment, whereupon additions were made, which included disallowance of interest expenditure Rs.54,1800/- ; addition for unexplained cash credit Rs.10,500/-, and another disallowance of claim of set off of business loss Rs.18,698/-; totalling Rs.83,378/-. The assessee contended before the AO that the disallowance of interest expenditure on bank loan was only a technical addition. The assessee did not appeal against the same because of the smallness of the amount. Coming to the next addition of cash credit, it was stated that this was voluntarily offered by the assessee. Regarding set off of loss, it was stated that amendment to section 158BB(1)(b) for non-grant of set off of losses disclosed in regular returns filed came with retrospective effect by Finance Act 2002 and the assessee could not be penalized since the law that stood as on the date of filing of the block return was different one. The AO did not accept the above contention. He held that clause (2) to sub-section (1) of section 158BFA does not give any discretion in the matter of levy of penalty. There is no question of any agreed additions in the block assessment since the additions are made on the basis of documents / evidences found as a result of search or on the basis of subsequent enquiries conducted. He further held that the element of mense rea is not relevant since the proceedings under section 158BFA(2) were different from the proceedings in regular assessment.
6. The contention taken by the assessee was rejected by the AO and further the CIT(A) rejected the same. The CIT(A) held that with regard to interest disallowance there is no evidence to show that the money borrowed by the assessee was advanced to the sister concern exclusively for the business purpose and further holding that the assessee advanced the money so as to reduce its tax liability. With regard to cash credit, the CIT(A) observed that no explanation was offered by the assessee and it was only during the assessment proceedings the assessee admitted the undisclosed income.
7 On the premises of the above facts, learned Accountant Member decided the issue against the assessee and confirmed the orders of the revenue authorities. While coming to the above conclusion, he noted that regular assessment procedure and block assessment procedure are different since Chapter-XIVB is a special procedure for assessment of search cases. Learned AM held that the assessee, under Chapter XIVB, has been given a chance to file the return and come clean. Under section 158BFA{2), penalty is leviable only on that portion of the undisclosed income determined by the AO, over and above the amount disclosed by the assessee in the return. The learned AM further held that section 158BFA(2) is materially different from section 27l(1)(c). and under section 271(1)(c), the element of concealment is necessarily to be present for invoking the section 271(1)(c); not so for invoking section 158BFA(2). Though discretionary power is given to AO under the said section to levy or not to levy the penalty. Coming to the instant case, the learned AM held that since the assessee was not able to give explanation regarding the cash credit or the interest paid on account of diversion of loan, the AO rightly levied the penalty and the CIT(A) confirmed it. Since there was no explanation, reliance placed by the assessee in the case of DCIT vs Koatex Infrastructure Ltd. (2006) 100 ITD 510 (Mum), the learned AM held, is not applicable The learned AM distinguished the decision relied by the assessee observing as under –
“In the case of Dy CIT vs. Koatex Infrastructure Ltd., [2006] (100 ITD 510)(Mum) this Tribunal had ruled that it was humanly not possible in the circumstances of that case for the assessee to correctly compute his income due to the voluminous records seized and therefore deleted the penalty levied under Section 158BFA(2). About 54 files containing 10000 sheets involving 31 concerns were seized in that case. On the other hand, here, there are only two items of additions and there is nothing on the record to show that these involved any voluminous record. Hence, the Koatex Infrastructure Ltd. (supra) has no applicability in the circumstances of this case”.
8. However, the learned Judicial Member could not agree with the conclusion arrived at by the learned AM. While taking a contrary view, the learned JM noted that there was no search in the business premise of the assessee but some reference of the assessee firm was found in the declaration made under section 132(4) by the group. Hence, the proceedings under section 158BD were initiated against the assessee. During the assessment proceedings, the AO noticed that there was a cash credit of Rs.10,500/- in the name of Girdharilal Kamdar in the books of the assessee pertaining to assessment year 1994-95 The assessee submitted, when asked for confirmation, that the assessee is unable to get confirmation from the party since it was very old transaction. Not satisfied, the AO made the addition. Coming to the next addition of interest expenditure of Rs.54,1800/- in assessee’s books of account for the assessment year 1994-95 against the loan of Rs 7,10.000/- from Dena Bank, it was found by the AO that though the money was advanced to the sister concern, no goods were purchased by that firm and hence the disallowance. The learned JM held that in the instant case the initiation of penalty proceedings under section 158BD itself was doubtful. There was no search in the business premise of the assessee. The provisions of section 158BD could be invoked only where any material or evidence was found during the course of search indicating that undisclosed income belonging to any person other than the person with respect to whom the search warrant was issued under section 132 or where the books of account or other documents or any assets were requisitioned under section 132A. The learned JM held that mere reference of assessee’s name in the statement under section 132(4) is not sufficient to invoke the proceedings under section 158BD. There was no reference made of any material found In the course of search, on the basis of which the undisclosed income could be determined. On the contrary, since the additions were made on the basis of entries in regular books of account, no adverse inference could be drawn merely because the assessee did not challenge the quantum by way of appeal. Since the additions were made not on the basis of any seized material but on the basis of the statement, only because it was not challenged by the assessee before the higher forum, the learned JM held that the penalty levied is liable to be quashed The learned JM held that the section as it stands now and stood then is materially different and has no scope for levying the penalty.
9. Hearing the learned DR and going through the material and the order of the learned Members constituting the Bench, I am of the opinion that the view taken by the learned JM is correct. First of all, a discretion is given to the AO to levy or no to levy the penalty as the wording in section 158BFA(2) reads. The Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under this Chapter, may direct that a person shall pay. On this point there is no dispute between the Members. The reasoning of the learned AM that mere failure on the part of the assessee or the explanation given by the assessee was not satisfactory to the Officer and that itself is sufficient to levy the penalty, particularly on the basis of facts in the instant case; I am afraid is difficult to accept. As rightly noted by the learned JM, at the time when the assessee filed the return on 31.05.2001, the section as it stood then was materially different from, as it exists now. Section 158B(b). Which defines “undisclosed income”, was subjected to change by insertion of the words “or any expense, deduction or allowance claimed under this Act which is found to be false” with retrospective effect from 01.07.1995 by the Finance Act, 2002. After the wordings “for the purposes of this Act The learned JM rightly noted that “The words underlined by us were included by Finance Act, 2002 which shows that at the time when the return was filed, the disallowance of expenses was not within the ambit of the expression “Undisclosed income”. So at the time of filing the return, assessee was not obliged to declare the same in its return particularly when no material or evidence was found relating to such expenses in the course of search carried out at the business premises of the group concerns. Further there is no material on record to prove expenditure claimed by the assessee was false. There is no such finding in the assessment order. The factum of falsity cannot be assumed or inferred but has to be proved on the basis of material or evidence. No adverse inference can be drawn merely because the appeal was not filed by the assessee”. In view of the above discussion. I uphold the view taken by the learned JM.
