2009-TIOL-519-ITAT-DEL

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH "H" DELHI

IT [SS] Appeal No. 146 (Del) of 2005

Block Assessment period : 1/04/1987 to 24/09/1997

M/s AHUJASONS SHAWLWALE PVT LTD

6/44, WEA KAROL BAGH, NEW DELHI
PAN NO: AAACP7122R

Vs

Dy COMMISSIONER OF INCOME-TAX
CIRCLE : 1(1), NEW DELHI

Rajpal Yadav, JM and K D Ranjan, AM

Dated : April 30, 2009

Appellant Rep by : Shri M P Rastogi, & S Anantharaman, CA

Respondent Rep by : Shri V K Tiwari, CIT DR

Income tax - Penalty u/s 158-BFA(2) - Assessee is a trader - Revenue conducts

search & seizure u/s 132 - finds excess stock, unaccounted purchases and cash -
Assessee asked to file block return - return filed but NIL undisclosed income
shown - AO makes additions and initiates penalty u/s 158-BFA(2) - held, the first
proviso to section 158-BFA (2) offers a concession to the assessee to escape
penalty by admitting undisclosed income in the block return and paying taxes.
Since the assessee had filed Nil undisclosed income and the AO had rightly make
additions for undisclosed income through unaccounted stocks, the second proviso
to the Sec 158-BFA(2) comes into force as what is required to be established is
only the undisclosed income in excess to the one disclosed in the block return -
concealment of income like in Sec 271(1)(c) is not a pre-condition under this
Section for imposing penalty - this is more so in view the Apex Court decision in
Dharmendra Textiles case where it is held that penalty is a civil liability and no
mens rea is required to be established for imposing it - Assessee's appeal
dismissed

ORDER

Per : K D Ranjan:

This appeal filed by the assessee for Block assessment period 1/04/1987 to 24/09/1997
arises out of the order passed by the ld. Commissioner of Income-tax (Appeals) IV, New
Delhi.
2. The only issue for consideration relates to imposition of penalty under section 158-BFA
(2) of the IT Act, 1961. The facts of the case stated in brief are that search and seizure
operation u/s. 132 of Income Tax Act, 1961 was carried out on business of the assessee on
23.09.1997 and concluded on 28.10.1997. The assessing officer issued notice on
10.12.1998 u/s. 158BC requiring the assessee to file return of income for the block period
1.4.1987 to 23.09.1997. The return of income was filed on 17.9.1999 after issue of
subsequent notice and reminder showing nil undisclosed income. During the course of
search the assessee was found in possession of 92,523 pieces of shawls. However, as per
stock register the numbers of pieces of shawls were 66,269. The assessing officer also
noticed that the Annexure A-2 contained papers 1 to 69 which were purchase bills in the
name of Ahujasons Shawlwale P. Ltd. issued by various parties and they were dated 1st
August, 1977 till 20th September, 1997. Similarly the sales bills as contained in the
Annexure A-1 were the bills of sales on various dates from 2nd September, 1977 till 16th
September, 1977. The assessing officer also noted that stock of shawls of 92,523 included
5,211 sample pieces as mentioned in the Panchnama. Thus, the stock as per physical
verification was at 87,312. However as per reconciliation the stock was 89,379. Therefore,
there was difference of 2,067 shawls. As regards sample pieces of shawls the AO noted that
there was no record of such samples. Even the assessee could not give names of the
persons to whom samples were given. Therefore, the conclusion drawn was that the shawls
numbering 2,067 were sold outside the books of accounts. The assessing officer in order to
determine the sale price of 2,067 pieces of shawls applied the average tag price of Rs.752/-
per shawl. The sale value of 2,067 pieces of shawls came to Rs.15,55,483/-. He treated the
amount of Rs.15,55,483/- as sale outside the books of accounts and added the same as
trading addition. He also added the excess cash of Rs.42,400/- as income of the financial
year for the block period 1.04.1987 to 23.09.1997.

3. The assessee being aggrieved by the assessment order went in appeal before the ld. CIT
(Appeals). The ld. CIT (Appeals) confirmed the addition of Rs.42,400/-. The issue of shortage of
stock was restored to the assessing officer to be decided afresh. However, the ld. CIT (Appeals)
enhanced the income by Rs.1,72,14,704/-. The assessee aggrieved with the order passed by the
ld. CIT (Appeals) preferred an appeal before the ITAT, Delhi. ITAT in order IT (SS) Appeal No.
87 (Del) of 2002 of October 2000 set aside the order of the ld. CIT (Appeals) with the directions
to frame assessment order after giving due opportunity to the assessee. The assessing officer by
order dated 31st March, 2004 passed under section 158-BC read with section 254 of the Act
completed the assessment at an income of Rs.43,85,705/- by making the following additions :-

Income as per order dated 29.03.2004

1. Rs.15,96,784
passed u/s. 154/254/158BC
2. Unaccounted purchases Rs.3,71,759/-
3. Addition on account Jagdish Industries Rs.1,57,250/-;
Addition on account of 6 invoices of Annexure
4. Rs.22,17,512/-;
A-2
5. Unaccounted cash Rs.42,400/-.

The assessing officer also initiated penalty proceedings under section 158-BFA (2) of the
Income-tax Act.
4. During the course of penalty proceedings it was submitted that addition made on account
of unaccounted purchases aggregating to Rs.27,46,521/- (3,71,759 +1,57,250 +22,17,512)
was not undisclosed income. It was submitted that the assessing officer made addition of
Rs.3,71,759/- based purely in his opinion and inference drawn by him that the assessee
could not establish its stand and it had been purchasing shawls from the parties on approval
basis as they were not regular suppliers and a new supplier who had not dealt with the
assessee it was very unlikely that the supplier will leave goods at the premises of a new
purchaser. The second addition of Rs.1,57,250/- was made on the basis of finding recorded
by the assessing officer that from invoices raised it was seen that all the invoices were serial
numbered but the dates which have been written have a gap of 7 and 8 days between two
invoices which also indicated that the party was not genuine because in a normal course of
business the invoices were issued regularly and it was highly unlikely that in 15 days three
serial numbered invoices were only issued. The assessing officer also noted that invoice No.
8 had date of 15.09.1997 where invoice No. 9 was dated 14.09.1997 which was not possible
in a bonafide transaction. These circumstances and evidences suggested that the
transaction was not a genuine transaction and purchases were treated as non-verifiable and
the same were never intended to be recorded in the regular books of accounts. Likewise,
the addition of Rs.22,17,512/- was made on the ground that all six invoices were pending
for 6 to 8 months and those were tempered to show as if the same were purchases for year
1997-98 and not 1996-97. According to the assessing officer it created a bonafide belief
that these purchases were not meant to be entered in the books of accounts and, therefore,
the amount shown in the invoices was treated as undisclosed income. It was also pleaded
that provisions of section 158-BFA (2) of the Act were not applicable at all and the penalty
was leviable only when (i) assessee had concealed particulars of income; (ii) assessee
furnished inaccurate particulars; and (iii) the assessee was not able to justify its claim.
Since none of the condition was satisfied the penal provisions were not applicable at all. The
findings of the assessing officer were only by way of inference, not believing the claim of the
assessee. It was also submitted that satisfaction was not recorded and, therefore, the very
initiation of penalty proceedings was ban in law. Further it was submitted that during the
the proceedings under section 132 of the Act, the stocks found was inventorised. It has not
been found that the goods as per invoices were found in the stock. The ld. CIT (Appeals)
gave a finding that it was not found as to when such goods were purchased; whether such
goods were sold; whether such goods have been remaining in the stock etc. Therefore,
there was complete lack of evidence to point out any concealment or even an attempt for
concealment. Further it was also submitted that the issue had been viewed by different
authorities in different ways:

(1) JCIT did not consider the mode to be unaccounted.

(2) CIT (Appeals) considered it so and enhanced the income;

(3) The Appellate Tribunal could not even uphold such enhancement;

(4) DCIT Acquiesces in the major part of the stock and the explanation of the assessee and
remains only a portion of the same.

Therefore, looking from any point of view the assessee had not concealed particulars of
income or furnished inaccurate particulars of income. The assessee claimed that there were
purchases as such. There was no corroborative evidence to show that the purchases were
made.
5. The contention of the assessee was rejected by the assessing officer on the ground that
the undisclosed income had been out on the basis of the documents which have not been
disclosed by the assessee or would have not been disclosed. It has been established that
these transactions were not recorded in the books of accounts and would not have been
disclosed for the purposes of Income-tax. The contention of the assessee that penalty under
section 158-BFA can only be imposed when the assessee concealed the particulars of
income or furnished inaccurate particulars of its income or has not been able to justify the
claim, was also not acceptable to assessing officer on the ground that the provisions of
section 158-BFA (2) of the Act did no stipulate any such condition. For imposition of penalty
under section 158-BFA (2) of the Act, the only requirement to be established was that
undisclosed income of block period had been determined in accordance with the provisions
of Chapter-XIV-B of the Act. The assessing officer, therefore, came to the conclusion that it
has been established that the assessee has indulged in the transactions, which were not
recorded in the books of accounts. The assessee was given opportunity to declare
undisclosed income for the block period, but the assessee responded by filing block period
return with NIL un-disclosed income. Therefore, the assessee clearly and intentionally failed
to disclose or declare its true and correct undisclosed income. Since the assessee filed the
return of undisclosed income for the block period at nil, the provisions of section 158-BFA
(2) were attracted. He, therefore, treated the undisclosed income at Rs.43,85,705/- and
imposed penalty of Rs.30,26,126/-.

6. Before the ld. CIT (Appeals) the arguments advanced by the assessee were that the
penalty under section 158-BFA (2) of the Act was not sustainable because the initial
satisfaction in terms of decision of Hon'ble Delhi High Court in the case of CIT Vs. Ram
Commercial Enterprises 246 ITR 568 (Del.) = (2003-TIOL-69-HC-DEL-IT) had not been
recorded by the assessing officer at the time of initiation of penalty proceedings. This
contention of the assessee was rejected by the ld. CIT (Appeals) on the ground that the said
decision was rendered in respect of penalty under section 271(1)(c) of the Act. Since the
provision of sections 271(1)(c) and 158-BFA (2) were differently worded the decision was
not applicable in respect of penalty under section 158-BFA (2) of the Act. Section 158-BFA
(2) nowhere referred to the assessing officer's satisfaction. It was also argued that the
additions have been made by the assessing officer only on non-acceptance of the
explanation of the explanation furnished by the assessee. Therefore, the additions have
been made on a difference of opinion and hence penalty proceedings could not be attracted.
The ld. CIT (Appeals) rejected this contention of the assessee on the grounds that the
assessee had not filed any appeal against order of the assessing officer dated 31st March,
2004 determining the assessee's undisclosed income at Rs.43,85,705/- as against NIL
undisclosed income as shown by the assessee in the block return of income. The ld. CIT
(Appeals) in view of provisions of section 158-BFA (2) of the Act observed that where
undisclosed income determined by the assessing officer was in excess of the income shown
in the return, the penalty shall be imposed on that portion of the undisclosed income
determined, which is in excess of the amount undisclosed income shown in the return. The
assessee had shown NIL undisclosed income in the return and the assessing officer had
determined undisclosed income at Rs.43,85,705/-. The assessing officer did not file any
appeal against the assessment order. Thus the undisclosed income determined at
Rs.43,85,705/- became final. That being the case in view of the language employed in
section 15-BFA (2) the imposition of penalty on undisclosed income of Rs. 43,85,705/- was
automatic and, therefore, he upheld the order of the assessing officer imposing penalty of
Rs.30,26,126/-.

7. Before us the ld. AR of the assessee submitted that the search was conducted on 23rd
September, 1994. Certain purchase invoices, which were posted up to the date of search,
were seized. The goods were received by the assessee on approval basis. During the course
of search shortage of stock of Rs.15,54,483/- was found an excess cash of Rs.42,400/- was
found at the time of search. The ld. CIT (Appeals) confirmed the addition of Rs.42,400/-.
The issue of shortage of stock was restored to the assessing officer to be decided afresh.
However, the ld. CIT (Appeals) enhanced the income by Rs. 1,72,14,704/-. On further
appeal, ITAT restored the matter to the file of the assessing officer with regard to
enhancemnent made by the ld CIT (Appeals). As regards addition on account of shortage of
stock, no appeal was preferred as CIT(A) had set aside the issue to the file of assessing
officer with the directions that pass order after adopting the correct stock available with the
assessee as on the date of search. During the second round of assessment proceedings, the
assessing officer maintained addition of Rs.42,400/- on account of excess cash found. The
assessing officer had not discussed addition on account of the shortage of stock in the
assessment order. However, he added the amount the amount of Rs.15,96,784/-. The
assessee had paid tax on the same. As against the enhanced income of Rs.1,72,14,704/-,
the assessing officer has determined income of Rs.27,46,521/- against which no appeal has
been filed by the assessee. The ld. AR of the assessee further submitted that the addition of
Rs.15,96,784/- on account of shortage of stock could have been made. At the best the
assessing officer could have made addition of gross profits treating shortage of stock as
unrecorded sales. He placed reliance on decisions various High Courts in the case of CIT Vs.
Gurubachhan Singh J. Juneja (2008) 302 ITR 63 (Guj.) = (2008-TIOL-410-HC-AHM-IT); Man
Mohan Sadani Vs. CIT (2008) 304 ITR 52 (MP); CIT Vs. Balchand Ajit Kumar (2003) 263
ITR 610 (MP); & CIT Vs. S M Omer (1993) 201 ITR 608 (Cal). As regards the addition of
Rs.3,71,759/- and Rs.1,57,250/- it has been submitted that the purchases were made on
approval basis from new parties. No questions were asked at the time of search. The
payments have been made to these parties through demand drafts; the details thereof are
available at pages 52, 52-A and 53 of the paper book. The payments were also evidenced
from entries made in the books of accounts. As regards the purchases made from Srinagar
parties, the ld. AR submitted that the shawls were also received on approval basis and were
not unaccounted for. Hence the assessing officer had made addition on presumption basis.
He further submitted that levy of penalty under section 158BFA(2) is not automatic. The
provisions of section 158-BFA (2) of the Ac t are pari materia with the provisions of section
271(1)(c). He placed decision on ITAT order reported in 97 ITD 527 (KOL) for the
proposition that penalty under section 158BFA(2) is not automatic.

8. On the other hand, the CIT [DR] submitted that the quantum addition have been
accepted by the assessee and no appeal has been filed. The assessing officer passed order
u/s. 154/254/158BC on 29.03.2004 determining undisclosed income from trading at
Rs.15,96,784/-, copy thereof has not been placed on record by the assessee. Therefore, it is
incorrect on part of the ld. AR of the assessee that assessing officer had made addition
without any discussion in assessment order. He further submitted that for imposition of
penalty under section 158-BFA (2) the element of mens rea is not is not required. The
provisions of section 158-BFA (2) of the Act are not pari materia with the provisions of
section 271(1)(c). Penalty under section 158BFA(2) is imposable on excess undisclosed
income determined by the assessing officer. If the assessee was aggrieved against the
additions made by the assessing officer, he should have filed appeal before the ld. CIT
(Appeals) and agitated additions in appeal. Since the assessee was not aggrieved from the
assessment order and, therefore, no appeal was filed by it. He further submitted that the
appeal filed by the assessee is against the penalty order and not against the quantum and,
therefore, the assessee is not permitted to advance arguments that the additions could not
have been made. Under section 158-BFA (2) when quantum additions are determined,
penalty under section 158-BFA is automatic and has to be levied.

9. We have heard both the parties. In the case before us the assessee filed return of the
block period at NIL income. However, the assessing officer in the course of assessment
proceedings had made various additions which has resulted in computation of undisclosed
income of Rs.43,85,705/-. The above undisclosed income is consisted of excess cash found
Rs.42,000/-; trading addition of Rs.15,96,784/-; unaccounted purchases Rs.3,71,759/-;
addition on account of Jagdish Industries: Rs.1,57,250/-; & addition on account of 6
invoices of Annexure A-2 : Rs.22,17,512/-. The assessee had not filed any appeal against
the additions made by the assessing officer in final assessment order made under section
158-BC read with section 254 of the Act dated 31st March, 2004. Therefore, the undisclosed
income determined by the assessing officer at Rs.43,85,705/- has attained finality. Under
section 158-BFA (2) of the Act the assessing officer or the ld. Commissioner (Appeals) in the
course of proceedings under Chapter-XIV-B 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 of the amount of tax so leviable in respect of undisclosed income
determined by the assessing officer under clause (c) of section 158-BC of the Act. However,
the first proviso to section 158-BFA (2) provides that no order imposing penalty shall be
made in respect of a persons if - (i) such person has furnished a return under clause (a) of
section 158BC(a); (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. Therefore the first proviso to section 158-BFA (2) of the Act grants concession to
the assessee even after search and seizure operations to disclose undisclosed income in
block period return on the basis of seized material or information that came into possession
of the Department and pay tax thereon and relax. No penalty was imposable if the discloser
of undisclosed income for the block period was made. However, second proviso to section
158-BFA (2) of the Act provides that the provisions of first proviso shall not apply where
undisclosed income is determined by the assessing officer in excess of income shown in the
return and in such cases penalty shall be imposed on that portion of the undisclosed income
determined which is in excess of the amount of undisclosed income shown in the return. In
the instant case, the assessee had chosen to file return of undisclosed income for the block
period at NIL income when assessing officer had issued notices u/s. 158BC two times and a
reminder subsequently. Thus the assessee had not only chosen to avail the concession
granted by the law under the first proviso but had accepted the determination of
undisclosed income at Rs. 43,85,705/- after two rounds of litigations and had paid tax
thereon. Therefore, the assessee's case falls under second proviso to section 158-BFA (2) of
the Act.

10. The contention of the ld. AR of the assessee is that the additions made to do involve
concealment on the part of the assessee. From the appellate order of the ld. CIT (Appeals)
we find that the ld. CIT(Appeals) has mentioned that the number of shawls at 66,269 was
actually arrived at by taking the opening stock as on 1.04.1997 on the basis of the return
filed by the assessee after the search. The calculation made by the assessing officer,
therefore, suffered from another discrepancy. The assessing officer had taken the number of
shawls as per Annexure A-2 at 24,539 whereas the number was actually much less as
mentioned in para 10 of her order. This would have result of further increasing the
discrepancy between the number of shawls actually found at the time of search and as per
assessee's books of accounts. The matter was restored to the file of the assessing officer for
a correct appreciation of the closing stock available with the assessee. The assessing officer,
as is seen from the notice issued by him dated 7.01.2004 under section 154 of the Act that
the assessing officer while giving the appeal effect reduced the demand to NIL whereas the
addition of Rs.15,96,784/- was sustained by the ld. CIT(Appeals), which was not contested
by the assessee before the ITAT. Thereafter the assessing officer vide order dated 29th
March, 2004 adopted the figure of 15,96,784/- on account of sales outside the books of
accounts. In appeal filed before the ITAT the assessee had not contested the sustenance of
the addition on trading account. The assessee had only filed appeal before the ITAT in
relation to enhancement of Rs.1,72,14,704/-. Thus, the addition of Rs. 15,96,784/- attained
the finality. As regards the addition on account of purchases made form various parties at
Rs. 3,71,759/- and addition of Rs.1,57,250/- were on account of purchases not recorded in
the books of accounts. Therefore, the addition will be in the nature of undisclosed income.
Similar is the case with reference to the purchases made from Sri Nagar parties. The
assessee had not recorded these purchases for a period of 6 to 8 months. The bills were
tempered to show as if the same pertained to assessment year 1997-98 and not 1996-97.
The assessee had not recorded these purchases in the books of accounts and, therefore, the
same will constitute the un-disclosed income. The assessee had accepted the order of the
assessing officer by not filing the appeal. Therefore, it is not possible to accept the
contention of the assessee that the amount added by the assessing officer and accepted by
the assessee did not form part of un-disclosed income. The payments made subsequent to
search by the assessee will not change the situation that there was no un-disclosed income
arising from the bills found during the course of search, which were not entered in the
books of accounts for the period of six to eight months.

11. The provisions of section 271(1)(c) of the Act are applicable where concealment has
been detected during the course of assessment proceedings or the assessee has filed
inaccurate particulars of income whereas in respect penalty under section 158-BFA (2) the
penalty is imposable in respect of excess undisclosed income determined by the assessing
officer. There is no provision in section 158BFA(2) similar to Explanation 1 of section 271(1)
(c) where penalty is imposable when the assessee fails to offer an explanation or offers an
explanation, which is found by the assessing officer or the ld. CIT (Appeals) to be false or
offers an explanation, which he is not able to substantiate and fails to prove that such
explanation is bonafide and that all the facts relating to the same and material to the
computation of his total income have been disclosed by him. Therefore, provision off section
158-BFA (2) are based on determination of excess undisclosed income admitted by the
assessee under section 158-BC (1)(a) of the Act and not on concealment of income or
furnishing of inaccurate particulars of such income. Hon'ble Supreme Court in the case of
Union of India Vs. Dharmendra Textiles Processors [2008] 166 TAXMAN 65 (SC) = (2007-
TIOL-159-SC-CX) has held that in civil liabilities like imposition of penalty under section 271(1)
(c) there is no necessity of proving mens rea on the part of the assessee. Therefore, after
the decision of Hon'ble Supreme Court in the case of Dharmendra Textiles Processors even
in case of imposition of penalty u/s. 271(1)(c) the Revenue is not required to prove that
assessee had wilfully concealed the income or had furnished inaccurate particulars of such
income.

12. The contention of the assessee that additions were not liable to be made is of no
consequence since penalty under section 158-BFA(2) is imposable with reference to excess
undisclosed income determined by the assessing officer. The question whether undisclosed
income has been correctly determined or not cannot be raised now as the assessee is not
aggrieved with the determination of undisclosed income as no appeal has been filed against
the undisclosed income determined by the assessing officer. The Legislature provided
opportunity to the assessee under first proviso to section 158BFA (2) to admit the
undisclosed income even after the material was found from his possession under
proceedings u/s. 132 of the Act which formed the basis of determination of undisclosed
income. The assessee having failed to avail such concessions as provided in first proviso to
section 158-BFA (2) of the Act, the provisions of second proviso will come into operation.

13. It is not the case of the assessee that opportunity of being heard was not given. The
assessing officer has followed the procedure prescribed in section 158-BFA (3) for imposing
penalty under section 158-BFA (2) of the Act. In view of the above, we are of the
considered view that the penalty under section 158-BFA (2) has rightly been imposed by the
assessing officer. Accordingly, we do not find any infirmity the order passed by the ld. CIT
(Appeals) confirming the penalty under section 158-BFA (2) of the Act.

14. In the result, the appeal filed by the assessee is dismissed.

(The order pronounced in the open court on 30.04.2009.)