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2016 Supreme(Guj) 955
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
K.S. Jhaveri and G.R. Udhwani, JJ.
Commissioner of Income Tax-III – Appellant
Vs.
Bipinchandra K. Bhatia – Respondent
Tax Appeal No. 1349 of 2008
Decided On : 16-06-2016
For the Appellant :Pranav G. Desai, Advocate.
For the Respondent:R.K. Patel, Advocate.
The discretionary nature of penalty provisions under Section 158BFA(2) of the Income Tax Act and the non-mandatory levy of penalty in cases of claim rejection.
Headnote:
Penalty - Income Tax - Section 132, Section 158BC, Section 158BFA - The court discussed the provisions of Section 158BFA(2) of the Income Tax Act and the interpretation of the penalty provisions. It highlighted that the penalty under Section 158BFA(2) is not automatic and cannot be levied in a mechanical manner. The court emphasized that the Assessing Officer has the discretion to levy or not to levy the penalty on proper evaluation of the relevant facts. The court also considered the appellant's claims for deductions, exemptions, and inclusions in the declared undisclosed income, and concluded that the rejection of claims does not make it mandatory to levy a penalty in every case of such rejection.
Fact of the Case:
The respondent was involved in a gold business and a search operation under Section 132 of the Income Tax Act led to the recovery of a significant amount of gold. The Assessing Officer determined the undisclosed income and imposed a penalty under Section 158BFA(2). The penalty was later deleted by the CIT (Appeals) and confirmed by the ITAT.
Finding of the Court:
The court found that the penalty imposed by the Assessing Officer was not justified, considering the discretionary nature of the penalty provisions and the appellant's claims for deductions and exemptions.
Issues: The main issue was whether the penalty under Section 158BFA(2) was justified based on the facts and circumstances of the case.
Ratio Decidendi: The court emphasized that the penalty under Section 158BFA(2) is not automatic and highlighted the discretionary nature of the provision. It also considered the appellant's claims for deductions and exemptions, concluding that the rejection of claims does not mandate the levy of a penalty.
Final Decision: The appeal was answered in favor of the assessee, and the tax appeal was dismissed.
K.S. Jhaveri, J.
1. By way of this appeal, the appellant-revenue has challenged the order dated 27/03/2008 passed by the ITAT in ITA No. 30/RJT/2005 whereby the appeal of the revenue came to be dismissed and confirmed the order dated 28/01/2005 passed by the CIT (Appeals), Rajkot.
2. The short facts of the case are that respondent was doing business of gold and a search operation was carried out under Section 132 of the Income Tax Act at the business and residential premises on 12/01/1999 and during the said search operation, gold weighing 28,116 Kg valued at Rs. 1,24,85,982/- was recovered from the residence of respondent and were dug out from the courtyard of the residence. Thereafter, notice under Section 158BC of the Act was issued and respondent-assessee filed the return of undisclosed income declaring undisclosed income of Rs. 13,75,334/- for the block period i.e. Assessment year 1989-90 to 1998-99 and upto 12/01/1999. The Assessing Officer completed the assessment and determined the undisclosed income at Rs. 3,97,51,081/- by an order dated 31/01/2001.
2.1 The respondent-assessee preferred an appeal against the order passed by A.O. before the Commissioner of Appeals which was partly allowed.
2.2 Against the said order of CIT (Appeals), the assessee as well as the revenue have also preferred an appeal before the ITAT wherein appeal of the revenue was dismissed and appeal of the assessee was partly allowed, however the ITAT confirmed the addition of Rs. 42,15,287/-.
2.3 That thereafter since the A.O. found that the assessee had concealed the income and furnished inaccurate particulars of income during the framing of assessment order, a show-cause notice came to be issued under Section 158BFA(2) of the Act on 31/01/2001 calling upon to show-cause as to why the penalty should not be imposed upon him. To which a written reply was given to drop the penalty proceedings. However, the A.O. after considering the written submissions has imposed penalty of Rs. 25,29,100/- against the maximum permissible of Rs. 75,85,300/-.
2.4 Against the said order passed by the A.O., the assessee preferred an appeal before the CIT (Appeals) which came to be allowed and penalty imposed upon the assessee came to be deleted by order dated 28/01/2005.
2.5 The Revenue, being aggrieved by the said order dated 28/01/2015 preferred an appeal before the ITAT which has dismissed the appeal of the revenue by order dated 27/03/2008 which has given rise to the present tax appeal.
3. While admitting the appeal, the following substantial question of law has been framed:
"Whether on the facts and circumstances of the case and in law, the Appellate Tribunal is justified in deleting the penalty of Rs. 25,29,100/- levied under Section 158BFA (2) of the Act holding that the addition is justified but no case exists for levy of penalty."
4. Learned Counsel for the appellant has submitted that the ITAT has wrongly interpreted the provisions of law and ought to have entertained the appeal preferred by the Department. He has further contended that the AO has rightly come to the conclusion that it has been established that the assessee did not disclose the true and correct income by not filing the regular return of income and further the assessee has never filed his return of income and therefore the penalty proceedings under Section 158BFA(2) are attracted.
5. Learned Counsel for the respondent has submitted that the CIT (Appeals) while considering the issue has discussed the issue in detail at paragraph Nos. 6.1 and 6.2 which has been confirmed by the ITAT and therefore the findings arrived at by both the authorities may not be disturbed.
6. Having heard the learned Counsel for the respective parties and having gone through the findings arrived at by the CIT (Appeals) as well as the ITAT, this Court is of the view that the said view is just and proper. The CIT (Appeals) has discussed the issue in paragraph No. 6.1 and 6.2 which has been relied upon and reads as under:
"6.1
