1 (1) COMMISSIONER OF INCOME TAX, UDAIPUR VS. SHRI SATYENDRA KUMAR DOSI (D.B.INCOME TAX APPEAL NO.195/08) (2) COMMISSIONER OF INCOME TAX, UDAIPUR VS. SHRI NAGENDRA KUMAR DOSI (D.B.INCOME TAX APPEAL NO.196/08) Date of Order:- 19th January,2009. HON'BLE MR.JUSTICE A.M.KAPADIA HON'BLE MR.JUSTICE SANGEET LODHA Mr.K.K.Bissa, for the appellant. BY THE COURT :- (PER HONBLE MR.SANGEET LODHA),J. 1. These two appeals under the provisions of Section 260 A of the Income Tax Act, 1961 ( in short “the Act of 1961” hereinafter) filed by the Revenue are directed against order dated 13.3.07 passed by the Income Tax Appellate Tribunal,Jodhpur Bench,Jodhpur ( in short “ITAT” hereinafter)in ITSSA No.14/JDPR/2006 and ITSSA No. 15/JDPR/2007 in respect of block period Assessment Years 1996-97 to 2001-02, whereby the appeals preferred by the Revenue against separate but similar orders dated 18.10.05 passed by the Commissioner of Income Tax(Appeals) ( in short “CIT(A)” hereinafter) in the case of each of the respondent-assessees deleting the penalty imposed u/s 158 BFA(2) by the Assessing Officer (in short “AO” hereinafter), stands confirmed. 2. The respondent-assessees and one Shri Virendra Kumar Dosi are brothers, who are engaged in money lending business jointly at Banswara. A search was conducted at their residential 2 premises on 3.1.02. The assessees filed their respective returns for the block period in response to the notices issued u/s 158 BC of the Act of 1961, declaring the total undisclosed income of three brothers at Rs.56,33,926/-. The AO assessed the total undisclosed income at Rs.88,67,116/-. The assesses' undisclosed income being found much more than the income declared in the block period returns, the AO initiated the penalty proceedings against the respondents-assessees and their brother Shri Virendra Kumar Dosi u/s 158 BFA(2) of the Act of 1961. After due consideration of the explanations furnished by the assessees, the AO levied penalty quantified at Rs. 19,39,913/- ( Shri Narendra Kumar Dosi Rs.6,41,839/-, Satyendra Kumar Dosi Rs.6,56,235/- and Virendra Kumar Dosi Rs.6,41,839/-) which comes to 100% of the tax leviable on the difference of assessed and returned income. It is relevant to mention here that the appeals of the assessee in quantum proceedings were decided by the learned ITAT and the income of the assessses after the appellate orders stands quantified at Rs.67,17,116/-. 3. The validity of penalty orders dated 6.8.02 passed by the AO as aforesaid was challenged by each of the assessees by way of separate appeals before the Commissioner of Income Tax (Appeals), Udaipur. After due consideration of overall facts of the case and the decisions cited on behalf of the assessees, the 3 learned CIT(A) arrived at the finding that the difference between assessed income and returned income is not because of any concealment of income by the assessees or because of any inaccurate particulars of the income furnished by the assesses. According to the CIT(A) the difference in opening capital claimed by the assessees and allowed by the CIT(A) ( in quantum appeals) was on account of different method and different calculation followed by the assessees. According to the CIT(A)the assesses did not disturb the actual concealment of the income and accordingly offered undisclosed income on the basis of Neelgagan Diary seized during the course of search. Accordingly, on consideration of totality of the facts and circumstances , the learned CIT(A) arrived at the finding that non allowance of the opening capital balance by the AO and the reduction of the opening capital balance by the CIT(A) Central,Jaipur, from 35 lacs to 15 lacs following different method and working of the same than that of the appellant cannot be said to be undisclosed income of assessees for the purpose of levy of penalty u/s 158 BFA(2) . Accordingly, the penalty imposed by the AO in the case of each of the assessees was ordered to be deleted by the learned CIT(A) vide order dated 18.10.05. 4. On further appeals, before the learned ITAT , it was contended on behalf of the Revenue that u/s 158 BFA(2) a penalty on account of difference in disclosed and assessed 4 undisclosed income has to be imposed automatically as no reasonable cause is admissible thereunder. The learned ITAT after due consideration of the provisions of Section 158 BFA and the rival submissions of the parties so also the earlier decisions of the ITAT held that the provision of penalty as contained in Section 158 BFA(2) is not mandatory. That apart, the learned ITAT opined that in the instant case, the addition is result of estimation of the opening capital involved prior to the block period and in the block assessments while computing the undisclosed income for the block period, capital possessed by the assessees prior to the block period as revealed from the ledger and the material seized during the search could not be treated as undisclosed income of the first assessment year in the block period. Accordingly, order passed by the CIT(A) deleting the penalty in case of each of the assessees has been confirmed by the learned ITAT by the order impugned in these appeals. 5. In these appeals, the appellants have suggested that following substantial question of law arise out of the order passed by the learned ITAT for consideration of this Court:- “Whether on the facts and in the circumstances of the case as well as in the law the learned Tribunal was justified in upholding the order of the learned CIT(A) deleting penalty levied under Section 158BFA(2) on the basis of wrong facts that the said income in real sense does not relate to the block period as such and by ignoring the vast difference in interpretation of Section 158BFA(3) and 273B of the Income Tax Act”? 5 6. However, during the course of arguments , the learned counsel for the appellant submitted that yet another question as to “whether the provisions of Section 158 BFA(2) providing for penalty on account of difference in disclosed and assessed undisclosed income is mandatory or discretionary”? also arise for consideration of this court in these appeals. 7. It is contended by the learned counsel for the appellant that the learned ITAT has erred in holding that the disputed income in real sense does not relate to the block period as such. The learned counsel submitted that what relates to the earlier period is the opening capital which is on estimate basis and not the income on which penalty is levied. The learned counsel submitted that even if the addition is result of estimated addition, a penalty shall be imposed on that portion of the undisclosed income so determined which is in excess of the amount of undisclosed income shown in the return. The learned counsel submitted that Section 158 BFA(3) only provides for reasonable opportunity being granted to the assessees before imposition of penalty but, in no manner it can be inferred from the provision that no penalty is leviable if the reasonable cause is shown, as it is in certain cases covered by the provisions of Section 273B. Accordingly, it is submitted by the learned counsel that the penalty under Section 158 BFA in respect of undisclosed income determined by the AO is automatic. 6 8. We have considered the submissions of the learned counsel for the appellant and also perused the record. 9. Since the controversy involved in these appeals rolls round the provisions of Section 158 BFA(2), it will be beneficial to reproduce the same:- “158BFA(2) The Assessing Officer or the ld.CIT(A) in the course of any proceedings under this Chapter, 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 the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c ) of section 158 BC” Provided that no order imposing penalty shall be made in respect of a person if; (i)such person has furnished a return under clause (a) of section 158 BC; (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 alongwith the return; and (iv) an appeal is not filed against the assessment of that part of income which is show in the return: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the incomes shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return.” 10. A bare perusal of Section 158BFA (2) goes to show that by virtue of the said provision, the Assessing Officer or the Commissioner of Appeal is vested with the power to direct the 7 assessee to pay the penalty as specified in respect of the undisclosed income determined by the AO under clause (c) of Section 158 BC, however, the AO or the CIT(A) is not empowered to impose the penalty in respect of the person who fulfils the conditions eunmerated in the first proviso to Section 158BFA. It is to be noticed that in the main provision providing for imposition of penalty, the word “may” has been used. It is settled law that the penal provision in the taxing statues shall be construed strictly. From the plain reading of the section 158 BFA(2), it does not appear that in all the cases where the undisclosed income is determined by the AO under clause ( c) of Section 158 BC, the imposition of penalty as specified u/s 158 BFA shall follow as a natural consequences thereof. In our considered opinion, in terms of Section 158 BFA , a discretion is vested with the Assessing Officer to levy the penalty in respect of the undisclosed income but it cannot be inferred from the said provision that the liability for penalty is automatic. Of course, the proviso to Section 158 BFA(2) enumerates the circumstances wherein no penalty is leviable but from that also it cannot be inferred that the absence of the circumstances enumerated will attract the provision of penalty automatically. 11. The contention raised by the learned counsel on the strength of the provisions of Section 273B and 158BFA(3) is also devoid of any merit. Of course, as per the provision of Section 8 273B no penalty shall be imposable on the persons of the assessee as the case may be, on their failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. But then, the said provision in no manner lead to the presumption that in respect of the cases other than covered by Section 273B for any failure or violation imposition of the penalty is automatic. Each provision of penalty has to be construed independently keeping in view the language employed therein. 12. For the aforementioned reasons, we are of the considered opinion that the learned ITAT has committed no error in holding that the provisions of Section 158 BFA(2) providing for imposition of penalty in respect of the undisclosed income determined by the AO under clause (c ) of Section 158BC is discretionary and not mandatory. 13. Moreover,in the instant case, after due examination of the facts and the material on record, the CIT(A) and learned ITAT have concurrently found that the difference of the undisclosed income assessed and the undisclosed income shown in the return does not relate to the block period as such. The ITAT has arrived at the finding that the assessees had claimed to give reduction of amounts calculated on reasonable basis on account of their opening capital as on 1.4.95 from the unaccounted money lending business prior to block period out of the 9 undisclosed income determined in their hands. The learned ITAT has rightly held that the addition is result of estimation of the opening capital involved prior to the block period and in the block assessments while computing the undisclosed income for the block period, capital possessed by the assessees prior to the block period as revealed from the ledger and the material seized during the search could not be treated as undisclosed income of the first assessment year in the block period. Thus, in view of the concurrent finding of facts arrived at by the two appellate authorities, as aforesaid, in our considered opinion, no substantial question of law arises for consideration of this Court in these appeals. 14. In the result, the appeals fail, the same are hereby dismissed. No order as to costs. (SANGEET LODHA),J. (A.M.KAPADIA),J.