Page 1 of 10 1 IT(SS)A No.23/Bang/2007 IN INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI MOHAN ALANKAMONY, A.M IT(SS)A No.23/Bang/2007 (Block period 1/4/1987 to 9/12/1997) M/s Dhanalakshmi Jewellers, Nehru Road, Shimoga. - Appellant Vs Asst. Commissioner of Income-tax, Circle-1, Shimoga. - Respondent Appellant by : Shri Balram B Rao, Advocate Respondent by : Shri Prabhakar Reddy ORDER PER GEORGE GEORGE K : This appeal instituted by assessee is directed against order of learned CIT(A), Hubli dated 23/2/2007 in relation to block period 1/4/1987 to 9/12/1997. impugned order of CIT(A) emanates from order of Ass. CIT passed u/s 158BFA(2) of I T Act. 2. solitary issue that is raised is whether CIT(A) is justified in confirming penalty levied u/s 158BFA(2) amounting to Rs.1 lakh. Page 2 of 10 2 IT(SS)A No.23/Bang/2007 3. Brief facts of case are as follows:- assesee is firm. There was search and seizure operation u/s 132 of I T Act on 23/12/1997 in business place as well as residential premises of partners. Notice u/s 158BC was issued. In pursuance to same, assessee filed return of income declaring undisclosed income of Rs.1,99,196. undisclosed income of Rs.1,99,916/-, declared in return of income pertains to asst. year 1998-99 and represents value of excess golden jewellery found during search and seizure. assessment u/s 158BC was completed fixing total income of Rs.12,12,360/- by levying following additions:- a) Undisclosed income (estimated from Unaccounted sales) Rs. 6,47,360 b) Undisclosed investment (Unaccounted sundry debtors) Rs. 5,65,000 Rs.12,12,360 4. Aggrieved by order of assessment, assessee carried matter before CIT(A). 5. CIT(A) deleted addition of Rs.5,65,000/-. With regard to addition of Rs.6,47,360/-, Commissioner gave partial relief. 6. Both revenue and assessee carried matter in appeal before Income Tax Appellate Tribunal. Page 3 of 10 3 IT(SS)A No.23/Bang/2007 7. Tribunal in its order dated 10/3/2006 (IT(SS)A No.4 & 5/Bang/2003) confirmed order of CIT(A) in deleting Rs.5,65,000/-. With regard to addition of Rs.6,47,360/-, Tribunal held that assessee is entitled to 50% of relief of Rs.6,47,360/-. 8. Thereafter, notice u/s 158BFA was issued and Asst. CIT levied penalty of Rs.1,00,000/- for addition sustained by Tribunal in quantum assessment. order of penalty of ACIT was affirmed by first appellate authority. 9. assessee, being aggrieved by levy of penalty u/s 158BFA, is in appeal before us raising following grounds:- i) learned CIT(A) ought to have appreciated that appellant had undisclosed income of Rs.1,99,196/- but after giving effect to order of Tribunal, undisclosed income that is liable to be assessed stood at Rs.88,191/- and consequently no penalty was exigible in hands of appellant. ii) learned CIT(A) ought to have appreciated that additions as retained by Hon ble Tribunal was on account of variation in valuation of stock at higher rate and consequently, he ought not to have confirmed levy of penalty as valuation was done only on estimate basis. iii) learned CIT(A) ought to have appreciated that there was no concealment much less furnishing of inaccurate particulars of income and consequently no penalty u/s 158BFA(2) was liable to be levied. Page 4 of 10 4 IT(SS)A No.23/Bang/2007 iv) Without prejudice, learned CIT(A) ought to have appreciated that no satisfaction having been recorded in course of assessment proceedings, no penalty u/s 158BFA(2) was liable to be made. v) learned CIT(A) ought to have appreciated that proviso to section 158BFA(2) applied and if assessed income is less than returned income, no penalty u/s 158BFA(2) was liable to be confirmed. 10. assessee reiterated submission made before authorities below whereas learned DR supported finding of authorities below. 11. We have heard rival submission and perused material on record. Section 158BFA(2) reads as follows:- 158BFA(2) - Assessing Officer or Commissioner (Appeals) in course of any proceedings under this Chapter, may direct that person shall pay by way of penalty sum which shall not be less than amount of tax leviable but which shall not exceed three times amount of tax so leviable in respect of undisclosed income determined by AO under clause of section 158BC. Provided that no order imposing penalty shall be made in respect of person if (i) such person has furnished return under clause (a) of section 158BC; (ii) tax payable on basis of such return has been paid or, if assets seized consist of Page 5 of 10 5 IT(SS)A No.23/Bang/2007 money, assessee offers money so seized to be adjusted against tax payable; (iii) evidence of tax paid is furnished along with return; and (iv) appeal is not filed against assessment of that part of income which is shown in return: Provided further that provisions of preceding proviso shall not apply where undisclosed income determined by Assessing Officer is in excess of income shown in return and in such cases penalty shall be imposed on that portion of undisclosed income determined which is in excess of amount of undisclosed income shown in return. 11.1 Reading above provision, it is clear that levy of penalty u/s 158BFA(2) not automatic. Judicial discretion is vested in taxing authorities not to levy penalty where there are facts and circumstances to exercise such discretion. reason we say so is for following reasons:- i) Penalty proceedings are in nature of quasi- criminal ii) legislature has used may instead of word shall . iii) legislature has provided that before levy of penalty reasonable opportunity of being heard is to be granted to assessee. 11.2 In instant case, penalty of Rs.1,00,000/- has been imposed, based on quantum addition sustained by Tribunal Page 6 of 10 6 IT(SS)A No.23/Bang/2007 amounting to Rs.3,23,680/-, being undisclosed income (estimated from unaccounted sales). In quantum assessment, AO has determined undisclosed income (estimated from undisclosed sales) at Rs.6,47,360/-. On further appeal, CIT(A) granted relief from above addition to extent of Rs.76,160/-. On further appeal by assessee, Tribunal sustained 50% of Rs.6,47,360/-. above addition was made for these reasons. It was noticed in course of search that assessee had effected two types of sales - a) Direct sale of gold articles, wherein sale bill is drawn directly; b) Sale of gold to order. In this case customers order for particular item and may give gold for same. When item is ready, receipt bill is prepared and then sale bill for balance gold incurred by firm after adding wastage and making charges. In second type of sales, there is order no.1683 dated 6.11.1997 (seized Annex.A/DJ/3 Material No.23). As per order, one Smt. Parvathamma was said to have ordered for gold ornament of 32 grams and claimed to have given old gold of 31.1 grams. This item has been prepared and receipt bill no.1271 dated 3.12.1997, as per which total amount comes to Rs.806.30 (Rs.506.3 towards 1.22 grams of gold and Rs.300 towards making charges). However, on back side of order form seized, following writing made by partner Sri Ramachandra (partner) is noticed: Page 7 of 10 7 IT(SS)A No.23/Bang/2007 13280 250 13480 12000 received 1480 balance During course of search, Shri Ramachandra was asked to explained entries found therein. In sworn statement recorded on 10th December, 1997, he has stated as under:- Q.No.5 Please refer to order No.1683 dt.6.11.97. Please tell me details. Ans: Vide above order form, Smt. Parvathamma has given order for 32 gms and has given old gold of 31.1 gms. Q.No.6 Have you prepared receipt bill for this? Ans: Yes. receipt bill prepared is No.1271 dt.3.12.97. total value of bill is Rs.506.30 towards value of gold and Rs.300/- towards labour charges. Q.No.7 I am showing you back side of order form No.1683. Please identify handwriting. Ans: handwriting is mine. Q.No.8 If so, please tell me what is that? Ans: party has purchased ornament on approval basis for sum of Rs.13,480/- out of which sum of Rs.12,000/- was paid by them. balance amount is to be received by me. Q.No.18 fact that sum of Rs.12,000/- out of sale price of Rs.13,480/- amounting to 90% has been received by you. This fact goes to prove that customer has accepted item. What prevented you from drawing bill after receiving such huge advance? Ans: party has returned approval articles while taking their own gold articles. Page 8 of 10 8 IT(SS)A No.23/Bang/2007 11.3 Based on evidence and statement of assessee, AO concluded that items sold for cash is regular sale and assessee had suppressed sale by camouflaging same into order form transaction and accounting only making charges and value of difference of gold. Therefore, he compared order forms and amounts that are recorded in books of accounts based on order forms and on basis of this comparison, he concluded that ratio between accounted sales and unaccounted sales was to tune of 1:8. 11.4 assessee objected to above addition and contended that order slips represents genuine order transaction with customers and they are not sales. It was submitted that assessee had shown actual sale receipt bills corresponding to these order form receipts. addition is based on statement of assessee that purchase of ornaments is on approval basis amounting to Rs.13,280/- was not billed and based on same, estimation was made. So concrete evidence for not billing sale is in respect of only Rs.13,280/-. However, assessee has explained same as not billed and is not sale effected by it for reason that purchase of ornaments are on approval basis and if same is not approved, ornaments are returned and assessee returns cash to customer. This version/story of assessee was disbelieved for making estimated addition. Page 9 of 10 9 IT(SS)A No.23/Bang/2007 11.5 In instant case, when sale of gold is effected as per order, customer will give specification of ornaments to be made and also he may entrust old jewellery for making these ornaments. When item is ready, receipt bill is prepared and then sale bill for balance gold utilized by assessee firm after adding making charges is issued. Here, assessee, in course of assessment proceedings, has been able to correlate sale receipts corresponding to order form receipts. order form contains details of old gold receipt from customers for making new design jewellery as per specification of customers. Therefore, addition may be justified in assessment proceeding for computing tax but penalty cannot be levied solely on basis of reason given in order of assessment. penalty proceedings are penal in character. addition is based purely on estimate basis which was reduced by CIT(A) and further reduced by Income Tax Appellate Tribunal in quantum assessment. For above reasons, we find on facts and circumstances of case, levy of penalty amounting to Rs.1,00,000/- is not justified and we cancel same. It is ordered accordingly. 12. In result, appeal filed by assessee is allowed. Page 10 of 10 10 IT(SS)A No.23/Bang/2007 order pronounced on Friday, 18th day of February, 2011 at Bangalore. Sd/- Sd/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER Copy to : 1. Revenue 2. Assessee 3. CIT concerned. 4. CIT(A) concerned. 5. DR 6. GF MSP/14/2/ By order Asst. Registrar, ITAT, Bangalore. M/s Dhanalakshmi Jewellers v. ACIT