Dr. S.C Agarwal, Kanpur vs Assessee

This is assessee's appeal directed against the order passed by learned CIT(A)-II, Kanpur dated 22/10/2014 for the block period from 01/04/89 to 13/08/99.

2. The grounds raised by the assessee are as under:

"1. That the Ld. CIT(A)-II, Kanpur has erred in law in sustaining the penalty of Rs.7,58,143/- levied by the Ld. AO u/s 158BFA(2) of the Income Tax Act, 1961.

2. That the Ld. CIT(A)-II, Kanpur has erred in law and on facts in sustaining the penalty of Rs.7,58,143/- u/s 158BFA(2) of the Income tax Act, 1961, without considering and appreciating the written submissions dated 20.10.2014 filed by the appellant.

3. That the order dated 22.10.2014 passed by the Ld. CIT(A)-II, Kanpur is wholly unjustified, unwarranted and against the principles of natural justice and equity, therefore, deserves to be quashed."

2 3. It was submitted by Learned A.R. of the assessee that the penalty has been imposed in respect of two additions. He submitted that one addition, which was confirmed to the extent of Rs.2,28,486/- was made on the basis of alleged unexplained jewellery and this amount was confirmed out of total addition made by the Assessing Officer of Rs.4,28,486/-. He submitted that the addition partly confirmed is on estimate basis and therefore, penalty is not justified. Regarding the second addition on which penalty has been imposed, he submitted that this addition is on account of capital gain and it was explained by the assessee that due to inadvertent calculation mistake, the amount ultimately determined was higher than the income declared by the assessee and therefore, for such bonafide mistake, penalty is not justified. He placed reliance on a Tribunal decision in the case of Smt. Reeta Gupta vs. Dy.C.I.T. 2006 (7) MTC 1025 (Trib), copy of which is available on pages 110 to 104 of the paper book. Reliance was also placed on a Tribunal decision in the case of Dy.C.I.T. vs. C.K.K. Catering Services in IT(SS)A No.2/Bang/2007 dated 21/08/2009. He submitted that copy of this Tribunal order is available on pages 105 to 126 of the paper book.

4. Learned D. R. of the Revenue supported the orders of the authorities below.

5. We have considered the rival submissions. We find that penalty of Rs.7,58,143/- has been imposed by the Assessing Officer in respect of total addition of Rs.12,63,573/- made by the Assessing Officer in block assessment. The details of such additions are noted by the CIT(A) in Para 2 of his order, which is reproduced below for the sake of ready reference:-

"2. The AO has levied penalty of Rs.7,58,143/- u/s 158BFA(2) of the Income-tax Act, 1961 as tax sought to be 3

evaded on Rs.12,63,573/- @60%. The AO has brought every aspects of the case in the penalty order, a plain reading of the order itself makes the penalty evident. A search and seizure operation u/s 132 of the Income-tax Act, 1961 has been conducted on the residence and the clinics of the assessee Dr. S. C. Agarwal on 13.08.1999 (Dr. S.C. Agarwal is a skin specialists). After the finalization of undisclosed income and the assessment u/s 158BC, the assessee preferred appeal to the CIT(Appeals) and the Hon'ble ITAT. The CIT(Appeals)-II, Kanpur vide his order dated 24.07.2002 has sustained the additions of Rs.13,01,371/- while the Hon'ble ITAT, Lucknow vide its order ITA No.951/LUC/2002 and ITA Nlo.754/LUC/2002 dated 19.05.2006 has sustained the following additions:

(i) Additions on account unexplained jewellery 2,28,486/-

out of total addition of Rs.4,28,286/-

(ii) Out of addition of Rs.50,780/- on a/c of 5,000/-

value of Acs/Washing machine

(iii) Addition on a/c of seized documents 95,919/-

(iv) Addition on a/c of undisclosed capital gain 8,78,160/-

Undisclosed income for AY 93-94 5,000/- (v) Out of unexplained deposit of Rs.2,29,252/- 51,008/- -------------- 12,63,573/- --------------

5.1 As per the above details of the additions made by the Assessing Officer and confirmed by the Tribunal in quantum proceedings, we find that the addition of Rs.2,28,486/- has been sustained out of addition made by the Assessing Officer of Rs.4,28,486/- on account of unexplained jewellery.

In Para 26 of the Tribunal order in quantum proceedings, available on page No. 40 and 41 of the paper book, it is seen that it is noted by the Tribunal that CIT(A) has considered jewellery to the extent of Rs.2 lac as explained and confirmed the addition of balance jewellery to the extent of Rs.2,28,486/- out of total addition made. Hence, it is seen that the relief allowed by CIT(A) is purely on estimate basis and as a consequence, the addition partly upheld by him and the Tribunal also remains an addition on 4

estimate basis. It is settled position of law that for estimated addition, penalty is not justified.

5.2 The second major addition on which penalty has been imposed is on account of capital gain of Rs.8,78,160/-. In this regard, it was explained by the assessee in course of penalty proceedings as noted by the Assessing Officer on page No. 7 of the penalty order that jewellery were declared in course of VDIS of Rs.2,70,565/-. Capital gain was declared in assessment year 96-97 to the extent of Rs.1,90,123/- by considering sale proceeds at Rs.10 lacs. It was however explained that the sale proceeds were received in piecemeal by way of cheque of Rs.10 lac deposited in savings bank account on 09/12/97, Rs.6 lac deposited in bank on 12/12/97 and Rs.2,78,160/- deposited in bank on 21/01/98, total Rs.18,78,160/-. It was submitted that application u/s 154 of the Act was filed on 09/08/2001 for rectification for assessment year 1998-99 and therefore, the extra capital gain of Rs.8,78,160/- cannot be considered as undisclosed income and the same has to be considered as income in regular return for assessment year 1998-99. In our considered opinion, under this factual position, penalty u/s 157BFA(2) is not justified because the assessee was under bonafide belief that the extra income in assessment year 1998-99 has to be assessed as regular income in that year and not as undisclosed income in block assessment. Regarding the remaining four additions, we find that two additions of Rs.5,000/- each are purely estimated addition. One addition of Rs.51,008/- is also estimated addition out of unexplained deposit of Rs.2,29,252/- and for such estimated additions, in our considered opinion, penalty is not justified. Regarding the remaining one addition, we find that against this addition of Rs.95,919/-, relief was allowed by CIT(A) of Rs.36,544/- and Rs.19,200/- and addition of Rs.29,447/- was sustained by the CIT(A) but when the Revenue carried the matter in appeal before the 5

Tribunal, the appeal was allowed on these two additions and therefore, as per the Tribunal order, the entire addition was upheld by the Tribunal. Since it was considered proper by CIT(A) that relief is allowable to the extent of Rs.36,544/- and Rs.19,400/-, total Rs.55,744/- out of total addition of Rs.95,919/- on account of seized documents, it has to be accepted that there can be two opinions as to whether any addition is called for or not in respect of such seized documents and therefore, in our considered opinion, even if the addition is sustained in quantum proceedings, penalty is not justified under these facts. In view of above discussion, we find that penalty in the facts of the present case is not justified in respect of any of the additions. We, therefore, delete the penalty.

6. In the result, the appeal of the assessee stands allowed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:05/06/2015 *C.L.Singh

Copy of the order forwarded to : 1.The Appellant 2.The Respondent. 3.Concerned CIT 4.The CIT(A) 5.D.R., I.T.A.T., Lucknow Asstt. Registrar