Jrd Stock Brokers (P) Ltd4 v. Commissioner of Income Tax-Ii

order as to costs."

¶6The same High Court later in Giriraj (supra) echoed the same view as follows: "9................................A fact or allegation based on estimation, cannot be said to be correct only, it can be incorrect also. Page 7 Therefore, in the facts and circumstances of the case, penalty was wrongly imposed by the Assessing Officer. In these circumstances, we find that the judgment of the hon'ble apex court, referred to by the learned counsel for the appellant, is not applicable, in the facts and circumstances of the present case."

¶7Harkaran (supra) was a case that concerned itself with whether on facts the assessee had, during the course of the proceedings after the survey under Section 132 of the Act surrendered the amounts which were ultimately brought to tax. The Court relied upon various rulings to say that the proceedings under Chapter XIV-B were special in nature and rather constituted a complete code and that in the circumstances, the surrender of amounts would not ipso facto lead to the inference that the amounts were determined by the AO pursuant to material seized in the course of search.

¶8Section 158BFA(2) reads as follows: "[Levy of interest and penalty in certain cases. 158BFA. (1) XXXXXX XXXXXX

(2) The Assessing Officer or the Commissioner (Appeals) 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 158BC : 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 158BC; Page 8

(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 : 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 income 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."

¶9The plain terms of the provision – which Harkaran (supra) emphasised occur in a separate part of the Income Tax Act. Chapter XIV-B entitled "Special procedure for assessment of search cases" nowhere indicates that an estimation of income tax logically based upon inference drawn in the case of block assessment procedure is per se excludable from the ambit of the penal provision. The plain text of the enactment says that the AO has the discretion to levy penalty, "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 158BC". In the present instance, there is no doubt at all that the AO did determine the undisclosed income; that it was based upon estimation or an inference is a matter of detail. The plain text of the enactment admits no room for doubt that all manners of determination of income, per se might call for action at the discretion of the AO. As to whether the AO has properly exercised Page 9 discretion in a particular matter or otherwise can certainly be subject to further scrutiny. The plain text of enactment, however, does not admit of the interpretation which was favoured by the two Rajasthan High Court judgments cited by the assessee. The assessee's argument that there was no fresh material since the entire amount was disclosed earlier and that amount has not been varied, in our opinion, is not accurate. The sum of `1,04,76,94,004/- was claimed in entirety (originally) to have been derived from share business. However, it did not exclusively stem from the share business and in fact the assessee admitted, in the course of search proceedings under Section 132(4) of the Act, that the said amount also included sums forming part of the turnover on account of providing accommodation entries. Now, that radically changed the complexion of the nature of declaration made and certainly formed the basis for materials discovered during the course of proceedings. Furthermore, having regard to this admission, the AO, most importantly, was entitled to determine: having regard to the nature of commission originally declared, whether that was in line with the new activity disclosed. It is a matter of record – noted by the CIT(A) in the quantum proceedings that the commission ranged upto 1%. Having regard to the conspectus of circumstances, therefore, the AO determined the commission to be 1.5% on the said total turnover; the ITAT decreased it. Nonetheless, the important fact is that the determination in the course of block assessment order was based upon a material discovered, i.e. in the form of statement made by the assessee under Section 132(4) of the Act; that radically changed the character of the income originally declared. Consequently, the estimation directed by the ITAT was accepted by the assessee. Page 10

¶10In view of the above circumstances, this Court is of the opinion that the question of law urged has to be answered against the assessee and in favour of the Revenue. The appeal is consequently dismissed along with the pending application. S. RAVINDRA BHAT (JUDGE) R.K. GAUBA (JUDGE) MARCH 04, 2015

Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI Decided on : 04.03.2015 + ITA 134/2014, C.M. APPL.5666/2014 JRD STOCK BROKERS (P) LTD. ……Appellant Through: Sh. R.P. Garg, Advocate. Versus COMMISSIONER OF INCOME TAX-II ……Respondent Through: Sh. Kamal Sawhney, Sr. Standing Counsel with Sh. Sanjay Kumar, Jr. Standing Counsel. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K. GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1. In this appeal, the assessee claims to be aggrieved by an order of the Income Tax Appellate Tribunal (ITAT) dated 18.07.2008 in IT(SS) A. No.236/Del/2006. The question of law urged is: "Whether in the circumstances of the case, the penalty under Section 158BFA(2) of the Income Tax Act, 1961 could be levied in respect of income which was not undisclosed income but was determined on the basis of estimation on the application of Weight Formula on gross credits in various bank statements considered as turnover?" Page 2 2. The brief facts are that a search operation was carried on 24.11.2000 in the office of the appellant assessee and the residence of its Directors. The books of accounts, documents and other materials were seized. The assessee, when called upon to file the return, filed a NIL return for the relevant block period, on 11.10.2002. The Assessing Officer (AO) completed assessment under Section 158BC(c) at `8,90,36,597/- which comprised of inter alia undisclosed provisional income of `1,57,15,409/- arrived at by adopting a flat rate of 1.5% on the aggregate of all credit entries in the bank account statements of the assessee. Other than this amount, the AO also added sums of money on the basis of unexplained cash deposits and negative balances; the Commissioner of Income Tax (Appeals) [hereafter referred to as "CIT(A)] directed the cancellation of the sums added on account of negative balances. However, the CIT(A) rejected the assessee's contentions with respect to addition of `1,57,15,409/-. The assessee had, in the original returns, declared the amounts to be derived on account of share trading transactions. The assessee's contentions were rejected because the AO and the CIT(A) found that in the statement recorded under Section 132(4) of the Income Tax Act, 1961 (hereafter referred to as "the Act"), the assessee had admitted that the said sum of `1,04,76,94,004/- was actually not entirely based on share transactions but was also based on accommodation entries. The assessee had stated in the returns that the commission received on the share transactions ranged between 0.25% and 0.5%. The CIT(A), however, found that there was material suggestive of receipt of commission of upto 1% even on the share transactions. In these circumstances, the estimated income added back by the AO on the basis of his assessment of the true income (on the business activity of providing accommodation entries which Page 3 the assessee was engaged in) was to the extent of 1.5% of the total turnover indicated. 3. The ITAT, in the appeal preferred by the assessee, upheld the substantive decisions of the AO and the CIT(A) [in IT(SS)A No.54/Del/2004 dated 30.11.2004]. However, the ITAT directed rejection of the 1.5% turnover of commission attributed by the AO – and upheld by the CIT(A) in the following terms: "10. As far as application of rate of 1.5% to the turnover was concerned, the learned CIT(A) referred to seized documents – pages 6 to 8 of Annexure A-40 and pages 1 to 16 of Annexure A-2 which showed that commission of 1% to 1.25% was charged whereas the same was shown between 0.05% to 0.1% in the accommodation bills as per books of accounts. The balance commission was settled outside the books of accounts and received in cash. After considering facts and circumstances of the case, the learned CIT(A) observed that the AO in this case after giving due consideration to assessee's submissions and information available as per seized record and gathered during the course of search, was justified in applying r