By TIOL News Service

MUMBAI, AUG 07, 2014: THE issue before the Bench is - Whether if the Tribunal has duly considered the notings made in seized record, surrounding circumstances and finally has given a finding that the remuneration received is in excess, it can be accepted that addition made on such basis has been sustained on estimate basis. And NO is the answer of the Tribunal.

Facts of the case

The assesee is an actress by profession. The Revenue conducted a search of her premises u/s 132. The assessee filed her block return declaring undisclosed income of Rs.26,17,283/-. The AO, however, determined the amount of undisclosed income at Rs.1,58,41,635/-. The assessee had shown the remuneration received for a film at Rs.27.00 lakhs. Based on the seized material, the AO held that the assessee had received Rs.48.00 lakhs as remuneration for the above said film and accordingly added the difference to the undisclosed income of the assessee. The same was confirmed by the CIT(A). The Tribunal, however, gave a finding that the remuneration for the film was Rs.36.00 lakhs and accordingly restricted the addition to Rs.9.00 lakhs. Against this addition, the AO levied penalty u/s 158BFA(2).

The assessee had also incurred expenses on renovation of three flats having aggregate area of 2040 Sq.ft. Based on the seized materials, the AO added amounts noted in various loose sheets. In the quantum appellate proceedings, the Tribunal accepted the contention of the assessee that there were overlapping in noting down the expenditure incurred in respect of the above said three flats. Hence, the Tribunal estimated the cost incurred on interior decoration of all the three flats at Rs.40.00 lakhs. Since the assessee had already disclosed Rs.34,84,082/-, the Tribunal confirmed addition to the extent of Rs.5.00 lakhs only. Against this addition also, the AO levied penalty u/s 158BFA(2).

On appeal, the Tribunal held that,

++ a careful perusal of the order passed by the Tribunal in the quantum assessment proceeding would show that the Tribunal has considered the claim of reduction of remuneration subsequent to the date of search and has expressed the view that the same seems to be an afterthought. Further the Tribunal has duly considered the noting made in the seized record, the conduct of the father of the assessee who used to maintain records of the assessee and accordingly held that the assessee was to receive a remuneration of Rs.36.00 lakhs. Since the assessee has claimed to have received a sum of Rs.27.00 lakhs only, the Tribunal has held that the assessee must have received the balance amount of Rs.9.00 lakhs in cash. Thus, we notice that the Tribunal has considered all the submissions made by the assessee, the seized material, surrounding circumstances, conduct of the assessee’s father who maintained the record and finally has given a finding that the remuneration was Rs.36.00 lakhs. Under these set of facts, we are unable to agree with the contention of the A.R as well as with the view expressed by CIT(A) that the addition of Rs.9.00 lakhs has been sustained on estimate basis. In our view, the above said addition has been sustained on the basis of seized material only. Hence, we are of the view that the assessing officer was justified in levying penalty on the above said addition u/s 158BFA(2);

++ the counsel for the assessee also contended that the penalty is not exigible since the High Court has admitted the appeal filed by the assessee challenging the decision rendered by the Tribunal in respect of the addition of Rs.9.00 lakhs referred above. In this regard, the A.R also relied upon the decision rendered by the Co-ordinate bench in the case of M/s Ekta Exports. We have gone through the said decision and we notice that the co-ordinate bench has followed decisions rendered by other co-ordinate benches in respect of penalty levied u/s 271(1)(c). In respect of penalty levied u/s 271(1)(c), it has been held that the admission of substantial question of law by the High Court lends credence to the bonafides of the assessee. The said view gets support from Explanation 1 to sec. 271(1)(c). Under Explanation 1 to sec. 271(1)(c), an assessee can escape from penalty, if he proves his bonafides. Hence, the Tribunals have expressed the view that the admission of substantial question of law by the High Court makes the issue debatable and thus proves the bonafides of the assessee. However the Explanation 1 to sec. 271(1)(c) is not applicable to sec. 158BFA(2). In the absence of such kind of relation, we are unable to agree with the contentions of the assessee with regard to the above said proposition. In view of the foregoing, we set aside the order of CIT(A) with regard to the penalty levied on the addition of Rs.9.00 lakhs referred above and restore the order of the AO in respect of the same;

++ the Tribunal has given a finding that there were overlapping in the seized materials wherein the items of work were found noted. Under these circumstances, the Tribunal has estimated the amount spent on interior works of three flats at Rs.40.00 lakhs and thus sustained the addition to the extent of Rs.5.00 lakhs. Hence, we agree with the view expressed by CIT(A) on this addition that the Tribunal has sustained the addition on estimated basis and the Tribunal could not come a conclusion from the seized material that there was undisclosed income in incurring interior decoration works. Hence, in respect of this issue, we agree with the CIT(A) and accordingly hold that the first appellate authority was justified in directing the assessing officer to delete the penalty. In the result, the appeal filed by the revenue is partly allowed.

(See 2014-TIOL-507-ITAT-MUM)