DR. C. MOHANAN vs. THE DEPUTY COMMISSIONER OF INCOME TAX

The question of law which is raised for consideration in this appeal is as follows : “In the facts and circumstances of the case, ought not the Tribunal have held that in view of the conduct of the assessee in co-operating with the Department in the proceedings of assessment penalty under section 158 BFA(2) was not leviable?”

We heard learned counsel for the appellant and the learned Senior Government Pleader for Revenue.

Learned counsel for the appellant submits that there is no basis for imposing penalty. According to him, the appellant had filed revised return for the assessment years in question on 26.6.2003. Therefore, there is no basis for imposing penalty. He would further contend that on perusal of the relevant proviso, the appellant is justified in contending that penalty proceedings will not lie against the appellant.

As far as the filing of revised return is concerned, it is clear that the revised return is filed only after the date of the search. More over, under section 139(5) of the Act, no revised return can be filed after a period of one year from the end of assessment year or passing of assessment orders which ever is earlier. The assessment years in question are 1997-98 to 2003- 2004. No doubt, for a period of one year or so the bar under section 139 may not apply. As far as other years are concerned, it is not even open to the appellant to contend that he has filed revised return as understood by section 139. Be that as it may, we will pass on to consider the effect of proviso to section 158 BFA. It is the point sought to be focused before us by the learned counsel for appellant. Section 158 BFA (2) and the provisos read as follows : Levy of interest and penalty in certain cases. 158 BFA. (2) The Assessing Officer or the Commissioner (Appeals) in th 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; (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 no 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.

Learned counsel for the appellant would fairly submit that appellant has not filed the return as contemplated under clause (1) of proviso that is to say he does not dispute that fling of 'Nil' return pursuant to notice will not satisfy the requirements of clause (1) to the proviso. His contention however is that, if we pass on to the next clause namely, he has offered the money. According to him, he offered that tax due can be adjusted from the amount seized. Therefore, requirement of clause (2) would be satisfied. Since clause (2) is satisfied, as also the fact that he has not filed any appeal against the assessment of that part of income shown in the return, the requirements of the proviso are satisfied and consequently he is legally protected from penalty proceedings, it is submitted. In this context, he drew our attention to an unreported judgment of this court in ITA.323 of 2002, particularly to the following passage: “It may be noticed that penalty under the above provision is the general Rule in the event of assessment of undisclosed income under section 158BC and exclusion from penalty is an exception covered by the first proviso to the main section, which is subject to the second proviso thereto. What is clear from the first proviso is that if, pursuant to the notice issued under section 158 BC(a) assessee files return, remits tax and does not proceed to contest the undisclosed income returned based on which assessment is made, there is no scope for any penalty. However, the second proviso is an exception to the first proviso which makes it clear that if any undisclosed income is assessed over and above the undisclosed income returned by the assessee in the return filed pursuant to notice issued under section 158 BC(a), penalty is to be levied on such excess income assessed.”

Per contra, learned senior counsel for revenue would draw our attention to a judgment of this court reported in (2011) 337 ITR 359 Commissioner of Income Tax v. Heera Construction Company Private Ltd.

We are unable to see merit in the contention of learned counsel for the appellant. Admittedly the appellant has not filed the return within the meaning of clause (1) to the proviso. The return filed being 'Nil' return, he cannot also lay store by the revised return filed earlier. The law is very clear that the party seeking protection from the penalty must file return pursuant to notice under section 158 BD. Learned counsel for the appellant concedes that 'Nil return filed does not satisfy the proviso. On a perusal of the provisions contained in the proviso, we are of the clear view that requirements which are to be satisfied are cumulative. The law contemplates that on receipt of notice under section 158 BD, the party must file return disclosing the income. He must pay the tax or he must offer that the money seized may be adjusted against the tax payable. He must provide the evidence for tax paid along with the return in clause (iii). We also notice the presence of the word 'and' after clause (iii) which is followed by clause (iv) which deals with the last of four requirements to be fulfilled by the assessee, namely, that he should not appeal the assessment of that part of income shown in the return. The provisions of clause (iv) clearly indicate that he must not file any appeal against that part of income which is shown in the return. This signifies that the assessee must indeed file a return and not a 'Nil' return and that all the clauses must be fulfilled. Therefore, we are of the view that there is no merit in the appeal. We answer the question against the appellant. The appeal is dismissed.