SMT. DEEPIKA BHALLA,NEW DELHI vs. ACIT, FARIDABAD

Common issue is involved in both these appeals which were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity. & 5715/Del/2015 2 Satya & Deepika Bhalla 3. First I will deal with the appeal in Smt. Deepika Bhalla. The grievance of the assessee in this appeal relates to the confirmation of penalty of Rs.2,00,000/- u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act).

Facts of the case in brief are that a search and seizure operation was conducted at Manav Rachna Education Society of cases on 04.08.2005. Accordingly, the residential premises of the assessee were also searched on the said date, as the husband of the assessee was the trustee in the said society. During the course of search operation, certain documents were seized from the residential premises of Sh. O. P. Bhalla father-in-law of the assessee. A jewellery valuing Rs.11,06,711/- was found from the bed room of the assessee out of which jewellery valuing Rs.6,14,717/- was seized. The AO made the addition of Rs.5,57,375/- by observing in paras 8 & 9 of the assessment order dated 27.12.2007 as under: “8. In view of above facts and legal position and also considering the assessee’s reply, the working of unexplained investment in jewellery is given as under:- Gold Diamond Total jewellery 793.600 gms 6,78,375 4,09,386 Less: jewellery purchased on 2,05,000 20.3.2005 by Prashant Bhalla Balance 793.600 gms 4,73,375 4,09,386 Out of above gold jewellery of 793.600 gms The following jewellery are reduced on account Jewellery received at the time of marriage And other occasion by Mrs. Deepika Bhalla 300.000 gms Jewellery treated as owned by Sh. Prashant Bhalla Husband of the assessee. 100.000 gms Jewellery owned by female child 200.000 gms By male child 100.000 gms. Total 700.000 gms. Remaining gold jewellery weighing 93.60 gms. Valued at Rs.84,000/- (@ Rs.900 per gms.) and diamond jewellery valued of Rs.4,73,375/- are treated as unexplained and added to assessee’s taxable income. Accordingly, an addition of Rs.5,57,375/- (84,000 gold jewellery + 4,73,375 diamond jewellery) is made as unexplained investment of the assessee u/s 69A.

In view of above circumstances, the diamond jewellery of 9.90 ct valued at Rs.5,57,375/- is added to assessee’s taxable income for the assessment year 2006-07 as unexplained investment u/s 69A of the Income Tax Act. I am satisfied that the assessee has concealed/furnishing inaccurate particulars of her income to the extent of Rs.5,57,375/-. The provisions of penalty proceedings u/s 271(1)(c) are clearly attracts on this addition of Rs.5,57,375/-. Income Declared in the return 5,63,810 Addition as discussed above 1,23,000 Addition as discussed 5,57,375 Total taxable income 12,44,185 Assessed: Issue necessary forms. Charge interest u/s 234B & 234C of IT Act. Issue penalty notice u/s 271(1)(c) of the & 5715/Del/2015 4 Satya & Deepika Bhalla I.T. Act for concealing/wrong/inaccurate particulars of income of Rs.6,80,375/- (1,23,000 + 5,57,375)”

The assessee carried the matter to the ld. CIT(A) who deleted the addition of Rs.84,000/- made in respect of gold jewellery and sustained the addition of Rs.4,73,375/- on account of diamond jewellery. Therefore, the AO initiated the penalty u/s 271(1)(c) of the Act by considering this fact that the addition was confirmed by the ld. CIT(A) and accordingly penalty of Rs.1,44,860/- was levied u/s 271(1)(c) of the Act.

The assessee carried the matter to the ld. CIT(A) who sustained the penalty in respect of the addition of Rs. 2,00,000/- which was restricted by the ITAT out of the addition of Rs.4,73,375/- by observing in para 8 of the impugned order as under:

“(i) The appellant has not been able to explain the source of acquiring diamond and gold jewellery weighing 93.60 gms valued at Rs.5,57,375/- found with her in the search operation conducted. During assessment proceedings and this amount of Rs.5,57,375/- was added to the income of the assessee by the AO. (ii) The Hon’ble ITAT has not accepted the arguments of appellant explaining the source of acquiring diamond jewellery and the same argument have been taken up in the appellate proceedings also with ITA Nos. 5714 & 5715/Del/2015 5 Satya & Deepika Bhalla regard to Penalty imposed. However, the Hon’ble ITAT has restricted the addition to Rs.2,00,000/-. (iii) It has been held by the Hon’ble ITAT that in the given facts and circumstances, i.e. VDIS declaration and assessee search statement at the most, the diamonds which are situated in the gold jewellery may be held to be justified. Thus with regard to jewellery amounting Rs.2,00,000/-, the appellant has not been able to offer any explanation about the nature and source of acquisition of the jewellery or the explanation offered by the appellant is not satisfactory and this jewellery is deemed income of the appellant. (iv) The explanation 5A to section 271(1)(c) of the Act thus would apply against the assessee for levy of penalty and it would be a case of deemed concealment of the particulars of income or furnishing inaccurate particulars of income. In view of the above, the AO was justified in imposing penalty. However, the AO is directed to restrict penalty on undisclosed investment in jewellery at Rs.2,00,000/- only.”

Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the addition sustained by the ITAT was only on estimate basis. He referred to page nos. 33 to 38 of the assessee’s compilation which is the copy of the order passed by the ITAT in vide order ITA Nos. 5714 & 5715/Del/2015 6 Satya & Deepika Bhalla dated 31.03.2011. It was further submitted that the diamond jewellery was studded in the gold and it had been accepted by the AO that the jewellery was received by the assessee at the time of marriage and other occasions. It was further submitted that out of total jewellery weighing 793.600 gms, the AO himself accepted the gold jewellery weighing 700 gms and the remaining jewellery weighing 93.600 gms was accepted by the ld. CIT(A) who deleted the addition in respect of the gold jewellery. It was emphasized that the diamond were studded in the gold jewellery and were not part of the separate jewellery. Therefore, the addition of Rs.2.00 lacs although was sustained by the ITAT on estimate basis, however, nothing was concealed by the assessee nor the wrong particulars of income were furnished. Therefore, the penalty u/s 271(1)(c) of the Act was not leviable.

In his rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that the assessee did not disclose the diamond jewellery nor the source of said jewellery was disclosed. Therefore, the income sustained up to the level of the ITAT was the concealed income of the assessee and the penalty was righty levied by the AO u/s 271(1)(c) of the Act which has been sustained by the ld. CIT(A).

From the above observation of the ITAT, it is clear that the addition sustained was an estimated one. It is well settled that if the addition is sustained on estimate basis it cannot be said that the assessee concealed the income or furnished inaccurate particulars of income in respect of the estimated addition. Therefore, the penalty was not leviable u/s 271(1)(c) of the Act. Furthermore, in the present case, the AO himself ITA Nos. 5714 & 5715/Del/2015 8 Satya & Deepika Bhalla accepted the gold jewellery in which the diamond were studded to the extent of 700 gms out of the 793.600 gms jewellery found during the course of search and the ld. CIT(A) accepted the remaining jewellery of 93.600 gms against which the department had not preferred any appeal. In our opinion, when the gold jewellery in which the diamonds were studded has been accepted by the department as the jewellery received at the time of marriage or other occasion, then, it cannot be said that the diamond studded in the said jewellery were out of the undisclosed income of the assessee. It is well settled that the assessment proceedings and the penalty are two different and distinct proceedings and that the addition made in the assessment may be relevant but not a conclusive proof of concealment of income or furnishing of inaccurate particulars of income. Therefore, considering the totality of the peculiar facts of the present case, I am of the view that the penalty u/s 271(1)(c) of the Act, sustained by the ld. CIT(A) was not justified, particularly when the department had accepted the gold jewellery in which the diamond were studded. Accordingly, the impugned order passed by the ld. CIT(A) is set aside and the penalty sustained u/s 271(1)(c) of the Act is deleted. & 5715/Del/2015 9 Satya & Deepika Bhalla 11. As regards to the appeal of Smt. Satya Bhalla in ITA 5714/Del/2015 is concerned. The facts are similar as were involved in the case of Smt. Deepika Bhalla, the only difference is that the addition sustained in this case was of Rs.3,23,900/- on account of diamond jewellery instead of Rs.2,00,000/- sustained in the case of Smt. Satya Bhalla (supra). Therefore, the findings given in the former part of this order shall apply mutatis mutandis in respect of this appeal in ITA No. 5714/Del/2015. Accordingly, the penalty levied by the AO and sustained by the ld. CIT(A) u/s 271(1)(c) of the Act is deleted.

In the result, the appeals of the assessees are allowed. (Order Pronounced in the Court on 30/05/2016)