Penalty us 158BFA2 for jewellery Loose Papers found during search as undisclosed income deleted as addition was made on the basis of probabilities

Penalty us 158BFA2 for jewellery Loose Papers found during search as undisclosed income deleted as addition was made on the basis of probabilities.

Case Law Details:
ITA No.85/Lkw/2016  Block Period ending on 14/09/2002
Dr. Harnam Singh vs. ACIT
Date of Judgment: 27/05/2016

Brief Facts of the Case:
During a search & seizure operation u/s 132(1) at the residence and clinic premises of the assessee unexplained cash, jewellery, other valuable assets and loose papers etc. were found. Subsequently, the assessment was completed for the block period. The Assessing Officer also initiated the penalty proceedings u/s 158BFA(2) holding that loose papers found was related to the purchase of jewellery items which was added in the total income of the assessee of the block period as undisclosed income. The assessee stated that the same did not relate to the assessee but it belonged to the family members. The Assessing Officer did not accept the explanation of the assessee and even did not record the statement of the family member but levied the penalty on the assessee amounting to Rs.50,000/-. The assessee went in appeal before the CIT(A) who confirmed the order of the Assessing Officer as the addition in quantum appeal was confirmed by the Tribunal.

Against the penalty, the assessee approached the ITAT.

Contentions of the Assessee:
The assessee contended that the jewellery was not purchased by him nor was found at the time of search, the bills also did not relate to him. The bills did not contain his name or address and as per the bills found, they were merely “estimates” as mentioned therein and were not actual bills. The same did not belong to him but belonged to his wife. Simply because the bills were found at the time of search, it did not mean  that the assessee had purchased the jewellery and the same belonged to him. The penalty has been imposed merely on presumption. No statement of the assessee was recorded at the time of search with reference to these alleged bills. Even during the course of assessment proceedings, the statement of the wife of the assessee was not recorded.

Important Excerpts from ITAT Judgment:

We are of the view that the levy of penalty u/s 158BFA(2) is not mandatory that the penalty has to be levied in each and every case wherever the addition has been sustained. This is a case where no doubt the loose paper was found from the possession of the assessee but it does not prove that the assessee has actually purchased the jewellery and made the investment. Even we noted that no statement, as confirmed by Learned D. R., was recorded at the time of search of the assessee with regard to these loose papers. We noted that the income of the assessee has mainly been computed on the basis of the surrender and seized papers. The assessee has accepted that this paper may belong to the jewellery purchased by his wife. The assessee and his wife both are different assessees if at all, it can be the income of the assessee’s wife. Since the addition has been made merely on the basis of probabilities, we therefore, are of the view that it is not a fit case where the penalty can be imposed u/s 158BFA(2).