ORDER

K.G. Bansal, AM.

The assessee has taken four grounds in appeal, the sum and substance of which is that the learned CIT(A) erred in confirming the penalty levied by the AO under section 158BFA(2) of the IT Act. It is mentioned that the learned CIT(A) erred in law when the provisions contained in s. 158BFA(2) were not held to be in pari materia with the provisions contained in s. 271(1)(c) of the Act.

2. On perusal of the order of penalty, it is seen that the AO and the learned CIT(A) had held that the brokerage or commission income of the assessee from the business of providing accommodation entries should be computed @ 1.5 per cent of the total turnover of Rs. 1,04,76,94,004. The Tribunal directed the AO to reduce the income by calculating it @ 0.60 per cent of the turnover. Thus, the income by way of brokerage or commission was computed at Rs. 62,86,164. The assessee had disclosed in the returns of income the aggregate income of Rs. 40,23,073 for asst. yrs. 1999-2000 to 2001-02. Thus, the difference of these two amounts was determined as undisclosed income of the assessee. This order has not been challenged further by the assessee.

2.1. In the penalty proceedings, it was submitted on merits that the assessee company had not concealed any particulars of income and there is no positive or circumstantial evidence for the same. Since the mens rea was absent in this case, the penalty could not be levied. The AO considered the explanation and pointed out that the provisions contained in s. 158BFA(2) speak only about the excess of undisclosed income determined by the AO over the returned undisclosed income. There is no mention of the word 'concealment'. Therefore, he came to the conclusion that in view of the statutory provision, the penalty was liveable and, accordingly, minimum penalty of Rs. 15,34,375 was levied.

2.2. The levy was contested in appeal before the learned CIT(A). It was pointed out that the income of the assessee was estimated on the basis of the order of the Tribunal. It was not mandatory on the part of the AO to levy the penalty in case assessed undisclosed income exceeded the returned undisclosed income for the reason that in such a situation, there would be no need for providing any opportunity of being heard to the assessee. The learned CIT(A) came to the conclusion that the undisputed facts are that the turnover was not shown correctly in the return for the block period. The Tribunal also came to the conclusion that income by way of brokerage or commission was not shown correctly and completely by the assessee. Therefore,, there was no bona fide reason to delete the penalty. Accordingly, the levy of penalty was confirmed.

3. Before us, the learned counsel for the assessee pointed out that the only addition made in this case was in respect of brokerage or commission income, which was estimated by the AO and the learned CIT(A) at 1.5 per cent, but reduced by the Tribunal to 0.60 per cent of the turnover. The orders of lower authorities show that the only basis for the levy of the penalty was the addition made to the undisclosed income returned by the assessee on an estimated basis. It was further pointed out that the assessee had moved an application to the AO under section 154 of the Act, requesting him to redetermine the turnover. In this connection, our attention was drawn to para 2 on p. 96 of the paper book, in which it was mentioned that the amount of about Rs. 104 crores was not admitted and no opportunity was given for arriving at this figure. The assessee was also not supplied with the copies of bank accounts on the basis of which the turnover was determined at about Rs. 104 crores. This submission was a part of the argument furnished before the CIT(A), made in the course of the appellate proceedings regarding determination of the undisclosed income. Our attention was also drawn towards a letter dated 13th June, 2005 addressed to the AO, seeking rectification in this matter on the grounds that-(i) funds transferred from one bank account to another resulted in considering the same amount twice in the turnover, (ii) credit entries in bank account regarding margin imposed by SEBI do not lead to earning of brokerage, and (iii) dishonoured cheques on account of insufficiency of funds do not lead to any turnover. Our attention was also drawn to pp. 62 to 64 of the paper book, in which request was made to the AO to furnish copies of bank account. Thus, it was argued that in the absence of rectification of the order in respect of the turnover, the levy of penalty on the assessed undisclosed income was not justified.

3.1. Coming to the legal arguments in respect of non-levy of penalty, reliance was placed on the order of Bangalore Bench of the Tribunal in the case of Smt. Mala Dayanithi v. Dy. CIT [2005] 92 TTJ (Bang) 270 : [2004] 91 ITD 46 (Bang.) . The facts of that case were that the addition was made on account of difference in the value of residential house declared by the assessee and estimated by the DVO. The learned CIT(A) held that since assessed undisclosed income was more than the returned undisclosed income, the levy of penalty was mandatory. The Tribunal pointed out that the intention behind affording an opportunity of being heard is that no one should be condemned unheard. Further, if the levy of penalty was mandatory, no useful purpose would be served by granting right to appeal against the levy of the penalty. Therefore, it was held that the assessee has to be heard as to why a particular amount was not disclosed in the return of the block period. If the assessee furnishes a convincing reason, then, the levy of penalty will not be justified. Further, reliance was placed on the order of Kolkata Bench of the Tribunal in the case of Dy. CIT v. Suresh Kumar [2005] 95 TTJ (Kol) 926 : [2005] 97 ITD 527 (Kol) in which it was held that in view of the fact that since the word "may" is used in the section, the levy of penalty cannot be mechanical. The provisions contained in this section are analogous to the provisions contained in s. 271(1)( c) and, therefore, the levy of penalty could not be held to be mandatory. Reliance was also placed on the order of the Delhi Bench of the Tribunal in the case of Dhiraj Suri v. Addl. CIT [2006] 99 TTJ (Delhi) 525 : [2006] 98 ITD 187 (Delhi) , in which it was inter alia held that since the AO himself admitted that the assessee had co-operated in the completion of block assessment proceedings, the levy of penalty was not justified. Reliance was also placed on the order of Kolkata Bench of the Tribunal in the case of Enfield Industries Ltd. v. Dy. CIT [2007] 106 TTJ (Kol) 89 : [2007] 107 ITD 1 (Kol.) . The decision was that since the assessee had co-operated in assessment proceedings with a view to make error-free assessment, it could not be said that the assessee furnished inaccurate particulars of income or concealed the income. Therefore, levy of penalty under section 158BFA(2) was not justified. On the basis of all these decisions, the case of the learned counsel was that the levy of penalty is not mandatory but discretionary and all surrounding circumstances have to be seen to come to the conclusion as to whether the penalty should be levied or should not be levied.

3.2. Further, it was pointed out that in this case the penalty was levied on estimated income, which could not have been done in view of the order of the Lucknow Bench of the Tribunal in the case of Smt Bitoli Devi v. Asstt. CIT [2007] 110 TTJ (Lucknow) 735 . In that case, profit on sales was estimated by the assessee by applying a ratio of 3.3 per cent, which was adopted by the AO at 4.5 per cent . The CIT(A) reduced the rate to 4 per cent. It was held that it could not be said that the assessee had concealed the particulars of her income so as to attract penalty under section 158BFA(2). Thus, the case of the learned counsel was that since penalty was levied in the case of the assessee on estimated profits, the same should be deleted.

3.3. It was also argued that section 158BFA(2) contains all the elements of section 271(1)(c) and, therefore, it was incumbent on the AO to prove the contumacious conduct on the part of the assessee. In this connection, reliance was placed on the order of Ahmedabad Bench of the Tribunal in the case of Gandhi Service Station v. Asstt. CIT [2006] 100 TTJ (Ahd) 1143 . The Tribunal pointed out that the proceedings under this section are akin to proceedings under section 271(1)(c) and, therefore, the burden is on the Revenue to prove the factum of concealment. In this connection, reliance was also placed on the order of the Tribunal in the case of Suresh Kumar (supra), in which it was pointed out that the provisions contained in section 158BFA(2) are similar to the provisions contained in section 271(1)(c) and, therefore, the cases decided under section 271(1)(c) will apply mutatis mutandis under section 158BFA(2).

4. In reply, the learned Departmental Representative pointed out that the order of the Tribunal has become final as the assessee had not filed any appeal in the matter. The assessee was granted an opportunity of being heard by the AO and it was only thereafter that the penalty was levied. The AO has no jurisdiction to rectify the order as his order has merged with the order of the Tribunal, which has become final. Thus, he had no power to rectify the computation of the undisclosed income on the basis of the application filed by the assessee after the passing of the order by the Tribunal. Thus, the application itself is incompetent. Therefore, it was agitated that looking to the facts of the case the lower authorities were justified in levying the penalty.

5. We have considered the facts of the case and rival submissions. Since the order of the Tribunal is the bed-rock for computation of undisclosed income, it would be appropriate if the finding of the Tribunal is reproduced here, contained in paras 15 and 16 from pp. 53, 54 and 55 of the paper book :

"15. We have given careful thought to the rival submissions of the parties and examined them in the light of material available on record. We do not find any force in the contention advanced on behalf of the assessee that provisions of Chapter XIVB were wrongly applied in this case as there is no undisclosed income. In fact, as per admission of the assessee, most of the transactions of sale and purchase shown in the books were fictitious and were entries made to accommodate his clients who were interested in showing profit or loss from the share transactions. It is thus clear that the assessee, in fact, was carrying on a business different from one recorded/reflected in the books of account claimed to be regularly maintained by the assessee. The search further revealed that the assessee was carrying on transactions outside the books of account. It has further been brought on record that the assessee was charging much higher rate of commission than shown in the books. If this is not, then what would be case earning undisclosed income ? Therefore, on the basis of material on record, we hold that the Revenue authorities were fully justified in proceeding against the assessee under Chapter XIV-B of the IT Act. This contention of the assessee is rejected.

16. A reference to seized documents at pp. 7 and 8 record the following entries :

"Page 7—The following notings are made :

Pradeep Aggarwal

Rajni Aggarwal

On the back side of this page it is written short-term

Page 8—Jitesh

On the back side of this page, it is written Mr. Atul Santosh

Similar are the entries in other pages. The contention of the assessee that the assessee did not carry on transaction with Shri Jitesh (named on p. 28) or that entries relate to some rough estimates and not actual transactions has no force. Further argument that entries in the seized record should have further been corroborated with other material, is also required to be rejected. It is clear from above that the assessee was charging various rates of commission between 35 per cent to 1 per cent depending upon the type of entry i.e., whether it related to long-term or short-term capital gains. However, in the regular bills the rate was shown at 0.35 per cent or 0.5 per cent There is direct evidence of assessee indulging in earning undisclosed income through accommodating/fictitious entries and it is not possible to ignore the seized material. The huge credit in large number of accounts maintained by the assessee dealing more than Rs. 104 crores as also maintenance of several benami accounts described as dummy/feeder/ main accounts used to carry on fictitious and ostensible business of share dealing, leave no amount of doubt that the assessee was involved in earning undisclosed income on a very large scale. It is to accept that the assessee did not earn any undisclosed income and that income in its case was to be computed on the basis of books produced by the assessee. We reject the arguments of the assessee."

Insofar as the determination of the undisclosed income is concerned, the matter is covered in paras 17 and 18, which are reproduced below :

"17. It is true that in the case of Shri Manoj Aggarwal, the Revenue authorities applied rate of 0.5 per cent to estimate the commission received from similar accommodating entries and the CIT(A) on further appeal applied a reduced rate of 35 per cent. The parties could not inform us whether the order of the CIT(A) in that case attained finality or was subject to further appeal before the Tribunal. Be that it may, we are not inclined to follow and blindly apply above rate in the case of the assessee. We do not know what was the rate of commission charged, found by the Revenue authorities in the documents seized from the premises of Shri Manoj Aggarwal. It is a matter of common knowledge that there is no fixed rate of commission for supplying bogus and fictitious entries to accommodate people interested in showing profit or loss not actually suffered by them. The nature of business is such that it is not regular and is carried surreptitiously in an illegal manner. The broker can ask for and charge any rate depending upon the circumstances and the need of the client. Besides, it is not possible for us to close our eyes to the material seized in this case which showed that the assessee had been charging commission at various rates upto 1 per cent in certain cases. We, therefore, hold that rate applied in the case of Shri Manoj Aggarwal could not be applied in this case.

18. We now face the question as to what should be reasonable rate of commission in this case having regard to material available on record. The assessee did not dispute that quantum of turnover for providing the accommodation entries to various clients during the year as computed by the AO at Rs. 1,04,76,94,004 is not correct. The commission stated to have been charged and admitted by the assessee ranged from 0.25 per cent to 0.5 per cent The rate as evident from the seized material which has been referred to by the lower authorities does reflect that the assessee had charged a rate as high as 1 per cent. As against this, the Revenue authorities have applied @ 1.5 per cent to the entire turnover irrespective of the nature of entries, whether long-term, short-term gain, etc. It is also noteworthy that the gross rate of commission charged by the assessee can also not be said to be profit eligible to tax. The credit for the expenses incurred in running the business is also required to be considered while estimating the income from business of providing accommodation entries. The total turnover also includes some genuine transactions carried on by the assessee on which rate of commission was admittedly much lower ranging between 0.25 per cent to 0.50 per cent Therefore, having regard to the entire gamut of facts, circumstances and material which is available on record, there does not appear to be justifiable reasons to estimate the commission income of the assessee by applying rate of 1.5 per cent of the total turnover. In our view, it would be in the fitness of the things that the income earned by the assessee was of commission/brokerage on the turnover including accommodation entries profit to its clients is computed @ 0.6 per cent on the total turnover of Rs. 1,04,76,94,004 on which there is no dispute. We accordingly direct the AO to compute income on account of commission/brokerage."

5.1. Before proceeding with the legal issues, it may be mentioned that one of the arguments of the learned counsel was that the turnover of the assessee was not determined correctly. In the course of oral hearing before us, it was also stated that the Investigation Wing of the Revenue Department had determined turnover which was lower than the turnover determined by the AO. However, when questioned about any evidence in this behalf, it was fairly stated by the learned counsel that he has been instructed to state that there is no evidence available with the assessee in this behalf. Since no evidence has been produced regarding the computation allegedly made by the Investigation Wing, the averment to this effect has to be rejected. Further, it is seen from the order of the Tribunal, reproduced above, that the assessee did not dispute the quantum of turnover for providing the accommodation entries to various clients during various years as computed by the AO at about Rs. 104 crores and it was with reference to this turnover that the Tribunal directed the AO to compute the income @ 0.60 per cent. Therefore, we do not find any merit in the argument of the learned counsel that the turnover was not correctly computed and that the AO did not rectify the computation of undisclosed income in spite of its request in the matter. Insofar as providing copies of bank accounts is concerned, the accounts were opened and operated by the assessee. Though it was the plea of the learned counsel that there were difficulties in obtaining old accounts, but the same is not acceptable in absence of any evidence that it took any steps to obtain the accounts from its bankers.

5.2. Coming to the legal issues, it was fairly conceded by the learned Departmental Representative that the levy of penalty is not automatic or mandatory and that surrounding facts and circumstances have to be taken into account for deciding whether the penalty should be levied or not. However, his case was that the AO had granted an opportunity of being heard to the assessee and levied penalty after considering the order of the Tribunal. The background facts of the case are such that it was a fit case for levy of penalty. The case of the learned counsel was that it is for the Revenue to prove that the assessee consciously committed the default of not showing the undisclosed income correctly in the return. In this connection, we may refer to para 15 of the order of the Tribunal, reproduced above. The finding of the Tribunal is that the search and seizure operation revealed that the assessee was carrying on business different from the one shown in the books; there were transactions outside the books of account; and it was charging much higher rate of commission than the rate of commission shown in the books. Therefore, it was held that the Revenue authorities were fully justified in proceeding with the computation of undisclosed income under Chapter XIV-B. Further, it was held that the assessee was charging commission at different rates varying between 0.35 per cent to 1 per cent, depending upon the type of entry. However, in the regular bills, the rate was shown between 0.3 per cent or 0.5 per cent Therefore, there is a direct evidence against the assessee that he was indulging in earning undisclosed income through the business of providing accommodation or fictitious entries and it is not possible to ignore the seized material. In spite of these evidences found in the course of search and of which there was knowledge, the assessee filed a nil return for the block period. While there could be a dispute between the Revenue and the assessee as to whether the case law under section 271(1)(c) will be fully applicable under section 158BFA(2) as the languages employed in the two sections are different, yet, it is clear that the assessee was in the knowledge of undisclosed income, which was not shown at all in any manner in the return of the block period. Therefore, the facts of this case are different from the facts of the cases reported at [2005] 92 TTJ (Bang) 270 : [2004] 91 ITD 46 (Bang) (supra), [2005] 95 TTJ (Kol) 926 : [2005] 97 ITD 527 (Kol) (supra), [2006] 99 TTJ (Del) 525 : [2006] 98 ITD 187 (Del) (supra) and [2007] 106 TTJ (Kol) 89 [2007] 107 ITD 1 (Kol) (supra) relied upon by the learned counsel. Even upon the finding that the levy of penalty is not mandatory, the facts of this case lead to a conclusion that the conduct of the assessee was not bona fide.

5.3. Coming to the argument that the penalty cannot be levied on estimated income, it may be mentioned that the assessee did not furnish the particulars of undisclosed income on the basis of seized material and only nil income was returned. In such circumstances, the assessment had to be completed in the manner provided under section 144, which was done by the AO, the learned CIT(A) and the Hon'ble Tribunal. The facts of the case of Smt. Bitoli Devi (supra) are quite distinguishable as she had estimated the income at 3.3 per cent against 4 per cent determined by the learned CIT(A). Thus, it was a case of enhancement of the estimate rather than one of making an estimate on the basis of available facts against the nil income returned by the assessee. The Tribunal relied, inter alia, the decision in the case of Smt. Mala Dayanithi (supra), in which it was held that the assessee had co operated with the AO in the course of assessment leading to the inference that no fault could be found with her. Such is not the case here. In absence of the possibility of correctly computing the income, the authorities will have no alternative but to estimate the income, which is permitted by the statute. In fact, there is no difference in this matter in an assessment made under section 143(3) or made in the manner provided under section 144. In this case, such estimate was also put to test and the order of the Tribunal in this case has become final. The penalty has been levied on the basis of the order of the Tribunal. Therefore, we are of the view that on the facts and in the circumstances of the case, penalty could be levied on increase in the undisclosed income even if it was on account of estimation made by the Revenue authorities and the Tribunal.

5.4. The last argument of the learned counsel was that all the ingredients of section 271(1)(c) can be read into section 158BFA(2). We have briefly mentioned this issue earlier and it was pointed out that there is a clear finding of the Tribunal that the assessee earned income over and above the income recorded in the books of account. The evidence to this effect was found in search and yet the assessee filed nil return. Therefore, the Revenue authorities were justified in computing the undisclosed income. Obviously, the assessment was made after search and seizure operation and the assessee was aware of the evidence available against it. Yet, the assessee chose to file nil return, which shows that the return was not bona fide. Therefore, even if it is assumed that all ingredients of section 271(1)(c) are applicable, such ingredients are satisfied in the instant case.

5.5. In view of the aforesaid discussion, it is held that the levy of penalty was justified on the facts and circumstances in this case. Accordingly, the appeal of the assessee is dismissed.