ORDER
R. V. Easwar, V.P.
This appeal by the assessee is directed against the order of the Commissioner (Appeals) by which he confirmed the penalty of Rs. 6,51,982 imposed under section 158BFA(2) of the Income Tax Act.
2. The appeal arises this way. There was a search of the assessee’s premises on 7-8-1997. Pursuant to the search, the assessing officer called upon the assessee to file the return of income. In response thereto, the assessee filled the block return on 18-8-1999 declaring undisclosed income of Rs. 7.5 lakhs. He completed the block assessment on 31-8-1999, determining the undisclosed income at Rs. 11,42,796. There was an appeal by the assessee against certain additions other than the surrendered amount of Rs. 7.5 lakhs as a result of which the total undisclosed income was reduced to Rs. 10,86,637. There was no further appeal by either side. After competing the block assessment, the assessing officer initiated penalty proceedings under section 158BFA(2) of the Act. The assessee submitted by way of explanation that she had filed the return of income on the basis of incomplete records and in the block return, she had declared undisclosed income of Rs. 7.5 lakhs with the remark that she may be permitted to revise the same and that the disclosed amount would not be taken as a guiding factor for levying the penalty. She also explained that return was filed under a disadvantage, in that, she did not have all the copies of the seized material with her. It was, therefore, submitted that penalty proceedings may not be pursued. The assessing officer, however, rejected the assessee’s explanation. He was of the view that the assessee had been given all the copies of the seized materials sufficiently in advance, but still the assessee filed the return late. She had also not paid the tax. Further, he noted that the undisclosed income declared by the assessee in the block return had been increased by him in the block assessment and, therefore, the assessee’s case fell under the second proviso to section 158BFA(2) and not under the first proviso. The assessee had also not paid the tax payable on the basis of the return. She had merely requested the assessing officer to adjust the tax payable out of the FDR’s seized during the search which did not amount to actual payment of the tax. In this view of the matter, he imposed a penalty of Rs. 6,51,982 which is equal to 100 per cent of the tax on the undisclosed income assessed.
3. On appeal, the assessee took up several contentions against the levy of penalty including the contention that the block assessment was without jurisdiction since there was no search warrant issued in the name of the assessee. It was also submitted that the undisclosed income of Rs. 7.5 lakhs was subject to revision-and was not a final figure and this was so because the block return had to be filed by the assessee without being able to examine the copies of the seized materials which were provided by the assessing officer very late, i.e., only on 16-7- 1999. That did not leave sufficient time for the assessee to accurately determine the undisclosed income, but for that reason, it was contended, it cannot be said that the amount of undisclosed income declared did not represent the true income of the assessee. It was also contended that the assessee had made a specific request to the assessing officer to adjust the proceeds of the FDR and the magnum investment bonds towards the tax payable on the block return, but this request was not accepted by the assessing officer. It was, therefore, pleaded that the penalty levied was not justified.
4. The Commissioner (Appeals) rejected all the contentions of the assessee including the contention that the assessment itself was without jurisdiction. He noted that the penalty has been imposed with reference to three items, namely, investment in fixed deposit, deposits in savings bank and undisclosed expenditure. All these additions were based on documentary evidence. The assessee did not make a full disclosure of her undisclosed income, but made it contingent and this did not satisfy the conditions imposed by the first proviso to section 158BFA(2). Further, the Commissioner (Appeals) was of the opinion that the disclosure did not specify the details of the undisclosed income of Rs. 7.5 lakhs or the related asset pertaining to the income. As regards payment of the tax on the declared income, the Commissioner (Appeals) took the view that the adjustment can be made from the seized assets only if they consisted of money whereas in the assessee’s case, the assets consisted of FDRs, which cannot be said to be “money”. Thus, the Commissioner (Appeals) noticed that all the conditions of the first proviso to the sub-section were not satisfied and, therefore, penalty was attracted under the second proviso to the sub-section. The contention that the assessment itself was without jurisdiction was rejected for the same reasons given by the Commissioner (Appeals) in his order passed in the appeal against the block assessment. Thus, the penalty was confirmed.
5. The assessee is in further appeal before us. An additional ground has been taken to the effect that the block assessment itself was invalid since there was no search warrant in the name of the assessee, In the additional ground, it is further claimed that the notice issued under an invalid authorisation was also invalid and, therefore, the entire assessment and the consequent penalty proceedings were all vitiated and must be held to be void.
6. We have heard the rival contentions with regard to the admission of the additional ground. The contention of the assessee was that this ground is not really an additional ground since the assessee could have argued the point taken in the additional ground even within the scope of the original ground Nos. 1 and 3 and that the additional ground was taken only by way of abundant caution. It was submitted that the additional ground went to the root of the question of validity of the assessment and that it was a pure legal ground and does not require any investigation into the facts. Several authorities were cited in support of the admission of the additional ground. On the other hand, learned departmental Representative, Mr. Thakur, vehemently opposed the admission of the additional ground. He submitted that the additional ground raised is an entirely new issue which was not before the departmental authorities and should, therefore, not be admitted. In reply, the learned counsel for the assessee submitted that the challenge to the validity of the assessment was taken by the assessee both in the appeal before the Commissioner (Appeals) in the quantum proceedings as well as in the appeal before him against the penalty order and, therefore, there is no element of surprise. He also pointed out that the search warrant itself was only in the name of the assessee’s husband, Shri J.M.L. Suri and even the Panchnama bore the name of J.M.L. Suri. He submitted that the search warrant as well as the Panchnama are part of the record and, therefore, no new facts are being canvassed.
7. On a careful consideration of the rival contentions with regard to the admission of the additional ground, we are of the view that the same should be admitted, The assessee has canvassed the validity of the block assessment both in the appeal against the block assessment and in the appeal before the Commissioner (Appeals) against the levy of penalty. This is clear from paras 4 and 6 of the Commissioner (Appeals) sustaining the penalty. There is the reference in this para to the assessee’s plea that the block assessment was without jurisdiction as there was no search warrant in the assessee’s case. The Commissioner (Appeals) has actually rejected the plea following his order in the appeal against the block assessment, which implies that the assessee had taken the plea even in the appeal against the block assessment. Thus, the point has already been taken before the Income Tax authorities and there is no element of surprise. In fact, even without the help of the additional ground, the assessee could have, in our opinion, canvassed the validity of the block assessment within the scope of the first and third grounds of the original grounds of appeal. Further, the additional ground does not involve any investigation into the facts. The Panchnama and the search warrant are a matter of record. That part this goes to the very root of the matter. In the case of P.V. Doshi v. CIT (1978) 113 ITR 22 (Guj), it was held that a jurisdictional provision which is mandatory and enacted in the public interest could never be waived. It was further held that there was no question of any finality of the orders of the IT authorities or the Tribunal because jurisdiction cannot be conferred by consent. The question of jurisdiction is thus of vital importance and it would be open to the assessee to raise the question of validity of assessment on account of lack of jurisdiction, at any time and at any stage of the proceedings. With particular reference to penalty provision, it has been held by the Bombay High Court in the case of Jainarayan Babulal v. CIT (1988) 170 ITR 399 (Bom) that it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty. In Jaidayal Pyarelal v. CIT (1973) Tax LR 880 (All), the Allahabad High Court held with reference to a new plea taken in penalty proceedings, which was not taken in the regular assessment proceedings, as under :
“It is thus clear that the regular assessment order is not the final word upon the pleas taken therein or which might have been taken at that stage. The assessee is entitled to show cause in penalty proceedings and to establish by the material and relevant facts which may go to affect his liability or the quantum of penalty. He cannot be held to be debarred from taking appropriate pleas simply on the ground that such a plea was not taken in the regular assessment proceedings.”
In view of the importance of the question of validity of the assessment and since the matter involves a pure legal question not involving any investigation into facts, we admit the additional ground for decision.
8. We have heard the rival contentions both with regard to the original grounds of appeal and the additional ground. So far as the additional ground is concerned, the assessee has filed the relevant documents in the paper book. Page 12 is the Panchnama in respect of the search of the premises in H-13, Maharani Bagh, New Delhi. The copy of the Panchnama is at p. 12 of the paper book. It says that the warrant in the case has been issued in the name of Shri J.M.L. Suri, who is the assessee’s husband. The order under section 132(3) passed on 8-8-1997, a copy of which is at p. 51 of the paper book refers to the fact that the warrant of authorisation was issued on 6-8-1997 by the Director of IT (Inv.), New Delhi, in the case of J.M.L. Suri. The Panchnarna relating to the search of the locker (p. 52 of the paper book) mentions the names of both J.M.L. Suri and the assessee herein. But,,this is only because the locker is in the joint names of the assessee and her husband. The search of the locker according to para 2 of this Panchnama is a continuation of the proceedings taken on 7-8-1997. We have already seen that the initial warrant and the Panchnama were in the name of the assessee’s husband and not in the name of the assessee. The same is the case relating to the search of the locker in Canara Bank on. 7-8-1997. Thus, it is seen that there is no search warrant in the name of the assessee. Section 158BB(1) says that where a search is initiated under section 132 or books of account, etc. are requisitioned under section 132A “in the case of any person” then the undisclosed income of that person shall be assessed in accordance with Chapter XIV-B of the Act. A search is a pre-request for the initiation of block assessment proceedings as held by the Delhi High Court in the case of Ajit Jain v. Union of India & Ors. (2000) 242 ITR 302 (Del), affirmed by the Supreme Court in Union of India v. Ajit Jain & Anr. (2003) 260 ITR 80 (SC). In the case of CIT v. Ms. Pushpa Rani (2004) 136 Taxman 627 (Del), the Hon’ble Delhi High Court has held that if there is no search warrant issued in the name of the assessee, the proceedings under section 158BC are without jurisdiction and void ab initio. In the case of Nenmal Shankarlal Parmer v. Assa. CIT (Inv.) (1992) 195 ITR 582 (Kar), it has been held by the Karnataka High Court as under :
Therefore, there is no reference at all in the warrant of authorisation that such documents or money, bullion, jewellery or other valuable article or thing is in the possession of the petitioner in his individual capacity. As a necessary consequence, the mere mention of residential premises does not enable the department to effect seizure either of gold, jewellery or other articles or documents and hence it must be held that the petitioner’s contention that the warrant of authorisation does not enable the department to affect search or seizure of the property belonging to him on the basis of a warrant issued in the name of the firm, no warrant in the name of the petitioner at all having been issued, is valid and tenable. This ground itself is sufficient to quash the order impugned in this petition.”
The above observations show that a search under section 132 of the Act is person specific and not premises specific. It follows that if the name of the assessee against whom the block assessment has been made, does not figure in the warrant of authorisation issued under section 132, the block assessment would be unauthorised, void ab initio. If it is the correct legal position as adumbrated in the judgments cited above, it would follow that the additional ground taken before us is well founded. If the block assessment itself is without jurisdiction then there is no question of levy of any penalty under section 158BFA(2). We may also add reference to a few orders of the Tribunal which have taken a similar view. In Dr. (Mrs.) Daya Sharma v. Dy. CIT (2003) SOT 53 (Jp), the Jaipur Bench book the view that the mere mention of “family members” in the search warrant would not mean that the search was conducted on the assessee so as to justify the block assessment. In Microland Ltd. v. Assistant Commissioner (1998) 67 ITD 446 (Bang) at 470, the Bangalore Bench of the Tribunal held that if the search warrant is not in the name of the assessee- company, but is in the case of the CMD of the company at the address of the company, the block assessment was void. In Mahabir Prasad Rungata (HUF) v. Assistant Commissioner (2002) 75 TTJ (All) 309, the Allahabad Bench of the Tribunal held that where there is a search in the case of the firm, but not the partner, a block assessment in the hands of the partner was invalid. A similar view was taken by the Indore Bench of the Tribunal in Indore Construction (P) Ltd. v. Assistant Commissioner (1999) 71 ITD 128 and).
9. It, therefore, appears to us to be a correct position that the block assessment in the present case is void ab initio since there was no warrant of authorisation under section 132 in the name of the assessee. Therefore, the penalty levied cannot be sustained.
10. With regard to the other grounds against the levy of penalty, we are satisfied that there is no justification for the levy, It is, no doubt, true that section 158BFA(2) provides for the levy of penalty :
(a) where the undisclosed income returned is accepted by the assessing officer; and
(b) where the undisclosed income declared in the return is increased by the assessing officer.
In the case of (a), certain conditions have to be satisfied in order that no penalty is imposed. These are :
(1) That the assessee has furnished a block return in response to the notice;
(2) The assessee has paid the tax payable on the basis of the block return or if the assets seized consists of money, the assessee has offered the money so seized to be adjusted against the tax payable;
(3) Evidence of the tax payment is filed along with the return; and
(4) No appeal is filed against the assessment of that part of the income which is shown in the block return as undisclosed income.
If all these conditions are satisfied then no penalty would be imposed. However, in the case of (b), there is no such benefit given to the assessee and where the undisclosed income in the block return is increased by the assessing officer, the assessee becomes liable to penalty. It would prima facie appear on a reading of both the provisos to the sub-section that there is no escape from penalty where the undisclosed income declared by the assessee is increased by the assessing officer. However, it should be remembered that sub section (2) says that the assessing officer or the Commissioner (Appeals) in the course of any proceedings under Chapter XIV-B “may direct” that the assessee shall pay a penalty which shall not be less than the amount of tax leviable, but shall not exceed three times the tax leviable in respect of the undisclosed income determined by the assessing officer in the block assessment. The controlling words are those which have been put between quotes above. These words do indicate that a discretion is available with the assessing officer and the Commissioner (Appeals) not to levy the penalty even where technically the provisos are attracted. We have to remind ourselves of the classic observations made by the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) with reference to the basic principles that govern the levy of penalty. It will be appropriate to reproduce the relevant observations of the Supreme Court which have now become, with respect, the locus classicus on the nature of the penalty :
“An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”
In the light of the above observations, we are of the view that even if the assessee has not strictly complied with the conditions imposed by the first proviso and even where the second proviso is attracted, still it would be within the powers of the IT authorities not to levy the penalty having regard to the bona fide of the assessee’s conduct, co-operation shown in the completion of the block assessment and the general conduct of the assessee in the course of the assessment proceedings such other relevant factors. In our opinion, in the present case, the conduct of the assessee has been bona fide. The search took place on 7-8-1997, but it was only on 30-6-1999, that she was shown some documents seized during the search. Most of the documents were not with the assessing officer, but with the DDI. Therefore, it was only on 16-7- 1999 that all the documents were supplied to the assessee. These facts are found recorded in the assessee’s letter dated 18-8-1999 filed along with the block return. A copy of the letter is at pp. 3 and 4 of the paper book.. In this letter, the assessee has explained the difficulties which she had to face in the filing of the return because of the absence of the copies of the seized documents. She has explained that since the photocopies of the seized documents were not given to her in time, she was at a considerable disadvantage in filing the block return. She has further explained that as sufficient time was not available to prepare the block return within the time specified in section 158BC, she filed the block return showing Rs. 7.5 lakhs as her undisclosed income “on estimated basis”. She further requested that the income declared may not be taken as the guiding factor to determine the penal consequences under section 158BFA because her return was based on estimate, “rather than seized documents”. She further requested that she may be allowed to revise the figure later “without attracting the penal proceedings for the reasons of constraint of time and non-availability of records”. In the last para she made a request for issue of a challan for payment of the tax due. The Commissioner (Appeals) himself refers to the fact that the disclosure made in the block return of the undisclosed income is a “contingent” one. The IT authorities have not denied that the assessee did not have sufficient time to prepare the return since the photocopies of the seized documents were given to her very late which did not leave sufficient time for her to prepare the block return in an accurate manner. After the assessment was made and the order was passed on 31-8-1999 and after receiving the same, the assessee’s chartered accountant, wrote to the assessing officer that since all the assets such as investments and FDRs in the assessee’s name are under seizure and since the assessee did not have the resources for payment of the outstanding demand, the assets may the realised to enable the assessee to pay the demand. This was not obviously done. Another letter was written by the assessee herself on 27-9-1999 addressed to the assessing officer in which she stated that she had paid only Rs. 2,000 against the demand of tax, but requested the assessing officer to appropriate the balance amount of Rs. 4,75,000 from the 2,000 units of State Bank of India’s magnum units of the face value of Rs. 1,000 each and having a maturity value of Rs. 6 lakhs and lying in the custody of the assessing officer. She further requested that the balance amount of Rs. 1,25,000 may be adjusted against the tax dues of J.M.L. Suri, for which she had furnished a separate authority letter. It was further pointed out that the securities have already become due for payment and no income would accrue after the maturity. It was also pointed out that the securities would be sufficient to cover the tax dues. The IT authorities, in our opinion, could have accepted the assessee’s request and obtained the endorsement of the assessee on the magnum securities and could have collected the money and appropriated the same towards the tax and thus enabled the assessee to comply with condition No. 2 of the first proviso. In K.T. Kunjumon v. CIT & Ors. (1999) 239 ITR 782 (Ker), the Kerala High Court has held that what is required is that the assessee should have made a request and once the request is made, the assessing officer is bound to carry out the same. This view has also been taken by the Delhi Bench of the Tribunal in Gopal Chand Khandelwal v. Assistant Commissioner (1995) 52 ITD 661 (Del) and by the Madras (Amritsar) Bench in Ravinder Singh v. Assistant Commissioner (2004) 89 ITD 477 (Asr).
11. The argument of the learned departmental Representative, Mr. Thakur, that only “money” seized can be adjusted against the tax payable and not securities such as FDRs or units is hypertechnical. In fact, it would have been a simple exercise for the assessing officer, especially in the light of the letters written by the assessee, to have obtained her endorsement on the securities and encashed, them and appropriated the same against the tax due. Even legally speaking, it appears to us that what Mr. Thakur says may not be correct because “money” is different from cash. The condition No. 2 in the first proviso uses the expression “money” and not “cash”. The Law Lexicon defines money as follows:
“Money is applied to everything which serves as a circulating medium; cash is, in ‘strict sense, put for coin only; bank notes are money; Guineas and shillings are cash; all cash is, therefore, money, but all money is not cash.”
12. In our opinion, the securities which have matured could have been encashed after obtaining the assessee’s endorsement since those were equivalent to money. So far as the other conditions in the first proviso are concerned, the assessee no doubt filed an appeal against the block assessment, but that was only with regard to the other additions made by the assessing officer and not with reference to the undisclosed income of Rs. 7.5 lakhs declared in the block return. At any rate, the above discussion shows the bona fide of the assessee and the co-operative attitude with which she conducted herself in the course of the block assessment proceedings and the absence of any defiance or contumacious conduct. In the case of CIT v. Ramdas Pharmacy (1970) 77 ITR 276 (Mad), the Madras High Court held that all the facts and circumstances commencing with the filing of the original return and ending with the assessment may be taken as relevant for considering the assessee’s liability for penalty for concealment of income. The assessee’s conduct subsequent to the filing of the return is very relevant. Though, these observations were made in the case of the filing of a revised return in the course of the assessment proceedings, they also explain the fundamental nature of the penalty levied for concealment of income. The observations are in line with the judgment of the Supreme Court in the case of Hindustan Steel cited supra. Recently, in K.C. Builders & Anr. v. Assistant Commissioner (2004) 265 ITR 562 (SC), the Supreme Court explained that the word “concealment” inherently carries with it the element of mens rea and a mere omission from the return of an item of receipt does not amount to concealment nor to deliberate furnishing of inaccurate particulars of income, unless and until there is some evidence to show or some circumstances are found from which it can be gathered that the amount “was attributable to an intention or desire on the part of the assessee to hide or conceal an income so as to avoid the imposition of tax thereon”. In order to that, a penalty under section 271(1)(iii) may be imposed, it has to be proved that the assessee has still made the concealment or furnished inaccurate particulars of its income”. The assessee’s conduct has not been contumacious or deliberate. In fact, the assessing officer has himself admitted that the assessee has co-operated in the completion of the block assessment proceedings.
13. For these reasons, we are satisfied that this is not a case which justifies the levy of penalty under section 15813FA(2). We, accordingly, cancel the penalty and allow the appeal.