2016 (7) TMI 1433 - AT - Income Tax

Penalty u/s 158BFA(2) - withdrawal of the appeal pending before this Tribunal by legal representative - not explain the difference between the returned income and assessed income - Held that - Merely because the legal representative withdrew the appeal pending before this Tribunal after the expiry of the assessee Shri K.C.G. Verghese and the legal representative is not in a position to explain the source of investment this Tribunal is of the considered opinion that that cannot be a reason for levying penalty under Section 158BFA(2) of the Act. This Tribunal is of the considered opinion that it is not a fit case for levy of penalty under Section 158BFA(2) of the Act. Accordingly the orders of the lower authorities are set aside and the penalty levied under Section 158BFA(2) of the Act is deleted.- Decided in favour of assessee.

Summary

Issues:
Penalty under Section 158BFA(2) of the Income-tax Act, 1961 for undisclosed income in block assessment.

Analysis:
The appeal challenged the penalty levied under Section 158BFA(2) of the Act after completion of block assessment under Section 158BC. The Assessing Officer determined undisclosed income during the block period at a higher amount than disclosed by the assessee. The legal heirs of the deceased assessee argued that after the assessee's death, no penalty could be levied against them. They contended that the disclosed investment in land was within the knowledge of revenue authorities, and any discrepancies should not lead to penalty imposition. The legal representative faced difficulties in explaining the differences post the assessee's death. The Assessing Officer, however, insisted on the penalty, emphasizing the need for the assessee to explain the discrepancies.

Regarding the penalty imposition, the Tribunal considered the legal representative's handicap in producing relevant details post the assessee's demise. The Tribunal highlighted the need for judicious exercise of the penalty power and cited a precedent where ignorance of the source of investment by a legal representative led to the acceptance of a notice under Section 148. The Tribunal concluded that the withdrawal of the appeal by the legal representative, coupled with the inability to explain the source of investment, was not sufficient grounds for penalty imposition under Section 158BFA(2). The Tribunal emphasized that the penalty should not be levied in this case, as the legal representative's actions were considered bona fide and voluntary.

In the final judgment, the Tribunal allowed the appeal, setting aside the lower authorities' orders and deleting the penalty levied under Section 158BFA(2) of the Act. The decision was based on the legal representative's genuine difficulties in explaining the discrepancies post the assessee's death and the principle of not penalizing in such circumstances.