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2012 (4) TMI 418 - HC - Income TaxBlock assessment - Penalty u/s 158BFA - whether mandatory or discretionary - power of AO - held that - It is true that Section 273B of the Act which provides that penalty shall not be imposed in certain cases on the assessee proving that there was reasonable cause for failure to pay tax refers to several provisions such as Section 271, 271A, etc., makes no mention of Section 158BFA(2). This still does not mean that penalty under Section 158BFA (2) is mandatory. - penalty under Section 158BFA (2) is not mandatory. Power of the Tribunal to delete the penalty - Tribunal interfered with the penalty on the ground which was not permissible. Additions made on the basis of estimation may be one of the grounds on which discretion not to impose penalty may be exercised. However, in absence of any requirement to prove concealment or furnishing of inaccurate particulars found in Section 271 1 (c) of the Act cannot form the sole basis to delete penalty imposed by the Assessing Officer and confirmed by Commissioner Appeals - Held that Tribunal committed a grave error in interfering with the penalties imposed by the Assessing Officer and confirmed by the CIT A on the grounds mentioned in the order. - Decided in favor of the revenue
Issues Involved:
1. Whether penalty under sub-section (2) of Section 158BFA of the Income-tax Act, 1961 is mandatory or discretionary. 2. Whether the Tribunal correctly exercised its discretion to delete the penalty imposed by the Assessing Officer and confirmed by the CIT[A]. Issue-wise Detailed Analysis: 1. Mandatory or Discretionary Nature of Penalty under Section 158BFA(2): The court examined whether the penalty under Section 158BFA(2) is mandatory or discretionary. The Revenue argued that the penalty is mandatory, asserting that once undisclosed income is determined, penalty must follow, with discretion only in the rate of penalty (between 100% to 300%). They cited the Supreme Court's decision in Bachahan Devi & Anr. v. Nagar Nigam, Gorakhpur & Anr., emphasizing that the word "may" should be read as "shall" in the context of the statute's purpose. Conversely, the counsel for the assessee argued that the penalty is discretionary, supported by various High Court decisions, including Commissioner of Income-Tax v. Smt. Anju R. Inani, Commissioner of Income-Tax v. Satyendra Kumar Dosi & Anr., and Commissioner of Income-Tax v. Harkaran Das Ved Pal. These decisions highlight that the imposition of penalty under Section 158BFA(2) is not automatic but lies within the discretion of the Assessing Officer. The court analyzed the statutory provisions, noting that Section 158BFA(2) uses the term "may direct," indicating discretion. The court further referenced the Supreme Court's decision in Hindustan Steel Limited v. State of Orissa, which emphasized that penalty should not be imposed unless the party acted in defiance of law or was guilty of contumacious conduct. The court concluded that the penalty under Section 158BFA(2) is discretionary, not mandatory, and that the Assessing Officer has the power to decide whether to impose penalty based on judicial considerations. 2. Tribunal's Exercise of Discretion in Deleting the Penalty: The court then examined whether the Tribunal correctly exercised its discretion in deleting the penalty. The Tribunal had deleted penalties on various grounds, including that additions were made on estimation, there was no concealment proved by the Revenue, and certain additions would not give rise to penalty proceedings. The court found that the Tribunal's reasons for deleting the penalties were not sufficient. The concept of proving concealment of income is not applicable under Section 158BFA(2), which is distinct from Section 271(1)(c) of the Act. The court emphasized that the penalty under Section 158BFA(2) does not require proof of concealment or furnishing inaccurate particulars of income. The court noted that the Tribunal's observations regarding the lack of incriminating evidence and the estimation of additions amounted to reopening the quantum addition, which had already attained finality. The Tribunal's discretion to delete the penalties was found to be based on impermissible grounds. Conclusion: The court held that the penalty under Section 158BFA(2) is not mandatory, answering Question (A) in favor of the assessee and against the Revenue. However, the court found that the Tribunal erred in its exercise of discretion in deleting the penalties, answering Question (B) in favor of the Revenue and against the assessee. The court set aside the Tribunal's order and remanded the proceedings for fresh consideration in accordance with the law. The Tax Appeal was disposed of accordingly.
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