2015 (5) TMI 348 - AT - Income Tax

Penalty u/s 158BFA(2) - CIT(A) deleted penalty levy - Held that - Where two views are possible on the issue, the penalty is not imposable in such cases. Therefore in such an event as per the spirit of decision of Hon ble Delhi High Court in the recent case of CIT vs. Sarla Fabrics P. Ltd. (2012 (7) TMI 803 - DELHI HIGH COURT) the Hon ble Court by relying on their own decision in the case of CIT-IV, New Delhi vs. IP India P Ltd. ( 2011 (11) TMI 252 - DELHI HIGH COURT) have held that - where there is a difference of opinion either between different Benches of Tribunal or the High Courts, which is finally settled by the pending judgment of the Supreme Court and all necessary facts have been disclosed by the assesses in its return, the penalty is not warranted. Thus find force in the finding of the Ld. CIT(A) that the imposition of penalty under section 158BFA(2) is not on automatic fall out or mandatory, therefore, in our view, Ld. CIT(A) has rightly deleted the penalty, which in our opinion does not need any interference, accordingly, we uphold the order of the CIT(A) of deleting the penalty made u/s. 158BFA(2) and dismiss the appeal of the Revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Cancellation of penalty imposed under Section 158BFA(2) of the Income Tax Act, 1961.
2. Determination of "undisclosed income" due to non-filing of return before the due date.
3. Whether the penalty under Section 158BFA(2) is mandatory or discretionary.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty Imposed under Section 158BFA(2) of the Income Tax Act, 1961:

The Revenue appealed against the order of the CIT(A) which had canceled the penalty of Rs. 12,93,085 imposed by the Assessing Officer (AO). The penalty was initially imposed due to the assessee's failure to file the return of income by the due date, as required under Section 139(1) of the Act. The CIT(A) deleted the penalty on the grounds that the investment in shares, which were sold and resulted in long-term capital gains, were duly reflected in the financial accounts of the year they were purchased. The sale consideration was deposited in the declared bank account, and the unaudited financial statements found during the search contained the recording of the transaction. The return of income, though filed late, was within the time allowed under Section 139(4).

2. Determination of "Undisclosed Income" Due to Non-filing of Return Before the Due Date:

The AO treated the income arising from the transfer of shares as "undisclosed income" because the return for the assessment year 1999-2000 was not filed by the due date (31.12.1999). However, the Tribunal had previously deleted this addition, but the High Court reversed the Tribunal's order, holding that the gains arising from the transfer of shares must be regarded as "undisclosed income" due to the non-filing of the return before the due date.

3. Whether the Penalty under Section 158BFA(2) is Mandatory or Discretionary:

The CIT(A) and the Tribunal both emphasized that the penalty under Section 158BFA(2) is not automatic. The words "may direct" in the section indicate discretion and not a mandatory imposition of penalty. The CIT(A) and the Tribunal highlighted that the AO must bring primary evidence to establish that the assessee had undisclosed income which was concealed or likely to be concealed. The CIT(A) also noted that the financial statements found during the search recorded the transaction and the return of income was filed within the time allowed under Section 139(4). The Tribunal supported this view, citing precedents that where two views are possible, penalty should not be imposed.

The Tribunal upheld the CIT(A)'s order, finding no evidence of deliberate concealment by the assessee. The Tribunal also referenced similar cases where penalties were not imposed under similar circumstances, reinforcing the discretionary nature of penalties under Section 158BFA(2).

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the penalty. The Tribunal agreed that the imposition of penalty under Section 158BFA(2) is discretionary and not automatic, especially when there is no evidence of deliberate concealment and the return was filed within the extended time allowed. The decision was pronounced in the open court on 20/4/2015.