2018 (2) TMI 1595 - HC - Income Tax

Penalty u/S.158BFA(2) - additions made over and above the undisclosed income declared by the assessee in its return filed u/S.158BC(a) - Held that - While payment of interest is mandatory, levy of penalty is discretionary. Sub-Section (2) of Section 158BFA of the Act, accordingly, vests discretion in the Commissioner (Appeals) whether to levy or not to levy penalty. It is trite position of law that any discretion vested in an authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of each case. In the light of the true purport of Sub-Section (2) of Section 158BFA of the Act as explained above, we are of the opinion that the order of the Tribunal confirming the order of the Commissioner (Appeals) does not suffer from any illegality. Both the appellate fora have taken into consideration the fact that on receipt of the notice following the search and seizure, the assessee has filed his returns within ten days of the expiry of the time stipulated for filing such returns and paid a part of the tax on the admitted undisclosed income. The view was, therefore, taken by both the appellate fora that on the facts of the case, the Assessing Officer ought not to have exercised his discretion for imposition of penalty. - Decided against revenue

Summary

Issues Involved:
1. Justification of penalty under Section 158BFA(2) for additions over undisclosed income.
2. Levy of penalty for undisclosed income recorded in return under Section 158BC(a).
3. Applicability of ITAT, Cochin Bench decision in DCIT vs. Heera Construction Co.(Pvt) Ltd.

Detailed Analysis:

1. Justification of Penalty under Section 158BFA(2) for Additions Over Undisclosed Income:
The Revenue challenged the ITAT's decision that penalty under Section 158BFA(2) is leviable only on additions made over the undisclosed income declared by the assessee in its return filed under Section 158BC(a). The Revenue argued that the ITAT failed to appreciate that the assessee forfeited the benefit of the first proviso regarding immunity from penalty or tax payable on undisclosed income. The court, however, upheld the ITAT's decision, noting that the discretion to levy penalty under Section 158BFA(2) is not automatic but lies within the Assessing Officer's purview, as indicated by the words "may direct."

2. Levy of Penalty for Undisclosed Income Recorded in Return under Section 158BC(a):
The Revenue contended that the ITAT erred in deciding that penalty under Section 158BFA(2) cannot be levied on undisclosed income recorded in the assessee’s return furnished under Section 158BC(a), especially since the assessee did not pay the tax on its admitted income in the return. The court emphasized that the imposition of penalty is discretionary, not mandatory, as per the language of Section 158BFA(2), which uses "may direct" rather than "shall be liable." The court referenced judgments from the Rajasthan High Court in Satyendra Kumar Dosi and the Bombay High Court in Dodsal Ltd., which supported the interpretation that the penalty provision is discretionary.

3. Applicability of ITAT, Cochin Bench Decision in DCIT vs. Heera Construction Co.(Pvt) Ltd.:
The Revenue argued that the ITAT wrongly relied on the Cochin Bench's decision in DCIT vs. Heera Construction Co.(Pvt) Ltd., as no installment facility was granted by the CIT to the assessee, making the observations inapplicable. The court, however, found that the ITAT's reliance on the Cochin Bench's decision was appropriate in interpreting the discretionary nature of penalty imposition under Section 158BFA(2).

Conclusion:
The court concluded that the discretion vested in the Assessing Officer under Section 158BFA(2) should be exercised reasonably and not automatically. Both the Commissioner (Appeals) and the ITAT had correctly interpreted the discretionary nature of penalty imposition and had reasonably exercised their discretion based on the facts, such as the assessee filing returns within ten days of the stipulated time and paying part of the tax on the admitted undisclosed income. Consequently, the appeal was dismissed, and all substantial questions of law were answered against the Revenue.