2007 (7) TMI 355 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the penalty levied under section 158BFA(2) of the Income-tax Act.
2. Discretionary nature of the penalty under section 158BFA(2).
3. Requirement of furnishing evidence of tax paid along with the return.
4. Reasonable cause for delay in payment of tax.

Detailed Analysis:

1. Legality of the Penalty Levied under Section 158BFA(2) of the Income-tax Act:
The assessees challenged the penalty of Rs. 9,00,000 levied under section 158BFA(2) on the grounds that it was erroneous and contrary to law. The penalty was imposed because the tax was not paid on the income returned by the assessee. The Commissioner of Income-tax (Appeals) confirmed the penalty, stating that the use of the word "may" in the statute did not negate the mandatory nature of the penalty where tax was not paid on admitted undisclosed income.

2. Discretionary Nature of the Penalty under Section 158BFA(2):
The assessees argued that the penalty is discretionary and not mandatory, as indicated by the use of the word "may" in the statute. The Tribunal agreed, stating that the word "may" confers discretion on the Assessing Officer or the Commissioner of Income-tax (Appeals) to impose or not to impose the penalty based on the facts and circumstances of the case. The Tribunal cited several cases to support this interpretation, including Ramachandra Pesticides P. Ltd. v. CIT, Nemichand v. Asst. CIT, and Dhiraj Suri v. Addl. CIT.

3. Requirement of Furnishing Evidence of Tax Paid along with the Return:
The assessees contended that furnishing the challan in proof of payment of tax is not mandatory, drawing parallels with the non-furnishing of audit reports under other sections of the Income-tax Act. The Tribunal found that under section 158BC, there is no requirement to furnish evidence of tax payment along with the return for the block period. The Tribunal also noted that the return filed by the assessee was not found to be defective, as no notice under section 139(9) was issued.

4. Reasonable Cause for Delay in Payment of Tax:
The assessees argued that they were prevented by reasonable cause from paying the tax on time, as the primary source of income (dividends from Galada Power and Telecommunication Limited) was unavailable due to the company becoming sick. The tax was eventually paid after selling jewellery. The Tribunal accepted this explanation, noting that the Assessing Officer did not reject or find it false. The Tribunal emphasized that the intention of affording a hearing is to comply with principles of natural justice, and where reasonable cause is shown, penalty may not be levied.

Conclusion:
The Tribunal held that the appellants had shown reasonable cause for the delay in tax payment and that the penalty under section 158BFA(2) was discretionary. The Tribunal canceled the penalties imposed by the Assessing Officer and sustained by the Commissioner of Income-tax (Appeals), allowing the appeals filed by the assessees.