2007 (8) TMI 397 - AT - Income Tax

Summary

Issues Involved:
1. Legality of sustaining the penalty of Rs. 3,50,000 u/s 158BFA(2).
2. Consideration of voluntary tax payment to avoid litigation.
3. Discretionary nature of penalty u/s 158BFA(2).
4. Alleged illegality and violation of natural justice in the penalty order.

Summary:

1. Legality of Sustaining the Penalty of Rs. 3,50,000 u/s 158BFA(2):
The assessee appealed against the confirmation of a penalty of Rs. 3,50,000 levied u/s 158BFA(2). The penalty was sustained by the Commissioner of Income-tax (Appeals)-I, Kanpur, despite the assessee's argument that the addition of Rs. 5,55,000 made u/s 68 represented share application money offered voluntarily to avoid litigation.

2. Consideration of Voluntary Tax Payment to Avoid Litigation:
The assessee contended that the addition of Rs. 5,55,000 was offered for tax voluntarily to buy peace of mind and avoid protracted litigation, with a stipulation that no penal provisions would be initiated. The Assessing Officer, however, did not accept this explanation, stating that the penalty u/s 158BFA(2) is automatic and mandatory whenever undisclosed income is assessed.

3. Discretionary Nature of Penalty u/s 158BFA(2):
The Tribunal noted that the word used in section 158BFA(2) is 'may,' which provides discretion to the Assessing Officer, rather than 'shall,' which would imply a mandatory imposition of penalty. The Tribunal emphasized that the principles for levying penalty u/s 158BFA(2) are similar to those u/s 271(1)(c), requiring the Assessing Officer to show that the assessee concealed particulars of undisclosed income or provided an unsatisfactory explanation.

4. Alleged Illegality and Violation of Natural Justice in the Penalty Order:
The Tribunal observed that penal provisions cannot be held to be automatic or mandatory, as an opportunity must be provided to the assessee to explain before the imposition of penalty. The Tribunal found the assessee's explanation'that the share capital was disclosed in regular returns and no material from the search indicated it was unaccounted money'satisfactory. Consequently, the Tribunal concluded that the revenue had not made a case for sustaining the penalty, and the penalty was cancelled.

Conclusion:
The appeal of the assessee was allowed, and the penalty of Rs. 3,50,000 u/s 158BFA(2) was cancelled.