2003 (3) TMI 334 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under section 158BFA(2) of the IT Act, 1961.
2. Validity of the return filed beyond the specified period.
3. Application of provisions under Chapter XIV-B of the IT Act.
4. Discretion of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] in imposing penalties.
5. Legal interpretation of the provisions and their application to the facts of the case.

Detailed Analysis:

1. Imposition of Penalty under Section 158BFA(2):
The primary issue in this case is the confirmation of a penalty of Rs. 40 lakhs imposed under section 158BFA(2) of the IT Act, 1961. The penalty was levied because the assessee filed the return of income for the block period late, beyond the specified period given in the notice under section 158BD. The AO noted that the return was filed nine months late, and hence, no immunity under the first proviso to section 158BFA(2) was available to the assessee.

2. Validity of the Return Filed Beyond the Specified Period:
The assessee contended that the delay in filing the return was due to the delay in receiving records from the Department. The AO rejected this contention due to lack of evidence and noted that even if the contention was accepted, the return was filed significantly late. The assessee argued that the return, though filed late, was accepted by the AO without any additional undisclosed income being brought to tax, and therefore, should be treated as a valid return under section 158BC(a).

3. Application of Provisions under Chapter XIV-B:
The AO emphasized that the provisions of Chapter XIV-B, which deal with the assessment of search and seizure cases, are specific and should be given precedence over general provisions. Section 158BFA(2) is a specific provision for the levy of penalty in such cases and does not contemplate the clause of reasonableness as provided in general penalty provisions under section 271B of the Act.

4. Discretion of the AO and CIT(A) in Imposing Penalties:
The AO and CIT(A) have the discretion to levy or not to levy penalties based on the conduct of the assessee and other relevant considerations. The CIT(A) confirmed the penalty imposed by the AO, despite the assessee's various pleas and reliance on case law. The Tribunal noted that the discretion preserved under section 158BFA(3)(a) allows for reasonable opportunity of being heard and that penalty is not mandatory merely because it is lawful to impose it.

5. Legal Interpretation of the Provisions and Their Application:
The Tribunal discussed the relevant provisions of law, including sections 158BC and 158BFA, and noted that the levy of interest under section 158BFA(1) contemplates that a return may be filed beyond the notice period and still be considered valid. The Tribunal emphasized that the penalty under section 158BFA(2) should be restricted to the difference between the declared and assessed undisclosed income. In this case, since there was no difference between the returned and assessed undisclosed income, the Tribunal concluded that the penalty was not justified.

Conclusion:
The Tribunal found that the penalty imposed by the AO and confirmed by the CIT(A) was unjustified. It noted that the assessee had disclosed the correct undisclosed income, and there was no difference between the declared and assessed income. The Tribunal emphasized that imposing a penalty in such circumstances would lead to an absurd and unjust result, contrary to the intention of the legislature. Therefore, the Tribunal directed the deletion of the penalty and accepted the appeal of the assessee.