2008 (7) TMI 5 - HC - Income Tax

Deletion of penalty levied u/s158 BFA(2) - 1st proviso to Sec. 158 BFA(2) is directory or mandatory - Merely because the expression used is shall not be less than the amount of tax leviable or not exceeding three times the tax, doesn t result in reading the first part of the section as mandatory - C.I.T. & I.T.A.T. have recorded reasons for exercise of their discretion - uphold the decision of I.T.A.T. that the section is directory, not mandatory & that the word may cannot be read as shall

Summary

Issues:
1. Whether the ITAT was correct in deleting the penalty under Section 158 BFA (2) of the Income Tax Act?
2. Whether the condition stipulated in the 1st proviso to Section 158 BFA (2) is directory or mandatory?

Analysis:
1. The C.I.T. canceled the penalty under Section 158BFA(2) considering the explanation provided by the assessee that tax on undisclosed income was paid before assessment completion. The ITAT, after analyzing the section's terminology, held that the power to impose penalty is directory, not mandatory, as the word "may" implies discretion, not obligation. The tribunal also reviewed reasons against penalty imposition.

2. The core issue is whether Section 158BFA(2) is directory or mandatory. The provision empowers the Assessing Officer or Commissioner to direct penalty payment, not less than the tax leviable but not exceeding three times that amount on undisclosed income. The language indicates discretionary authority in penalty imposition, supported by the proviso. The section's wording and the proviso clarify that penalty imposition is at the authority's discretion, not mandatory upon breach of Section 158BFA(1) mandate. The court referred to tax law interpretation principles and previous judgments to support the view that the section is directory, not mandatory.

3. Both the C.I.T. and ITAT exercised discretionary power with recorded reasons, unchallenged by the Revenue. The court affirmed ITAT's stance that the section is directory, not mandatory, leading to the disposal of the appeal as the question framed became irrelevant in light of this interpretation.