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TMI Blog2007 (8) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... -I, Kanpur failed to consider and appreciate that every addition to the returned undisclosed income shall not warrant levy of penalty under section 158BFA(2) as levy of penalty is discretionary and not compulsory. 4. That the order under section 158BFA(2) is illegal, against the principles of natural justice and deserves to be cancelled. 5. That such other relief(s) as the Hon'ble Bench may consider fit in the facts and circumstances of the case, be granted." 2. The facts of the case are that in pursuance to search and seizure proceedings undertaken in the premises of M/s. Sardar Timber Mart, documents revealing one more business in the name of M/s. Saluja Hire Purchase Ltd. was found. One of the documents seized in the search was a register named SSP-9 which related to the details of shareholders of M/s. Saluja Hire Purchase Ltd. The shares were allotted to the shareholders. During the course of block assessment proceeding, notice under section 158BC was given to the assessee who filed a return of undisclosed income at Rs. Nil. During the course of enquiry in block assessment proceeding, Assessing Officer issued summons to various shareholders. Some of the summons were compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of Hon'ble Supreme Court in Hindustan Steel case. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed under the partly obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is matter of discretion of the authority to be exercised judiciously and on a consideration of all the relevant circumstances, even if a minimum penalty is prescribed, the authority competent to impose penalty will be justified in refusing to impose penalty, when there is a venial breach of the provisions of the Act, or where the breach follows from bona tide belief that the offender is not liable to act in the manner prescribed by the statute. Also refer CIT v. Pradeep Kumar 120 Taxman 332 (Jammu Kashmir). The penalty proceedings under section 158BFA(2) is illegal as there is no undisclosed income. In view of the aforesaid submission it is respectfully prayed that your honour be pleased to drop the pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty under section 158BFA(2) of the Act. The provisions of section 158BFA(2) as mentioned by the Assessing Officer are very clear. These provisions have been inserted by Income-tax (Amendment) Act, 1997 with effect from 1-1-1997 to make the search assessment proceedings more effective. Prior to insertion of this section, the assessee is used to file Nil return of income and no taxes were being paid by them. This section clearly implies that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times of the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of section 158BC. This sub-section has two provisos. First proviso deals with the cases where a return has been furnished, taxes have been paid on the basis of such return, evidence of tax paid is furnished along with the return and no appeal is filed against the assessment of that part of income which is shown in the return, while the second proviso makes it clear that first proviso shall not apply in the cases where the undisclosed income determined by the Assessing Officer is in excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reshfields, the UK based firm of solicitors, on account of legal consultancy charges. For the detailed reasons set out above, we deem it fit and proper to vacate the orders of the authorities below and direct the Assessing Officer to refund the taxes already deposited by the assessee tax deductor. As we do so, we may mention that the assessee has, vide letter dated 17-6-2003, clarified that no TDS certificates, in respect of the aforesaid taxes, have been issued by the assessee to Freshfields." 10. Similar view was taken by Hon'ble ITAT, Mumbai Bench in ITO v. Smt. Pramila Pratap Shah [2006] 100 ITD 160, wherein it is held as under: "The fundamental principles with reference to the levy of penalty which must be looked into and considered before the levy of any penalty are (i) that the penalty proceedings being quasi-criminal in nature, are quite distinct, separate and independent of assessment proceedings, which though relevant, are not conclusive for levy of penalty, (ii) the rules of natural justice, and (iii) that the levy of penalty is discretionary. This leads to only one conclusion that the levy of penalty can never be automatic irrespective of the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision in the statute for providing opportunity before levy of penalty still we are of the considered view that penalty cannot be levied on an assessee without affording any opportunity of being heard on the charges on which penalty is sought to be levied. Therefore, penal provisions as such cannot be held to be automatic or mandatory. Once there is inherent or in-built scope of providing an opportunity to the assessee before he is vested with penalty then the explanation furnished by the assessee is to be considered before deciding the levy of penalty. An outright rejection of the explanation without considering the merit thereof will be denying justice and would be against equity and fair play. It will also show non-application of mind and arbitrariness. In the present case, explanation of the assessee is that he was not required to disclose any part of subscribed capital in the block return because such share capital firstly would fall in the domain of regular assessment and, secondly, no material has been found in the course of the search which would require the assessee to disclose such share capital in the block return. We do not see any reason and there is also no material ..... X X X X Extracts X X X X X X X X Extracts X X X X
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