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TMI Blog2004 (12) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... the penalty is not sustainable. We appreciate the efforts made by the assessee s counsel to bring to our attention the possible harassment the AO can cause to the taxpayers for want of necessary provisions in this regard for imposition of penalties under Chapter XIV-B. We, therefore, even on merits do not agree with the imposition of penalty. The same stands cancelled. In the result, appeal is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... imposition of penalty. The learned counsel for the assessee pointed out that the legislature has failed to define the defaults for which the penalty is imposable under s. 158BFA(2). By negative prescriptions, the legislature cannot do what it has miserably failed to do by an express provision in the Act. The learned counsel further pointed out that the legislature is imposing a minimum penalty to the extent of the amount of the tax leviable under the scheme and a maximum penalty to the extent of three times of the amount sought to be levied in respect of the undisclosed income determined by the AO. These provisions are draconian in nature and should be reasonably construed and should never be the tools for harassing the taxpayer. The learned counsel pointed out that no significant additions are made to the declared undisclosed income and the additions that are made are purely based on certain estimates and clerical mistakes. The counsel for the assessee pleaded that the assessee did not prefer an appeal in view of the smallness of the tax effect and to avoid further litigation. To burden such an assessee with vicarious liability like penalty under s. 158BFA(2) of the Act is quite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined by the AO under cl. (c) of s. 158BC: Provided that no order imposing penalty shall be made in respect of a person if-- (i) such person has furnished a return under cl. (a) of s. 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (iii) evidence of tax paid is furnished along with the return; and (iv) an appeal is not filed against the assessment of that part of income which is shown in the return : Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the AO is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return." 6. In a taxing statute of this nature, the legislature must envisage and provide for cases where the assessees attempt to contravene the provisions of the Act and to evade payment of rightful tax levied thereunder. If such contingencies are not visualised and such leaks are not plugge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO under cl. (c) of s. 158BC of the Act. On a reading of the aforesaid provision, it is very obvious and patent that the legislature has miserably failed to bring on statute what nature of offence results in the penalty that is specified in that section. In other words, the legislature has not brought the charge in the provisions of sub-s. (2) of the Act. The legislature simply enables the AO to impose a penalty, but it is silent about the circumstances which attract this penalty. It can also be said that the provisions are totally ambiguous and do not clearly define the scope for its operation. The sub-s. (2) has miserably failed to bring any charge to surface so that the AO may look at the gravity of the charge in order to impose the penalty. What the Revenue is trying to canvass is that the proviso enables the imposition of penalty. The proviso, which is relied upon by the Revenue, although extracted above, we think it fit to repeat the reading to achieve clarity in the matter. The said proviso read as under: "Provided that no order imposing penalty shall be made in respect of a person if-- (i) such person has furnished a return under cl. (a) of s. 158BC; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decides to impose, he has to levy a minimum penalty equal to the amount of tax involved. Closely examining the facts of this case, the assessee has himself offered Rs. 21,00,525 as undisclosed income. What all the AO has made the addition is based on an estimate, which cannot be treated as an undisclosed income in accordance with the strict provisions of law in this regard and a clerical mistake, which in any case, could have been corrected by the AO himself while processing the return. Just for a delay in filing the return by fifteen days, the Department justifies the imposition of penalty to the extent of 60 per cent of undisclosed income. It effectively means imposing 120 per cent of the undisclosed income as taxes and penalties. Any AO could easily harass the taxpayer by demanding nearly 240 per cent (60 per cent + 180 per cent maximum penalty) of the tax, which cannot be the purpose of Chapter XIV-B of the Act. This is clearly obnoxious and has never been the intention of the legislature while drafting these provisions. The scope of Chapter XIV-B is to ease out the tax computations in search cases. But herein it has ended up with all sorts of harassment to the taxpayer who wan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e caption headed 'Strict Construction of Penal Laws.' It has been stated that in Kartar Singh vs. State of Punjab JT 1994 (2) SC 432, p. 466 : 1994 (3) SCC 569, it is held that it is the basic principle of legal jurisprudence that an enactment is void for vagueness if its prohibitions are not clearly defined. If a statute laid a mandatory duty but provided no mode of enforcing it, the presumption in ancient days was that the person in breach of the duty could be made liable for the offence of contempt of the statute. This rule of construction is now obsolete and has no application to a modern statute. Clear language is now needed to create a crime. The principle applied in construing a penal Act is that if, in construing the relevant provisions, there appears any reasonable doubt or ambiguity, it will be resolved in favour of the person who would be liable to the penalty. If there is a reasonable interpretation, which will avoid the penalty in any particular case, that construction must be adopted. If there are two constructions, the more lenient one must be adopted. In every case, the question is simply what is the meaning of the words, which the statute has used to descri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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