TMI Blog2010 (4) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment of income which was shown for the block period, she had not fulfilled the fourth condition laid down in the first proviso to Section 158 BFA(2). On the basis of this, the Assessing Officer held that the assessee was liable to be penalized and proceeded to impose the penalty. – Held that: it is an admitted position before the Court that the assessee filed an appeal to the Commissioner (Appeals) against the order of block assessment on the ground that the rate of tax payable in respect of capital gains was not 60%, but 20%. As a result of the filing of the appeal, the assessee failed to comply with clause (iv) of the first proviso to Section 158BFA(2). As a result, the assessee was not entitled to the benefit of the prohibitory pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Assessing Officer accepted the returned income. 4. Penalty proceedings were initiated under Section 158BFA(2) with a notice calling upon the assessee to show cause as to why an order imposing a penalty should not be passed. The Assessing Officer, by an order dated 27th February 2006, imposed a penalty in the amount of Rs.42.90 lakhs. The contention of the assessee was that she had complied with all the conditions prescribed in the first proviso to Section 158BFA and that consequently, no order imposing a penalty could be passed. The Assessing Officer, however, held that the assessee had preferred an appeal against the block assessment order and one of the grounds of appeal was that the rate of tax on the capital gains included i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the first proviso to Section 158BFA(2) stipulates that an appeal should not be filed against the assessment of that part of the income which is shown in the return. In the present case, the assessee filed an appeal to the CIT (Appeals), questioning the rate at which tax has been imposed by the Assessing Officer. An appeal before the CIT (Appeals) under Section 246A would lie even in respect of the rate of tax. It was urged that by contesting the imposition of the tax before the CIT (Appeals), the assessee had not fulfilled the requirement of the first proviso. 7. On the other hand, it was urged on behalf of the assessee that an appeal against the rate of tax would not be hit by clause (iv) of the first proviso to Section 158BFA(2). Mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of undisclosed income shown in the return." 9. The substantive part of subsection (2) of Section 158BFA is an enabling provision by which the Assessing Officer or, as the case may be, the Commissioner (Appeals) is empowered to impose a penalty in the course of any proceedings under Chapter XIVB. Parliament has indicated its intent by using the expression "may direct that a person shall pay by way of penalty a sum...". Consequently, under the substantive part of subsection (2), the imposition of a penalty is not mandatory, but lies in the discretion of the Assessing Officer or, as the case may be, the Commissioner (Appeals). It is trite law that the imposition of a penalty is not mandatory merely because it is lawful. The imposition of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the block period and if the assessee accepts the assessment as final and pays the tax thereon, the protective provision is brought into force. Clause (iv) of the first proviso stipulates that an appeal should not be filed against the assessment of that part of the income which is shown in the return. An appeal 'against the assessment of that part of the income which is shown in the return' also comprehends an appeal disputing the rate at which the tax has been computed. It would not be permissible for the Court to artificially restrict the ambit of clause (iv) by stipulating that an appeal against the rate of tax would not be hit by clause (iv) to the proviso. To accept such a contention would be to render the object and purpose of legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) is a separate matter. This is an issue which will have to be considered separately. The Tribunal has not done so, since it came to the conclusion that the assessee had fulfilled all the requirements of the first proviso and the Revenue was prohibited from initiating penalty proceedings. Since we have come to the conclusion that the Tribunal erred in holding that the assessee has fulfilled conditions of the first proviso to Section 158BFA(2), it would be only appropriate and proper for this Court to remand the proceedings back to the Tribunal for deciding as to whether the imposition of the penalty was justified in the facts and circumstances of the case. 13. The question of law that has been formulated in the appeal shall accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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