TMI Blog2004 (12) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of tax payable under block assessment. The assessee was unsuccessful before the CIT(A) and is in appeal before us. 3. Before us, the learned counsel for the assessee vehemently argued against the imposition of penalty in the facts and circumstances of the case and in the light of the provisions of s. 158BFA(2) of the Act. Subsequent to search proceedings in the premises of Shri Ambalal Shankarlal, the factor of the assessee, the assessee was asked to file the return of income under the block assessment scheme under s. 158BD of the Act. The assessee complied with the notice and filed a return declaring an income of Rs. 21,00,525. During the course of the assessment, the AO made two additions viz., Rs. 30,000 as unexplained marriage expenses and Rs. 48,635 being the difference on account of certain clerical mistake based on which the assessee had filed the return. The AO left a note in the assessment order in respect of levy of penalty under s. 158BFA(2) which reads as under: Penalty proceedings under s. 158BFA(2) has been initiated in view of the fact that under proviso 1 to s. 158BFA(2), penalty is not leviable, provided, inter alia, the assessee does not go in appeal ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000) 172 CTR (Raj) 398 : (2001) 249 ITR 363 (Raj). 4. The learned Departmental Representative, on the other hand, drawing our attention to the proviso to s. 158BFA(2), pointed out that the assessee has not satisfied all the conditions laid down in the said proviso. Therefore, by implication the assessee is liable for penalty under s. 158BFA(2), the AO has levied the minimum penalty prescribed under the statute and strongly justified the imposition of the said penalty in the light of the provisions of the law and in the light of the discussions in the two impugned orders. 5. We have carefully and anxiously considered the rival contentions and gone through the records. The provisions of s. 158BFA(2), which are the cause of the controversy are reproduced hereunder: "Sec. 158BFA(1): Where the return of total income including undisclosed income for the block period, in respect of search initiated under s. 132 or books of account, other documents or any assets requisitioned under s. 132A on or after the 1st day of January, 1997, as required by a notice under cl. (a) of s. 158BC, is furnished, after the expiry of the period specified in such notice, or is not furnished, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s become an integral part of such enactments. It has now been well recognised that a provision dealing with penalty must be strictly construed. Penalties are to be construed within the term and language of the particular statute. Penalty provision should be interpreted as it stands and in case of doubt in a manner favourable to the taxpayer. If the Court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt the interpretation which favours the assessee, more particularly so, where the provision relates to the imposition of penalty. Useful reference may be made in this regard to the observations in the decisions in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC), C.A. Abraham vs. ITO Anr. (1961) 41 ITR 425 (SC), Braja Lal Banik vs. State of Tripura (1990) 78 STC 283 (Gau), CIT vs. P.M. Shah (1993) 203 ITR 792 (Bom), J.K. Synthetics Ltd. vs. CTO (1994) 119 CTR (SC) 222 and Birla Cement Works vs. State of Rajasthan (1994) 94 STC 422 (SC). 7. Now applying the above principle, the provisions of s. 158BFA(1) provides that where the assessee did not file a return of income as required by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return. In other words, it gives the situations and prescribes the circumstances under which penalty shall not be levied. The AO, the CIT(A) and the learned Departmental Representative are trying to canvass that if these circumstances are not satisfied cumulatively, the assessee is automatically levied with penalty, which proposition cannot be accepted in the light of the principle laid down by the Supreme Court and followed by every High Court while dealing with penalties and the provisos dealing with penalties. The legislature, in our view, has not prescribed the circumstances under which the penalty has to be levied. It has only said the circumstances under which no penalty is leviable. That does not mean that in every other circumstance the penalty is automatic and has to be levied. We should not forget that the words used in sub-s. (2) are that the AO may direct the imposition of penalty. It means that the penalty is not automatic and de hors the committal of the offence or the offence for which the legislature has prescribed the penalty. In our view, sub-s. (2) has miserably failed to provide for circumstances justifying the penalty. We are unable to sustain the penalty le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in favour of the assessee who has co-operated with the Department in getting the undisclosed income assessed to tax at a higher rate of taxation, than under the normal Finance Act. Instead, the AO used the discretion against the assessee in imposing the penalty, which according to us, is unreasonable and as we have already explained, even on merits, 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. 10. Before parting, we would like to deal with the Full Bench decision of the Andhra Pradesh High Court in the case of State of Andhra Pradesh vs. Godavarthi Kasiviswanadham (1970) 25 STC 1 (AP), wherein while dealing with penalties, it has been observed as under: "Imposition and collection of penalty also are clearly dealt with in a number of provisions of the Act. It must necessarily be so. In a taxing statute of this nature the legislature must envisage and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principles discussed in Maxwell on Interpretation of Statutes 12th Edn. These principles, if squarely applied to the facts of the case, it will only result in cancellation of penalty. 11. In Sales Matic Ltd. vs. Hinchcliffe (1959) 1 WIR 1005, it is held that express language is always necessary for creation of an offence. A mere declaration that "all lotteries are unlawful" does not create any offence on which a prosecution could be based. Further in R vs. Staincross Justices, ex p. Teasdale (1961) 1 QB 170, it is held that an exemption setting out conditions on which acts, which are made punishable under other provisions of the statute, may be done does not per se operate to make non-observance of the conditions criminal. In other words, the proviso, which deals with the exceptions for imposition of penalty, cannot act as a proviso, which enables the AO to impose the penalty, and also the exception clause cannot act as a main rule for imposition of penalty. 12. We have also gone through the Budget speech of the Finance Minister while introducing the Finance Bill, 1995, and also the CBDT Circular No. 717, dt. 14th Aug., 1995, which also do not throw any light on the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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