TMI Blog2006 (8) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... 158BC was issued. Return of income for the relevant block period was filed by the assessee on 22-2-2002 declaring undisclosed income of Rs. 95,41,081. In Part IV of the return for the block period, the following information was given:- 1. Tax payable on undisclosed income of the Block Period Rs. 57,24,654 2. Tax paid on undisclosed income before filing the return (attach challan) Rs. 7,50,000 Date of payment 30-6-2001 (out of cash seized) Rs. 6,74,654 3. Balance amount payable Rs. 43,00,000 3. Thus on the basis of the return for the block period, tax of Rs. 43,00,000 was payable on the date when the block return was filed on 20-2-2002. The total tax has been paid as under:- Rs. 29-6-2001 7,50,000 cash seized 20-2-2002 6,74,654 24-5-2002 6,00,000 4-7-2002 6,00,000 20-11-2002 4,00,000 25-1-2003 4,00,000 10-10-2003 3,50,000 13-1-2004 5,00,000 31-3-2004 16,78,361 --------- 62,53,035 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel appearing for the assessee forcefully argued before us that there is only a negligible difference between the undisclosed income returned by the assessee and what is assessed by the Assessing Officer. Even though full taxes could not be paid by the assessee before filing the block return, subsequently taxes were paid alongwith interest. The assessee accepted the undisclosed income determined by the Assessing Officer and no appeal was filed before the CIT. Nevertheless the Assessing Officer levied penalty under section 158BFA(2) on the addition made by him and the assessee filed appeal before the CIT(A). It is submitted that under section 158BFA(2), the Assessing Officer may direct that a person shall pay penalty. The learned counsel emphasized that in sub-section (2), the Legislature has used the words "may" and not "shall". Therefore, the levy of penalty is within the discretion of the Assessing Officer and it is not mandatory to levy penalty. However sub-section (2) does not specify the circumstances which may render the assessee liable for levy of penalty. The first proviso only specifies the exceptions. Under the second proviso, the Assessing Officer has been empowered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Now applying the above principle, the provisions of section 158BFA(1) provides that where the assessee did not file a return of income as required by notice under section 158BC and has furnished the return after the expiry of the period specified in that notice or has not furnished the return of income, the assessee shall be liable to pay simple interest at the rate of two per cent of the tax on undisclosed income determined under clause (c) of section 158BC, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time specified in the notice. 8. Now coming to the provisions of section 158BFA(2), we will analyse the section as under: (a) The Assessing Officer or the CIT in the course of any proceedings; (b) May direct that a person shall pay by way of penalty; (c) A sum which shall not be less than the amount of tax livable but which shall not exceed three times the amount of tax so livable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of section 158BC of the Act. On a reading of the aforesaid provision, it is very obvious and patent that the Legislature has mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the penalty is not automatic and do hors the committal of the offence or the offence for which the Legislature has prescribed the penalty. In our view, sub-section (2) has miserably failed to provide for circumstances justifying the penalty. We are unable to sustain the penalty levied by the Assessing Officer in the fact and circumstances of the case. 9. In this case, the assessee has filed the return of income and has declared most of the undisclosed income, except for some clerical mistake and the marriage expenses. Even on the principle that when a discretion is vested with the officer, in the circumstances in which there is lot of lacunas, the Assessing Officer should have used the discretion in favour of the assessee appreciating the fact that the assessee has accepted the additions made and has not even filed an appeal in the matter. The provisions of section 158BFA(2) give a scope for exercising discretion on the part of the Assessing Officer. After all, the proviso which allow the Assessing Officer to impose a penalty begins with the words 'may' only and not 'shall'. That means the Assessing Officer still has discretion to impose or not to impose." 7. The learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer under clause (c) of section 158BC: Provided that no order imposing penalty shall be made in respect of a person if- (i) such person has furnished a return under clause (a) of section 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 Assessing Officer 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. 10. We have already reproduced above the relevant part of the order of ITAT, Bangalore Bench in the case of Nemichand to show that sub-section (2) of section 158BFA is a badly drafted provision and it does not specify the circumstances under which penalty can be lev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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