The Commissioner of Income Tax vs Malllinath Sharnayya Swami

D.Y. Chandrachud, J.—Admit.

The issue involved in this appeal against the decision of the ITAT dated 4th April, 2008 is whether the Tribunal has set aside the penalty imposed by the Assessing Officer u/s 158BFA(2) of the Income Tax Act, 1961 for valid and justifiable reasons.

The facts in brief are that a search and seizure action was conducted on 27th August, 2002. A block return was filed declaring undisclosed income of Rs. 12.01 lakhs and tax payable was mentioned as Rs. 7.56 lakhs. No payment of tax was made. An order was passed u/s 158BC(c) determining undisclosed income of Rs. 91.23 lakhs. In appeal, the order was modified and the undisclosed income was arrived at Rs. 12,60,286/-.

Sub-section (2) of Section 158BFA of the Act provides that the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under Chapter XIV B, may direct 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 the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under Clause (c) of Section 158BC. The proviso to Sub-section (2) carves out an exception and provides the circumstances in which no order imposing a penalty shall be made. One of the requirements thereof is that the tax payable on the basis of such return under under Clause (a) of Section 158BC 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. The Tribunal, while setting aside the order imposing the penalty, noted the contention of the assessee that the levy of a penalty is not mandatory, merely because it would be lawful to do so. It is a matter of discretion to be exercised judicially. The Tribunal thereupon cited an extract from Sampat Iyengar''s Law of Income Tax, 10th Edition, page 8708 and then proceeded to observe as follows:

Since the assessee has made out his case within the four corner of the cited decisions and as also mentioned in the quoted commentary, we are of the view that this is not a fit case for levy of penalty, respectfully following the proposition laid down, considering the totality of the facts and circumstances of the case, we hereby reserve the findings of the authorities below and direct to delete the penalty.

There is merit in the submission which was urged on behalf of the Revenue that the Tribunal has not applied its mind as to whether the penalty in the present case was imposed in the judicious exercise of his discretion by the Assessing Officer. The contention of the Revenue is that since the assessee has not paid the tax on the basis of the return u/s 158BC(a), one of the conditions mentioned in the proviso was not fulfilled, in any case. In our view, the reasons which have been indicated by the Tribunal, as noted earlier, while setting aside the penalty, do not disclose a considered decision. In these circumstances, we set aside the order of the Tribunal dated 4th April, 2008 and remand the proceedings back for fresh consideration. All the rights and contentions of the parties on merits are kept open. The appeal is disposed of accordingly. There shall be no order as to costs.