2007 (10) TMI 544 - HC - Income Tax

Court clarifies penalty provision under Income Tax Act; upholds Tribunal decision on undisclosed income penalty.

The court clarified penalty provisions under Section 158BFA(2) of the Income Tax Act, emphasizing the Second Proviso's application when undisclosed income ... Computation of penalty - on the tax sought to be evaded or assessed income when the return was not furnished under Section 158BC(a) - held that:- the case of the assessee was covered under the Second Proviso and the assessee was liable to pay penalty on the concealed income of Rs. 3,60,774/- as quantified by the CIT(A) and sustained by the Tribunal. Revenue is unable to show that the findings so recorded are either perverse or erroneous warranting interference by this Court. Issues:1. Interpretation of penalty provisions under Section 158BFA(2) of the Income Tax Act, 1961.2. Applicability of the Second Proviso to Section 158BFA(2) in determining penalty on undisclosed income.3. Assessment of penalty based on returned income versus undisclosed income determined by the Assessing Officer.Issue 1: The judgment deals with the interpretation of penalty provisions under Section 158BFA(2) of the Income Tax Act, 1961. The Assessing Officer or the Commissioner (Appeals) has the authority to direct a person to pay a penalty not less than the tax leviable but not exceeding three times the tax leviable on the undisclosed income determined under Section 158BC(c). The first proviso exempts penalty if the person has filed a return under Section 158BC(a), paid the tax, provided evidence of tax payment, and not appealed against the assessed income. The second proviso applies when the undisclosed income exceeds the income declared in the return, allowing penalty imposition on the excess undisclosed income.Issue 2: The judgment discusses the applicability of the Second Proviso to Section 158BFA(2) in determining the penalty on undisclosed income. In this case, the assessee declared Rs. 14,50,000 as undisclosed income in the return, while the assessed income was Rs. 18,10,774. As the undisclosed income determined by the Assessing Officer exceeded the income declared in the return, the Second Proviso applied. Therefore, the penalty was rightly imposed on the excess undisclosed income of Rs. 3,60,774, as quantified by the CIT(A) and upheld by the Tribunal.Issue 3: The judgment addresses the assessment of penalty based on the returned income versus the undisclosed income determined by the Assessing Officer. The Tribunal correctly noted that under Section 158BFA(2), the penalty should be imposed on the portion of undisclosed income that exceeds the amount declared in the return. As the undisclosed income determined exceeded the income shown in the return, the penalty was appropriately quantified on the excess undisclosed income. The Court found no merit in the revenue's contention and upheld the Tribunal's decision, dismissing the appeal.In conclusion, the judgment clarifies the penalty provisions under Section 158BFA(2) of the Income Tax Act, emphasizing the application of the Second Proviso when undisclosed income exceeds the declared income in the return. The assessment of penalty is based on the excess undisclosed income, as determined by the Assessing Officer, ensuring compliance with the statutory provisions.