2012 (6) TMI 261 - HC - Income Tax

High Court upholds penalty for undisclosed income, shows leniency on additional amount.

PK. RAVINDRAN Versus THE COMMISSIONER OF INCOME TAX

PK. RAVINDRAN Versus THE COMMISSIONER OF INCOME TAX - TMI Issues:Levy of penalty under section 158BFA(2) of the Income Tax Act - Discretionary or mandatory nature of penalty - Failure to prove declared undisclosed income - Applicability of penalty on the entire differential amount - Interpretation of tribunal's order - Decision of Bombay High Court and Kerala High Court on penalty under section 158BFA(2).The judgment delivered by the High Court of Kerala pertained to the levy of penalty under section 158BFA(2) of the Income Tax Act. The appellant/assessee had filed a return declaring undisclosed income of Rs.3 lakhs but the assessing officer made an addition of Rs.4,15,000. The appellant failed to prove that Rs.3 lakhs represented a gift from Non-Resident Indians. The assessing officer levied a penalty on the entire differential amount, which was upheld by the Tribunal. The appellant appealed against this decision. The counsel for the assessee relied on a decision of the Bombay High Court stating that the penalty under section 158BFA(2) is discretionary, while the Standing Counsel argued that the Tribunal's decision was confirmed by the Kerala High Court in a previous case.After considering the arguments and reviewing the Tribunal's order, the High Court found no grounds to interfere with the penalty imposed on the declared undisclosed income of Rs.3 lakhs. The court noted that the appellant failed to prove the source of this amount, making the penalty mandatory under the 2nd proviso to section 158BFA(2). Therefore, the court confirmed the penalty on this amount. However, regarding the additional amount of Rs.1,15,000, the court observed that it was only an extra amount after the rejection of the cash flow statement. The court decided to show leniency to the assessee in this regard to prevent them from paying more than the undisclosed income due to taxes, penalties, and interest. As a result, the court allowed the appeal in part by excluding the penalty on Rs.1,15,000 and limiting the penalty to Rs.3 lakhs, thereby providing relief to the assessee.In conclusion, the High Court upheld the penalty on the declared undisclosed income of Rs.3 lakhs due to the appellant's failure to prove its source. However, the court showed leniency by excluding the penalty on the additional amount of Rs.1,15,000 to prevent the assessee from paying more than the undisclosed income after considering taxes, penalties, and interest.