Statutory penalty discretion must be exercised judicially; automatic levy without considering the assessee's explanation is unsustainable.

A statutory penalty provision is not unconstitutional merely because it confers discretion, where the scheme limits its operation to final assessment, a prescribed tax shortfall, and statutory caps that guide the authority's exercise of power; the provision was therefore upheld against the article 14 challenge. Penalty under the provision is nevertheless discretionary, not automatic, and the authority must issue notice, consider the explanation, and decide each case on its facts. An order treating penalty as a mechanical consequence of default, without judicial assessment of the relevant circumstances, is legally unsustainable and was quashed, with the matter remitted for fresh consideration.

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Issues: (i) Whether section 18(2A)(b) of the Karnataka Agricultural Income-tax Act, 1957 violated article 14 of the Constitution by conferring unguided, uncanalised and arbitrary power to levy penalty; (ii) Whether the penalty order was liable to be quashed because the authority treated the levy as automatic and failed to exercise discretion judicially.

Issue (i): Whether section 18(2A)(b) of the Karnataka Agricultural Income-tax Act, 1957 violated article 14 of the Constitution by conferring unguided, uncanalised and arbitrary power to levy penalty.

Analysis: The provision was read as part of a statutory scheme in which penalty could arise only after final assessment under section 19, only when the tax shortfall exceeded the prescribed threshold, and only within the limits fixed by the statute, including the proviso for small assessees. The permissive language of the provision, its object of deterring inaccurate returns, and the factors built into its operation were held to furnish sufficient policy and guidance for the exercise of power. The quantum of penalty was also not regarded as disproportionate to the amount withheld.

Conclusion: The provision was upheld and was held not to be violative of article 14.

Issue (ii): Whether the penalty order was liable to be quashed because the authority treated the levy as automatic and failed to exercise discretion judicially.

Analysis: The power to impose penalty was held to be discretionary and not compulsive. The authority was required to issue notice, consider the cause shown, and decide the matter independently on the facts of each case, applying the well-settled principles governing penal provisions. An order passed on the footing that penalty followed automatically from the tax shortfall, without a judicial evaluation of the relevant circumstances, was found to be mechanical and legally unsustainable.

Conclusion: The penalty order was quashed and the matter was remitted for fresh consideration in accordance with law.

Final Conclusion: The constitutional challenge failed, but the impugned penalty order could not stand because the taxing authority had not exercised the statutory discretion in a lawful manner, so the matter was sent back for redetermination.

Ratio Decidendi: A statutory penalty provision couched in permissive language and structured by objective limits is valid, but the penalty power must still be exercised judicially on the facts of each case and cannot be applied as an automatic consequence of default.

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