Block assessment penalty is confined to excess undisclosed income over the return, with strict construction applied.

Penalty under section 158BFA(2) in block assessment proceedings is confined to the excess of undisclosed income determined over the undisclosed income shown in the block return where the second proviso applies. The provision is penal in nature and must be strictly construed, so penalty cannot be levied on income already disclosed in the return merely because the return was filed with delay or the tax was later paid. The operative effect is that only the differential assessed income remains exposed to penalty, while the returned undisclosed income is outside its scope.

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Issues: Whether penalty under section 158BFA(2) could be sustained on the entire assessed undisclosed income or only on the portion exceeding the undisclosed income returned in the block return.

Analysis: The assessee filed the block return with a short delay, disclosed undisclosed income, and later paid the tax on the income ultimately assessed. The first proviso to section 158BFA(2) governs cases where the block return is not filed in time and the tax on the returned income is not paid, but the provision is penal in nature and must be construed strictly. The second proviso applies where the undisclosed income determined by the Assessing Officer exceeds the income shown in the return, and penalty is confined to that excess portion. On the facts, the penalty could not be levied on the income disclosed in the return, and the assessee's explanation for the delay did not justify penalty on the returned income.

Conclusion: Penalty was not leviable on the undisclosed income disclosed in the block return and was confined only to the excess assessed income; the Revenue's challenge failed.

Final Conclusion: The appellate order deleting penalty on the returned undisclosed income and sustaining it only to the extent of excess assessed income was upheld, and the Revenue's appeal was dismissed.

Ratio Decidendi: Under section 158BFA(2), penalty in block assessment proceedings is confined to the excess of undisclosed income determined over the undisclosed income shown in the return where the second proviso applies, and the penal provision must be strictly construed.

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