Peak-credit estimation cannot sustain penalty where the basis of undisclosed income changes in appeal.

Penalty under section 158BFA(2) was held unsustainable where the quantum addition was ultimately retained only on a peak-credit estimate and not on a direct finding of proved concealment. The Tribunal noted that the penalty basis had shifted in appeal: the original allegation rested on seized loose papers and benami assumptions, while the final addition was determined on estimation and preponderance of probabilities. Because the statutory satisfaction for penalty must match the basis on which undisclosed income is determined, and no specific incriminating material was found in the assessee's possession, the precondition for levy was not met. The penalty was deleted.

---

---

Issues: Whether penalty under section 158BFA(2) of the Income-tax Act, 1961 could be sustained where the quantum addition was ultimately based on peak-credit estimation, the basis of addition changed in appeal, and no specific incriminating material was found from the assessee's possession.

Analysis: The addition originating from search material found with a third party was not sustained on a direct finding of concealment, but was ultimately reduced and retained on the basis of peak credit and preponderance of probabilities. The penalty order proceeded on the original footing of alleged undisclosed income linked to seized loose papers and benami assumptions, whereas the appellate quantum findings had shifted the foundation of the addition to an estimated peak figure. The Tribunal noted that penalty under section 158BFA(2) is not automatic and that the satisfaction for penalty must be referable to the basis on which undisclosed income is determined. Where the very basis of the penalty changes in the quantum proceedings and the addition rests on estimation, the statutory precondition for penalty is not met.

Conclusion: Penalty under section 158BFA(2) was not sustainable and was deleted.

Final Conclusion: The appeal succeeded, and the penalty imposed and sustained below was cancelled on the footing that the quantum addition was only an estimated peak-based determination and did not justify penalty.

Ratio Decidendi: Penalty for undisclosed income under section 158BFA(2) cannot be sustained where the addition is ultimately determined on estimation or peak-credit basis and the foundation of the penalty changes in appeal, absent a clear satisfaction based on proved concealment or undisclosed income.

---