Penalty under section 158BFA(2) not leviable where undisclosed income was lower and disclosure followed an understanding with revenue.

Penalty under section 158BFA(2) was held not leviable where, in a search case, the undisclosed income was ultimately determined at a lower figure and the returns had been filed pursuant to an understanding with the revenue about who would disclose the income. The Court accepted that the original uncertainty whether the income belonged to the company or its director was not displaced, and treated penalty on the company as inequitable. The authorities were therefore justified in declining to impose penalty, and the issue was decided in favour of the assessee.

---

---

Issues: Whether penalty under section 158BFA(2) of the Income-tax Act, 1961 was leviable on the assessee company when the undisclosed income was finally determined at a lower figure and the returns were filed pursuant to an understanding with the revenue.

Analysis: The penalty controversy arose from a search case in which the revenue was uncertain whether the undisclosed income belonged to the company or its director. The undisclosed income was originally assessed at a much higher figure, but in appellate proceedings it stood reduced. The finding that there had been an understanding between the parties as to who would disclose the income was not displaced. In those circumstances, the Court held that imposition of penalty on the company would be inequitable and that the authorities below were justified in declining to levy penalty.

Conclusion: The question was answered in favour of the assessee and against the revenue; penalty under section 158BFA(2) was not leviable.

---