Penalty under section 158BFA(2): limitation runs from final quantum crystallization, but levy fails where explanation is bona fide.

Penalty under section 158BFA(2) was held not to be barred by limitation because the relevant date for computation was the point when the quantum proceedings attained finality after appellate recomputation, so the penalty order passed thereafter was within time. On merits, the levy was found unsustainable because section 158BFA(2) penalty is discretionary, not automatic, and the explanation for investment in KVPs under a grandfather's Will was accepted as bona fide and supported; the penalty was deleted and the assessee obtained partial relief.

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Issues: (i) Whether the penalty under section 158BFA(2) was barred by limitation. (ii) Whether the penalty under section 158BFA(2) was sustainable on merits.

Issue (i): Whether the penalty under section 158BFA(2) was barred by limitation.

Analysis: The relevant date for computing limitation was held to be the date on which the quantum proceedings attained finality after the matter restored by the Tribunal was recomputed and decided in appeal. Once the undisclosed income stood crystallized only after the later appellate disposal, the penalty order passed thereafter was within time.

Conclusion: The penalty was not barred by limitation and this issue was decided against the assessee.

Issue (ii): Whether the penalty under section 158BFA(2) was sustainable on merits.

Analysis: Penalty under section 158BFA(2) was treated as discretionary and not automatic. The explanation regarding investment in KVPs under the grandfather's Will was accepted as a bona fide and supported explanation, and no adequate independent reason for levy of penalty was shown.

Conclusion: The penalty was unsustainable on merits and was deleted in favour of the assessee.

Final Conclusion: The limitation objection failed, but the penalty could not be sustained on merits, so the assessees obtained partial relief and the penalty stood deleted.

Ratio Decidendi: Penalty under section 158BFA(2) is not automatic and can be imposed only on a reasoned basis, and where the underlying quantum becomes final only after remand proceedings, limitation for penalty is computed from that final crystallization of income.

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