Penalty under Section 158BFA(2) requires discretion, not automatic imposition.

The court upheld the ITAT's decision that penalty under Section 158BFA(2) is leviable only on additions made over the undisclosed income declared by the assessee. It emphasized that the discretion to levy penalty is not automatic but lies within the Assessing Officer's purview. The court also clarified that penalty imposition is discretionary, referencing judgments supporting this interpretation. The court found the ITAT's reliance on a previous decision appropriate and concluded that the discretion under Section 158BFA(2) should be exercised reasonably. The appeal was dismissed, and all substantial questions of law were answered against the Revenue.

---

---

Issues Involved:
1. Justification of penalty under Section 158BFA(2) for additions over undisclosed income.
2. Levy of penalty for undisclosed income recorded in return under Section 158BC(a).
3. Applicability of ITAT, Cochin Bench decision in DCIT vs. Heera Construction Co.(Pvt) Ltd.

Detailed Analysis:

1. Justification of Penalty under Section 158BFA(2) for Additions Over Undisclosed Income:
The Revenue challenged the ITAT's decision that penalty under Section 158BFA(2) is leviable only on additions made over the undisclosed income declared by the assessee in its return filed under Section 158BC(a). The Revenue argued that the ITAT failed to appreciate that the assessee forfeited the benefit of the first proviso regarding immunity from penalty or tax payable on undisclosed income. The court, however, upheld the ITAT's decision, noting that the discretion to levy penalty under Section 158BFA(2) is not automatic but lies within the Assessing Officer's purview, as indicated by the words "may direct."

2. Levy of Penalty for Undisclosed Income Recorded in Return under Section 158BC(a):
The Revenue contended that the ITAT erred in deciding that penalty under Section 158BFA(2) cannot be levied on undisclosed income recorded in the assessee’s return furnished under Section 158BC(a), especially since the assessee did not pay the tax on its admitted income in the return. The court emphasized that the imposition of penalty is discretionary, not mandatory, as per the language of Section 158BFA(2), which uses "may direct" rather than "shall be liable." The court referenced judgments from the Rajasthan High Court in Satyendra Kumar Dosi and the Bombay High Court in Dodsal Ltd., which supported the interpretation that the penalty provision is discretionary.

3. Applicability of ITAT, Cochin Bench Decision in DCIT vs. Heera Construction Co.(Pvt) Ltd.:
The Revenue argued that the ITAT wrongly relied on the Cochin Bench's decision in DCIT vs. Heera Construction Co.(Pvt) Ltd., as no installment facility was granted by the CIT to the assessee, making the observations inapplicable. The court, however, found that the ITAT's reliance on the Cochin Bench's decision was appropriate in interpreting the discretionary nature of penalty imposition under Section 158BFA(2).

Conclusion:
The court concluded that the discretion vested in the Assessing Officer under Section 158BFA(2) should be exercised reasonably and not automatically. Both the Commissioner (Appeals) and the ITAT had correctly interpreted the discretionary nature of penalty imposition and had reasonably exercised their discretion based on the facts, such as the assessee filing returns within ten days of the stipulated time and paying part of the tax on the admitted undisclosed income. Consequently, the appeal was dismissed, and all substantial questions of law were answered against the Revenue.

---