Estimated undisclosed income cannot automatically attract penalty where concealed income is not conclusively proved.

Penalty under section 158BFA(2) is discretionary and cannot be imposed automatically where the undisclosed income addition is sustained only on a lump-sum estimate. The analysis notes that the provision for penalty is distinct from the interest element and must be applied reasonably on the facts of the case. Where the record does not conclusively establish concealed income to the higher standard required for penalty, an estimated quantum addition alone is insufficient to justify penal action. On that basis, the penalty was held unsustainable and was cancelled in favour of the assessee.

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Issues: Whether penalty under section 158BFA(2) was leviable where the undisclosed income was ultimately sustained only on an estimated basis.

Analysis: The quantum addition had been confined to a lump-sum estimate to put an end to the litigation, rather than on conclusive evidence of concealed income. Section 158BFA uses different language for interest and penalty, and the penalty provision is discretionary. In such a setting, the power to impose penalty must be exercised reasonably and on the facts of the case. A mere estimate, without adequate material proving actual undisclosed income to the higher standard required for penalty, does not justify an automatic penal consequence.

Conclusion: Penalty under section 158BFA(2) was not sustainable and was directed to be cancelled, in favour of the assessee.

Ratio Decidendi: Penalty for undisclosed income cannot be levied as a matter of course where the addition itself is sustained only on estimate and the evidence does not conclusively establish concealed income.

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