Penalty under section 158BFA(2) is discretionary; bona fide omission and surrounding facts can justify deletion.

Penalty under section 158BFA(2) of the Income-tax Act, 1961 is not automatic on the difference between assessed undisclosed income and returned income under section 158BC; the provision is discretionary because it uses "may" and requires reasonable opportunity before levy. Penalty proceedings are distinct from assessment proceedings, so the authority must consider the assessee's bona fides and surrounding circumstances before imposing penalty. Where no incriminating material was found in search and the revised return was filed after the relevant facts came to light, the omission may be treated as bona fide and penalty may be deleted.

---

---

Issues: Whether penalty under section 158BFA(2) of the Income-tax Act, 1961 was leviable automatically on the difference between the assessed undisclosed income and the income returned under section 158BC, or whether the authority was required to consider the facts and circumstances, including the assessee's bona fides, before imposing penalty.

Analysis: The penalty provision was held to be discretionary because sub-section (2) uses the word "may" for levy of penalty, while sub-section (3) requires a reasonable opportunity of being heard. Penalty proceedings were treated as distinct from assessment proceedings and not to be imposed merely because it was lawful to do so. The Tribunal further noted that no incriminating material was found in search, the legal heir was initially unaware of the deceased assessee's share transactions, and the revised return was filed upon discovery of the relevant facts. On these facts, the omission was treated as bona fide and the income was not regarded as undisclosed income warranting penalty merely on technical grounds.

Conclusion: Penalty under section 158BFA(2) was not automatic and was not justified on the facts; the deletion of penalty was upheld in favour of the assessee.

Ratio Decidendi: Penalty under section 158BFA(2) of the Income-tax Act, 1961 is discretionary and cannot be imposed mechanically; the authority must consider the assessee's bona fides, the surrounding circumstances, and the requirement of reasonable opportunity before levying penalty.

---