Tribunal Rules Penalty Under s. 158BFA(2) is Discretionary, Upholds CIT(A)'s Penalty Reduction, Remands Interest Issue.

The Tribunal determined that the penalty under s. 158BFA(2) is discretionary, not mandatory, and must be imposed judicially. It upheld the CIT(A)'s reduction of the penalty from Rs. 15,37,980 to Rs. 1,60,268, based on revised undisclosed income. The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, remanding the FDR interest issue to CIT(A) for reassessment. The revenue's appeal was dismissed, and the assessee's appeal was partly allowed for statistical purposes.

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Issues Involved:
1. Legality of penalty u/s 158BFA(2) for undisclosed income.
2. Quantum of penalty imposed by Assessing Officer and reduced by CIT(A).
3. Merits of the penalty imposed on various components of undisclosed income.

Summary:

1. Legality of Penalty u/s 158BFA(2) for Undisclosed Income:
The Tribunal examined whether the penalty u/s 158BFA(2) is mandatory or discretionary. The revenue argued that the penalty is mandatory due to the use of the word "shall" in the section, while the assessee contended that the word "may" indicates discretion. The Tribunal concluded that the word "may" grants discretion to the authority, and the penalty is not automatic but should be imposed judicially considering all relevant circumstances. The Tribunal cited the case of Hindustan Steel Ltd v. State of Orissa and other precedents to support its view.

2. Quantum of Penalty Imposed by Assessing Officer and Reduced by CIT(A):
The Assessing Officer imposed a penalty of Rs. 15,37,980 based on the difference between the assessed undisclosed income (Rs. 75,63,300) and the declared undisclosed income (Rs. 50 lakhs). CIT(A) reduced the penalty to Rs. 1,60,268, considering only Rs. 2,67,114 as undisclosed income. The revenue challenged the reduction, arguing that the penalty should be on the entire difference. The Tribunal upheld the CIT(A)'s view that the penalty should be discretionary and not mandatory.

3. Merits of the Penalty Imposed on Various Components of Undisclosed Income:
- Undisclosed Cash and Tokai Seeds Income: The Tribunal found that the undisclosed cash and Tokai seeds income were based on estimates and not on specific items of income not considered by the assessee. Therefore, no penalty u/s 158BFA(2) was leviable on these components.
- Income Disclosed in Returns Filed After Search: The Tribunal noted that no material was brought on record to show that the income disclosed in the returns for AY 1996-97 and 1997-98 was not disclosed to the revenue before the search. Since the assessee paid advance tax and TDS on this income before the search, it was not considered undisclosed income, and no penalty was leviable.
- FDR Interest: The Tribunal found discrepancies in the FDR interest disclosed and assessed. The matter was remanded to CIT(A) to determine the net undisclosed FDR interest and impose the minimum penalty according to law after providing an opportunity to the assessee.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal for statistical purposes, directing CIT(A) to reassess the penalty on FDR interest.

Result:
Revenue's appeal dismissed; assessee's appeal partly allowed for statistical purposes.

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