Block penalty under section 158BFA(2) depends on search material, bona fide disclosure, and facts, even where income is estimated.

Penalty under section 158BFA(2) is not automatic and requires consideration of the surrounding facts, search material, and the assessee's explanation before levy. The text states that where undisclosed income is supported by seized material and the block assessment attains finality, penalty may still be sustained even if the income is ultimately computed on estimation. It further states that a nil block return, when contradicted by outside-the-books transactions, accommodation entries, and undisclosed commission income, is not bona fide. On those facts, the concealment-related conduct justified levy of penalty in the block assessment regime.

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Issues: (i) whether penalty under section 158BFA(2) of the Income-tax Act, 1961 was mandatory or required consideration of surrounding circumstances, (ii) whether penalty could be sustained where undisclosed income was ultimately determined on estimation, and (iii) whether the assessee's conduct justified levy of penalty on the facts of the block assessment.

Issue (i): whether penalty under section 158BFA(2) of the Income-tax Act, 1961 was mandatory or required consideration of surrounding circumstances.

Analysis: The provision was treated as discretionary rather than mechanical. The surrounding facts, the material found in search, and the assessee's explanation had to be considered before deciding whether penalty was warranted. The fact that the section uses language distinct from section 271(1)(c) did not make the levy automatic.

Conclusion: The penalty was not mandatory in the abstract, but it could be imposed on a proper factual foundation.

Issue (ii): whether penalty could be sustained where undisclosed income was ultimately determined on estimation.

Analysis: The assessee had returned nil undisclosed income despite seized material showing accommodation-entry activity and commission income outside the books. The estimation made by the revenue authorities and upheld in appeal did not by itself bar penalty, because the case was not one of a mere variation in estimate from an otherwise disclosed return. The assessment was based on search material and the final computation had attained finality.

Conclusion: Penalty was sustainable even though the undisclosed income was computed by estimation.

Issue (iii): whether the assessee's conduct justified levy of penalty on the facts of the block assessment.

Analysis: The Tribunal relied on its earlier findings that the assessee was carrying on business different from that recorded in the books, had transactions outside the books, and had charged higher commission than was disclosed. In that background, the nil return for the block period was not bona fide and the case was distinguishable from authorities where the assessee had cooperated or where the dispute was only about estimate enhancement.

Conclusion: The facts justified the levy of penalty against the assessee.

Final Conclusion: The appeal failed because the concealment-related conduct found in the search proceedings and the final undisclosed-income determination supported the penalty under the block assessment regime.

Ratio Decidendi: Penalty under section 158BFA(2) may be imposed on the basis of search material and a final block assessment even where the undisclosed income is ultimately estimated, if the assessee had failed to disclose income found in search and the return was not bona fide.

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