P.K.RAVINDRAN vs. THE COMMISSIONER OF INCOME TAX, THRISSUR

The question raised pertains to levy of penalty u/s 158BFA(2) of the I.T.Act, that is confirmed by the Tribunal. The appellant/assessee was subject to search and notices were sent to him to file return of undisclosed income. Pursuant to the notice assessee filed return in Form No.2B declaring undisclosed income of Rs.3 lakhs. However, apart from this declared undisclosed income, the assessing officer made an addition of Rs.4,15,000/-. Even though the assessee made specific plea that out of I.T. Appeal No. 26 OF 2011 :2 : Rs.4,15,000/- Rs.3 lakhs represents gift received from Non Resident Indians, Assessee not only failed to prove it but did not even pursue the contest against assessment, after disposal of the first appeal against the assessee. The Assessing Officer therefore levied penalty on the entire differential amount of Rs.4,15,000/- which is equal to the tax payable. Even though, first appeal was allowed by CIT (A), the Tribunal reversed the order of the first appellate authority confirming the penalty stating that it is mandatory. It is against this order the assessee is before us in this second appeal.

Counsel for the assessee relied on the decision of the Bombay High Court reported in 312 ITR page 112 wherein the said High Court has taken a view that penalty u/s 158BFA(2) is discretionary. However, the Standing Counsel submitted that the decision of the Tribunal in Heera Construction's case relied on by them in deciding

After hearing both the sides and after going through the Tribunal's order, we do not find any ground to interfere with the penalty levied with reference to the undisclosed income of Rs.3 lakhs which though claimed as a gift, the assessee miserably failed to prove it. So much so, under the 2nd proviso to S.158BFA(2) penalty is mandatory at least on this amount. Therefore, we confirm the order of the Tribunal confirming penalty on this amount. However, so long as the balance amount of Rs.1,15,000/- is concerned we feel it is only an additional amount after rejection of cash flow statement. We feel some leniency can be shown to the assessee in respect of this amount because with the tax and penalty and the I.T. Appeal No. 26 OF 2011 :4 : interest for delay in payment of tax the assessee would otherwise end up paying more than the undisclosed income. We, therefore, allow the appeal in part by excluding penalty on Rs.1,15,000/- and by limiting penalty on Rs.3 lakhs. The appeal is allowed to the above extent. C.N. RAMACHANDRAN NAIR, JUDGE. BABU MATHEW P. JOSEPH, JUDGE. ul/- [] P.S. to Judge.