By K. B. Bhujle, Advocate
New Page 1
54 Search and seizure : Penalty
u/s.158BFA(2) of Income-tax Act, 1961 : Is directory and not mandatory : AO has
discretion to levy or not to levy penalty.
[CIT v. Dodsal Ltd., 218 CTR 430 (Bom.)]
In this case penalty imposed by the Assessing Officer
u/s.158BFA(2) of the Income-tax Act, 1961 was deleted by the CIT(A) and the
order of the CIT(A) was upheld by the Tribunal. In appeal filed by the Revenue
before the Bombay High Court the following questions were raised :
“(i) Whether on the facts and in the circumstances of the
case and in law, the Tribunal is correct in deleting the penalty levied
u/s.158BFA(2) of the Income-tax Act, 1961 without appreciating the fact that the
assessee has failed to comply with the conditions stipulated in the 1st proviso
to S. 158BFA(2) of the Income-tax Act, 1961 ?
(ii) Whether on the facts and in the circumstances of the
case and in law, the Hon’ble Tribunal is correct in interpreting the condition
stipulated in the 1st proviso to S. 158BFA(2) of the Income-tax Act, 1961 as
directory and not mandatory ?”
The Bombay High Court upheld the decision of the Tribunal and
held as under :
“(i) The terminology of S. 158BFA(2) makes it clear that
there is a discretion in the Assessing Officer to direct payment of penalty.
The proviso supports this interpretation. Only if the authority decides to
impose penalty, then it will not be less than the tax leviable, but shall not
exceed three times the tax so leviable.
(ii) It is therefore, not possible to accept the submission
on behalf of the Revenue that once the Assessing Officer comes to the
conclusion that there is breach of the mandate of S. 158BFA(1), then the
penalty should be imposed. Merely because the expression used is “shall not be
less than the amount of tax leviable or not exceeding three times the tax”,
does not result in reading the first part of the Section as mandatory. The
proviso to the sub-section makes it clear that there is discretion conferred
on the CIT(A) for the reasons which are set out therein.
(iii) In the instant case, both the CIT(A) and the Tribunal
have recorded reasons for exercise of their discretion. The Revenue has not
challenged the said finding of fact as to the exercise of discretionary power.
Therefore, the view taken by the Tribunal that the Section is directory and
not mandatory is upheld.”
