Whether penalty is discretionary or automatic? – Held, discretionary – What is reasonable cause? – Held, bonafide dispute whether tax is payable or not is a reasonable cause for waiver u/s. 80 – Penalties to be interpreted strictly – penalty cannot be imposed u/s. 76 and 78 simultaneously etc. – Further, if the penalty is levied within the range prescribed, the Revisional authority could not enhance it.

It was a batch of cases on an identical issue wherein Respondents had paid penalties levied by adjudicating authorities, inspite of having proved that there was a reasonable cause for non payment/ short payment of taxes. The Commissioner exercising powers under the then section 84, revised the orders of lower authorities to enhance the penalties.

 The imposition of penalty is not automatic. Not only the ingredients of the penal sections should exist but also there should be absence of reasonable cause for the failure to comply with the law. The adjudicating authority has the discretion to levy penalty within the limits prescribed under the law. Penalty sections to be construed strictly and if there are two views possible, the one which is favourable to the assessee should be preferred. If the penalty levied is not less than the minimum limit prescribed, the revisional authority has no power to enhance the same on the ground that it is less. If the adjudicating authority exercising powers conferred u/s. 80 has held that there was a reasonable cause for non levy of penalty, revisional authority can’t take a contrary stand and levy penalty. No penalty can be imposed u/s. 76 as well as section 78 for the same offence.