High Court Of Bombay
CIT vs. Smt. Anju R. Innani
Section 158BFA(2)
Dr. D.Y. Chandrachud & J.P. Devadhar, JJ.
IT Appeal No. 2347 of 2009
5th April, 2010
Counsel Appeared :
Suresh Kumar, for the Appellant : S.J. Mehta with Ms. A. Vissanji, for the Respondent
JUDGMENT
DR. D.Y. CHANDRACHUD, J. :
Admit.
2. This is an appeal by the Revenue under s. 260A of the IT Act, 1961. The appeal arises out of an order of the Tribunal, dt. 7th May, 2008, in relation to the block period of 1st April, 1988 to 22nd Dec., 1998. The following questions have been raised in the appeal :
“(A) Whether on the facts and in the circumstances of the case and in law, the Tribunal is correct in law in deleting the penalty of Rs. 42,90,000 imposed under s. 158BFA(2) of the IT Act by the AO and confirmed by the CIT(A) on the undisclosed income of Rs. 65 lakhs ?
(B) Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in deleting the penalty on the ground of applicability of sub-cl. (iv) of proviso to s. 158BFA(2), even though an appeal was filed by the assessee against the assessment order before the CIT(A) who rejected the appeal in respect of which the assessee did not file any further appeal before Tribunal ?” The assessee filed a return for the block period from 1st April, 1988 to 22nd Dec., 1998 and declared an undisclosed income of Rs. 65 lakhs. The assessment was completed under s. 158BC and the AO accepted the returned income. Penalty proceedings were initiated under s. 158BFA(2) with a notice calling upon the assessee to show cause as to why an order imposing a penalty should not be passed. The AO, by an order dt. 27th Feb., 2006, imposed a penalty in the amount of Rs. 42.90 lakhs. The contention of the assessee was that she had complied with all the conditions prescribed in the first proviso to s. 158BFA and that consequently, no order imposing a penalty could be passed. The AO, however, held that the assessee had preferred an appeal against the block assessment order and one of the grounds of appeal was that the rate of tax on the capital gains included in the undisclosed income declared in the return of income for the block period, should be computed at 20 per cent and not 60 per cent.
The CIT(A) had on 17th Oct., 2001 dismissed the appeal of the assessee holding that the rate of tax for any income taken as undisclosed in the return for block assessment is 60 per cent. While holding that the assessee had not complied with the conditions stipulated in the first proviso to s. 158BFA(2), the AO held that since the assessee had preferred an appeal against the assessment of income which was shown for the block period, she had not fulfilled the fourth condition laid down in the first proviso to s. 158BFA(2). On the basis of this, the AO held that the assessee was liable to be penalized and proceeded to impose the penalty. The appeal filed by the assessee was dismissed by the CIT(A). The Tribunal, however, held that since the assessee had filed an appeal only on the rate of tax, she was not in breach of cl. (iv) to the first proviso to s. 158BFA which requires that an appeal should not be filed against the assessment of that part of income which is shown in the return. Applying a rule of strict interpretation, the Tribunal held that an appeal against the rate of tax could not be equated with an appeal against any part of the income assessed. On this ground, the Tribunal set aside the imposition of the penalty. Counsel appearing on behalf of the Revenue submitted that cl. (iv) of the first proviso to s. 158BFA(2) stipulates that an appeal should not be filed against the assessment of that part of the income which is shown in the return. In the present case, the assessee filed an appeal to the CIT (A), questioning the rate at which tax has been imposed by the AO. An appeal before the CIT(A) under s. 246A would lie even in respect of the rate of tax. It was urged that by contesting the imposition of the tax before the CIT(A), the assessee had not fulfilled the requirement of the first proviso.
On the other hand, it was urged on behalf of the assessee that an appeal against the rate of tax would not be hit by cl. (iv) of the first proviso to s. 158BFA(2). Moreover, it was urged by counsel that in any event, the imposition of a penalty is not mandatory and is discretionary. Sec. 158BFA provides for the levy of interest and penalty in certain cases. Sub-s. (2) of s. 158BFA provides as follows : “(2) The AO or the CIT(A) in the course of any proceedings under this chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the AO under cl. (c) of s. 158BC : Provided that no order imposing penalty shall be made in respect of a person if— (i) such person has furnished a return under cl. (a) of s. 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (iii) evidence of tax paid is furnished along with the return; and (iv) an appeal is not filed against the assessment of that part of income which is shown in the return : Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the AO is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return.”
9. The substantive part of sub-s. (2) of s. 158BFA is an enabling provision by which the AO or, as the case may be, the CIT(A) is empowered to impose a penalty in the course of any proceedings under Chapter XIV-B. Parliament has indicated its intent by using the expression “may direct that a person shall pay by way of penalty a sum…”. Consequently, under the substantive part of sub-s. (2), the imposition of a penalty is not mandatory, but lies in the discretion of the AO or, as the case may be, the CIT(A). It is trite law that the imposition of a penalty is not mandatory merely because it is lawful. The imposition of a penalty is a matter which lies in the exercise of discretion which has to be determined judiciously. The first proviso to sub-s. (2) stipulates that in certain circumstances, no order imposing a penalty shall be made. Once the conditions which are provided in the first proviso are fulfilled by the assessee, the effect is to prohibit the AO or, as the case may be, the CIT (A) from imposing a penalty. The conditions which have been spelt out in the first proviso are that the assessee must furnish a return under cl. (a) of s. 158BC; the tax payable on the basis of the return ought to have been paid (or if money is seized, the assessee must offer the money seized to be adjusted against the tax payable); evidence of the payment of tax must be furnished together with the return and an appeal should not be filed “against the assessment of that part of income which is shown in the return”. Clauses (i) to (iv) of the first proviso cannot be read in isolation and form part of a comprehensive intent expressed by Parliament. The intent of Parliament in legislating the first proviso is that the assessee, in order to have the benefit of a protective provision against the imposition of a penalty, must file a return, pay the tax on the basis of the return, furnish evidence of the payment of the tax and should not contest the assessment in appeal. In other words, a certain degree of finality is brought to bear upon the assessment during the course of the block period and if the assessee accepts the assessment as final and pays the tax thereon, the protective provision is brought into force. Clause (iv) of the first proviso stipulates that an appeal should not be filed against the assessment of that part of the income which is shown in the return. An appeal ‘against the assessment of that part of the income which is shown in the return’ also comprehends an appeal disputing the rate at which the tax has been computed. It would not be permissible for the Court to artificially restrict the ambit of cl. (iv) by stipulating that an appeal against the rate of tax would not be hit by cl. (iv) to the proviso. To accept such a contention would be to render the object and purpose of legislating the first proviso otiose. An assessee who files an appeal against the assessment of that part of the income which is shown in the return is disabled from seeking the benefit of the first proviso. An appeal on the rate of tax is no exception. Having challenged the assessment of that part of the income which is shown in the return, the assessee cannot invoke the protection of the first proviso. The initiation of penalty proceedings will not be invalid.
10. In the present case, it is an admitted position before the Court that the assessee filed an appeal to the CIT(A) against the order of block assessment on the ground that the rate of tax payable in respect of capital gains was not 60 per cent, but 20 per cent. As a result of the filing of the appeal, the assessee failed to comply with cl. (iv) of the first proviso to s. 158BFA(2). As a result, the assessee was not entitled to the benefit of the prohibitory provision contained in sub-s. (2) of s. 158BFA. The Tribunal was, in our view, in error in holding that an appeal against the rate of tax will not fall within the ambit of cl. (iv) of the first proviso. Having said this, we must clarify that the consequence of the non-fulfillment of the conditions prescribed by the first proviso to s. 158BFA(2) would be that the prohibition against the imposition of the penalty does not come into force. Whether a penalty should or should not be imposed under the substantive part of s. 158BFA(2) is a separate matter. This is an issue which will have to be considered separately. The Tribunal has not done so, since it came to the conclusion that the assessee had fulfilled all the requirements of the first proviso and the Revenue was prohibited from initiating penalty proceedings. Since we have come to the conclusion that the Tribunal erred in holding that the assessee has fulfilled conditions of the first proviso to s. 158BFA(2), it would be only appropriate and proper for this Court to remand the proceedings back to the Tribunal for deciding as to whether the imposition of the penalty was justified in the facts and circumstances of the case.
The question of law that has been formulated in the appeal shall accordingly stand answered in favour of the Revenue and against the assessee subject to the clarification that the question as to whether a penalty should or should not be imposed in the facts of the present case shall be reconsidered by the Tribunal upon remand. The appeal is accordingly allowed and the impugned order of the Tribunal dt. 7th May, 2008 is set aside. The appeal [IT(SS)A No. 34/Mum/2007] is restored to the file of the Tribunal for disposal afresh in view of the observations made in this judgment. There shall be no order as to costs.
[Citation : 323 ITR 626]
