COMMISSIONER OF INCOME TAX AND ANOTHER Vs. NEMICHAND

JUDGEMENT

(1.) This appeal is by the Revenue, challenging the order passed by the Tribunal, which has set aside the order, imposing penalty on the undisclosed income and assets under block assessment for the years 1988-89 to 1997-98.

(2.) The Assessee is carrying on business in money lending. A search came to be conducted in his premises wherein several incriminating documents were found. Proceedings under Section 158BC r/w Section 158BD under the provisions of IT Act (hereinafter, referred to as "the Act", for short) were initiated. The Assessee filed return of income declaring an undisclosed income of Rs. 21,00,525. The AO considering the material on record, determined the undisclosed income at Rs. 21,76,160. He computed the tax payable on Rs. 13,07,496. Thereafter, the AO initiated penalty proceedings under Section 158BFA(2) of the Act and a show-cause notice was issued and the Assessee also replied to the same. The AO found from the reply that the Assessee had not satisfied the conditions imposed under the first proviso and second proviso. Therefore, he proceeded to levy penalty of Rs. 10,44,600. Thereafter, rectification proceedings were initiated under Section 154 of the Act and consequently, the penalty was increased to Rs. 13,07,496. Aggrieved by the said order, the Assessee preferred an appeal before the CIT(A) who dismissed the appeal affirming the order of the AO. Aggrieved by the same, the Assessee preferred an appeal before the Tribunal, Bangalore Bench. The Tribunal held that the penalty proceedings are not legal as Sub-section (2) of Section 158BFA does not provide for circumstances justifying levy of penalty. The proviso which deals with imposing penalty is in the nature of exception. The entire provision does not contemplate the nature of the offence and therefore, no penalty could be imposed under Section 158BFA(2) of the Act and therefore, the appeal was allowed. Penalty imposed was set aside. Aggrieved by the said order, the Revenue is in appeal.

(3.) The appeal came to be admitted on 2nd Jan., 2007 to consider the following substantial questions of law: