Law:

Section:

Section 158BFA of the Income-tax Act, 1961 - Block assessment in search cases - Levy of interest and penalty in certain cases - Block period 1-4-1999 to 6-7-2000 - Whether Legislature did not intend imposition of penalty under section 158BFA(2) by itself to be mandatory; rather it intended same to be left to discretion, which of course has to be exercised upon judicial considerations of Assessing Officer - Held, yes - Whether a pre-condition for imposition of penalty under section 158BFA(2) is that there must be a determination of undisclosed income by Assessing Officer under clause (c) of section 158BC - Held, yes - Whether where undisclosed income had been computed merely on basis of surrender made by assessee in course of block assessment proceedings and de hors surrender, there was no evidence which could have been said to have been found as a result of search, 'computation' of undisclosed income by Assessing Officer in block assessment proceedings could not be construed as a 'determination' of undisclosed income contemplated under section 158BC(c) or section 158BB and no penalty would be imposable under section 158BFA(2) in such case - Held, yes FACTS During search conducted on 'J' company, certain material relating to the assessee was found which indicated cash receipt from the assessee against goods sold to the assessee by 'J' on earlier dates. In response to notice issued under section 158BD, the assessee filed block return declaring undisclosed income at nil. However, later on, in order to avoid protracted and time consuming litigation and in order to buy peace, he surrendered an amount of 8 lakhs as undisclosed income. The Assessing Officer, on the basis of materials found in the search, worked out undisclosed turnover for the financial years 1999-2000 and 2000-01 and applying net profit rate of 1 per cent computed net profit at Rs. 55,000. He also estimated initial investment at 1/5th of the total turnover of the first financial year and worked out undisclosed investment at Rs. 8,00,000. He, thus, computed undisclosed income of the block period at Rs. 8,55,000. Thereafter, penalty under section 158BFA was also imposed on the assessee. On appeal, the…

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