JUDGMENT : K.S. Jhaveri, J. 1. By way of this appeal, the appellant-revenue has challenged the order dated 27/03/2008 passed by the ITAT in ITA No. 30/RJT/2005 whereby the appeal of the revenue came to be dismissed and confirmed the order dated 28/01/2005 passed by the CIT (Appeals), Rajkot. 2. The short facts of the case are that respondent was doing business of gold and a search operation was carried out under Section 132 of the Income Tax Act at the business and residential premises on 12/01/1999 and during the said search operation, gold weighing 28,116 Kg valued at Rs. 1,24,85,982/- was recovered from the residence of respondent and were dug out from the courtyard of the residence. Thereafter, notice under Section 158BC of the Act was issued and respondent-assessee filed the return of undisclosed income declaring undisclosed income of Rs. 13,75,334/- for the block period i.e. Assessment year 1989-90 to 1998-99 and upto 12/01/1999. The Assessing Officer completed the assessment and determined the undisclosed income at Rs. 3,97,51,081/- by an order dated 31/01/2001. 2.1 The respondent-assessee preferred an appeal against the order passed by A.O. before the Commissioner of Appeals which was partly allowed. 2.2 Against the said order of CIT (Appeals), the assessee as well as the revenue have also preferred an appeal before the ITAT wherein appeal of the revenue was dismissed and appeal of the assessee was partly allowed, however the ITAT confirmed the addition of Rs. 42,15,287/-. 2.3 That thereafter since the A.O. found that the assessee had concealed the income and furnished inaccurate particulars of income during the framing of assessment order, a show-cause notice came to be issued under Section 158BFA(2) of the Act on 31/01/2001 calling upon to show-cause as to why the penalty should not be imposed upon him. To which a written reply was given to drop the penalty proceedings. However, the A.O. after considering the written submissions has imposed penalty of Rs. 25,29,100/- against the maximum permissible of Rs. 75,85,300/-. 2.4 Against the said order passed by the A.O., the assessee preferred an appeal before the CIT (Appeals) which came to be allowed and penalty imposed upon the assessee came to be deleted by order dated 28/01/2005. However, the A.O. after considering the written submissions has imposed penalty of Rs. 25,29,100/- against the maximum permissible of Rs. 75,85,300/-. 2.4 Against the said order passed by the A.O., the assessee preferred an appeal before the CIT (Appeals) which came to be allowed and penalty imposed upon the assessee came to be deleted by order dated 28/01/2005. 2.5 The Revenue, being aggrieved by the said order dated 28/01/2015 preferred an appeal before the ITAT which has dismissed the appeal of the revenue by order dated 27/03/2008 which has given rise to the present tax appeal. 3. While admitting the appeal, the following substantial question of law has been framed: "Whether on the facts and circumstances of the case and in law, the Appellate Tribunal is justified in deleting the penalty of Rs. 25,29,100/- levied under Section 158BFA (2) of the Act holding that the addition is justified but no case exists for levy of penalty." 4. Learned Counsel for the appellant has submitted that the ITAT has wrongly interpreted the provisions of law and ought to have entertained the appeal preferred by the Department. He has further contended that the AO has rightly come to the conclusion that it has been established that the assessee did not disclose the true and correct income by not filing the regular return of income and further the assessee has never filed his return of income and therefore the penalty proceedings under Section 158BFA(2) are attracted. 5. Learned Counsel for the respondent has submitted that the CIT (Appeals) while considering the issue has discussed the issue in detail at paragraph Nos. 6.1 and 6.2 which has been confirmed by the ITAT and therefore the findings arrived at by both the authorities may not be disturbed. 6. Having heard the learned Counsel for the respective parties and having gone through the findings arrived at by the CIT (Appeals) as well as the ITAT, this Court is of the view that the said view is just and proper. 6. Having heard the learned Counsel for the respective parties and having gone through the findings arrived at by the CIT (Appeals) as well as the ITAT, this Court is of the view that the said view is just and proper. The CIT (Appeals) has discussed the issue in paragraph No. 6.1 and 6.2 which has been relied upon and reads as under: "6.1 The only question is whether mere rejection of the claim for deduction would amount to the concealment of the income, since the assessment order is based on facts which cannot be concealed an are in fact not concealed in the return for the block period filed by the appellant. It appears that the penalty order is passed with the presumption that penalty is leviable as soon as the undisclosed income determined by the Assessing Officer exceeds the undisclosed income declared by the appellant. In my opinion, the penalty u/s.158BFA(2) is not automatic and cannot be levied in a mechanical manner. The provision enables the Assessing Officer to levy the penalty but does not make it mandatory. The expression used in sub section 158BFA (2) is "the Assessing Officer may direct the person shall pay by way of penalty." In the context of penalty u/s. 271(c) similar expression is interpreted by the Apex Court in the case of CIT v. Noorjahan, 237 ITR 570 as giving discretion to the Assessing Officer to levy or not to levy the penalty on proper evaluation of the relevant facts. 6.2 The relevant fact is that the appellant was found in possession of gold bars, writs watches an Indian currency valued at Rs. 40,34,898/- by the Customs department and that in response to the show cause notice for explaining the source of investment in the above items confiscated by the Customs department the appellant made a declaration offering the entire amount as unexplained investment. The appellant has not concealed and was in no position to conceal the relevant facts. However, in the return of come after offering the sum of Rs. 40,34,898/- as income in the nature of unexplained investment, also claimed deduction of Rs. 40,34,898/- as business loss to be set off against such income on the basis of several judicial authorities including the judgments of the Supreme Court in the case of CIT v. Piarasingh, 124 ITR 40. 40,34,898/- as income in the nature of unexplained investment, also claimed deduction of Rs. 40,34,898/- as business loss to be set off against such income on the basis of several judicial authorities including the judgments of the Supreme Court in the case of CIT v. Piarasingh, 124 ITR 40. The claim is a purely legal contention based on several judgments of the Apex Court and of High Courts. According to the appellant, these judgments are applicable to the facts of the case and supports the claim of the appellant for deduction of business loss against the income from illegal business. According to the Assessing Officer and in the light of several amendments in the Income-tax Act, the claim is not sustainable. Out of the total addition of Rs. 42,15,287/- continued by the ITAT, Rs. 40,31,698/- are on account of the rejection of the claim of the business loss as above. The other major amounts are Rs. 76,683/- in respect of ornaments not seized by the Customs department, Rs. 48,500/- on account of estimated house hold expenses not disclosed by the appellant, Rs. 44,480/- is in respect of unaccounted loan, Rs. 12,627/- is in respect of the difference between the cost and written down value of the Vehicles and Rs. 1,299/- is about deposits in bank account not disclosed. As far as house hold expenses are concerned, it is an exercise in estimate, which should not be any basis for levy of penalty. The deposits in bank account No. 3471 is in the joint account of several persons. The addition is made without any discussion in the regard. Regarding the vehicles it is seen that the assessee had declared the two two-wheelers as his unaccounted assets. The difference of opinion between the appellant and the Assessing Officer is in respect of the value of the investment. It cannot be said that the appellant had filed inaccurate particulars about these vehicles. The unaccounted loans of Rs. 34,000/- and the interest thereon is claimed by the appellant as included in the declaration of the undisclosed income of Rs. 1,39,75,334/- in the return for the block period. In my opinion, it cannot be said that these additions are on account of detection by the Assessing Officer of information from the seized material about which the appellant did not make any disclosure in his return for the block period. 1,39,75,334/- in the return for the block period. In my opinion, it cannot be said that these additions are on account of detection by the Assessing Officer of information from the seized material about which the appellant did not make any disclosure in his return for the block period. In my opinion, the levy of penalty u/s. 158BFA(2) in the context of the facts discussed above is not justified. The facts are on record. The appellant makes certain claims about deductions, exemptions and inclusions in the declared undisclosed income. These claims are to be processed in the course of assessment proceedings resulting in acceptance and rejection of claims. The rejection of claim does not make it mandatory to levy penalty in every case of such rejection. On a proper consideration of the facts of the case, the order of penalty deserves to be cancelled. It is accordingly cancelled. The grounds of appeal are allowed and the appeal is allowed." 7. In above view of the matter, this Court is of the opinion that the conclusion arrived at by the CIT (Appeals) as rightly been confirmed by the ITAT is just and proper and no interference is required by this Court. 8. In the result, the appeal is answered in favour of the assessee and against the department. The present tax appeal is accordingly dismissed.