Penalty cannot be levied merely because an amount is not allowed or taxed as income

The acid test as propounded in the cited leading court cases, rightly so, and relied upon and followed by the ITAT, Delhi, again equally rightly, is that , – should “just and cogent reason” be given in a case on hand there could be no levy “merely because the assessee’s claim was not accepted or was not acceptable to the revenue”. Well, the legality or soundness of the underlying principle of the stated proposition, in one’s conviction, is unassailable. Nonetheless, in each and every such case, to be fully satisfied,- purely from an ‘objective’ viewpoint,- whether or not the other largely accepted test of justice having been done , must also be seen to have been done, for several attendant reasons, may prove an onerous exercise. In other words, the dispute may not necessarily get settled at the last fact finding stage of ITAT but may be dragged on to courts on the ground of a ‘substantial question of law’.
That is an aspect requiring to be considered in-depth and needs to be covered suitably by either (a) legislating levy of ‘interest’ and at a reasonably acceptable rate (same as done in certain other contexts such as, late filing of return, non-payment of tax due), in place of the extant provision for ‘penalty’, and /or (b) have covered cases in which the additional burden is significant or not insignificant, under the scheme of “dispute resolution”. That could, perhaps, pave the way for mitigation of or prolongation of litigation, as may be imagined, to a considerably desirable extent.
To make it explicit, the thoughts tried to be shared are off hand; might nonetheless be given a closer look -through , if found worth a serious examination, before deciding to accept and go ahead.