Penalty us 2711c imposable on voluntary surrender-disclosure to avoid litigation and to buy peace of mind, as it does not meet requirements of Explanation (1) to section

Penalty us 2711c imposable on voluntary surrender-disclosure to avoid litigation and to buy peace of mind, as it does not meet requirements of Explanation (1)  to section 271(1)(c). This was held by ITAT in a recent judgment as under.

ABCAUS Case Law Citation:
954 2016 (06) ITAT
Assessment Year: 2011-12
Date/Month of Order/Judgment: June, 2016

Brief Facts of the Case:
During the assessment proceedings, the AO observed that the assessee had not disclosed certain bank accounts and also not considered certain income. The assessee agreed on the profits being estimated @ 6% on ad-hoc basis. and also surrendered certain amounts as well as the cash deposits which was found in the bank account. Subsequently the AO initiated penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961. The assessee further admitted his mistake of not including the turnover earned from a company. The Assessing Officer observed that the assessee did not furnish the details as required, to substantiate the bona fide mistake of not disclosing the true and correct material in the return of income. As such, the AO passed the order imposing penalty u/s 271(1)(c).

Aggrieved by this order, assessee preferred appeal before CIT(A) who confirmed the penalty considering that the explanation submitted by the assessee was not satisfactory and that the surrender so made by the assessee was on the basis of information unearthed by the Assessing Officer during the assessment proceedings.

Aggrieved by CIT(A) order, the assessee filed an appeal before ITAT mainly on the ground that as sufficient surrender has been made by the assessee suo motu, the penalty proceedings initiated against him should be quashed.

Important Observations made by the ITAT :

There is a basic fundamental difference between ignorance and bona fide mistake.
In the first case, assessee cannot be excluded from the penalty proceedings as there is willful omission on behalf of the assessee in disclosing his true and correct income. Whereas, in the second case, the omission must be become as inadvertence, which can be due to human error. It cannot be ignored that human error must be tested on probabilities. No doubt that the courts are liberal when any bona fide mistake is made, but very harsh when there is a willful omission on behalf of the assessee to make full and true disclosure of its income. Penalty imposed by the Assessing Officer in such cases has been invariably upheld.

The question to be ascertained is whether the assessee has offered any explanation
Explanation to section 271 resorts presumption of concealment noted by the Assessing Officer who resorts to assess income. The burden is on the assessee to show otherwise by cogent and reliable evidence. When the initial onus placed by the Explanation has been discharged by the assessee, the onus shifts on the Revenue to show that the amount in question constitutes the income and not otherwise

Voluntary disclosure does not relieve the assessee from the mischief of penal proceedings
the assessee has only stated that he has surrendered the additional sum with a view to avoid litigation and to buy peace of mind from the department. Such kind of explanation does not fit into the requirements laid down by Explanation (1) to Section 271(1)(c) of the Act. It is a trite law that voluntary disclosure does not relieve the assessee from the mischief of penal proceedings. The law does not provide that when the assessee makes voluntary disclosure of his concealed income, he can be absolved from penalty

Important Excerpts from ITAT Judgment:

We observe that the surrender of income in case of the assessee was not voluntary as the offer of surrender was made in lieu of CIB information made available by the Assessing Officer during the assessment proceedings. It is noted that the assessee himself has contradicted his own submissions from the relevant pages relied upon by the Ld. D.R. filed in the compilation. The assessee has not maintained the books of accounts and considered all the transactions as required by the statute. That the assessee surrendered the income as he could not prove the transactions and its cash deposits. Had the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring the income including omission later during the course of assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. The Assessing Officer has categorically recorded the findings that he was satisfied that the assessee had concealed the true particulars of income and is liable for penalty proceedings u/s 271 read with Section 274 of the Act. The principles laid down by various judgements of this court as well as Hon’ble Supreme Court and Hon’ble High Court have been correctly followed by the Revenue and we find no illegality in the department’s initiation of penalty proceedings in the instant case. We, therefore fully agree with the view taken by Ld. CIT(A) and uphold his decision