Voluntary surrender of income no defence for concealment penalty u/s 271(1)(c) unless explanation offered is found bona fide and all material facts are disclosed-High Court
ABCAUS Case Law Citation:
ABCAUS 2212 (2018) (02) HC
The Challenge/Grievance:
The present judgment involves the appeal filed by the Income Tax Department (Revenue) against the order of the Income Tax Appellate Tribunal (ITAT/Tribunal) in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 (the Act) on the facts and circumstances of the case.
Important Case Laws Cited/relied upon by the parties:
Dilip & Shroff v. Joint Commissioner of Income Tax 291 ITR 519 (SC); MAK Data Pvt. Ltd. v. Commissioner of Income Tax (2014) 1 SCC 674; Commissioner of Income Tax v. SAS Pharmaceuticals (2011) 335 ITR; Additional Commissioner of Income Tax v. Jeevan Lal Shah 205 ITR 244; Commissioner of Income Tax v. Musaddilal Ram Bharose 165 ITR 14 (SC); Commissioner of Income Tax v. Zoom Communications Pvt. Ltd. (2010) 327 ITR 510; Commissioner of Income Tax v. Mohandas Hassanand 141 ITR 203; Commissioner of Income Tax v. Bharat Rice Mills 201 Taxation 633; Additional Commissioner of Income Tax v. Bharatiya Bhandar (1979) 13 CTR 159 (MP); Commissioner of Income Tax v. SI Paripushpam 249 ITR 550 (Mad.)
Brief Facts of the Case:
The respondent assessee was an individual and doctor (Medical Practitioner) by profession. During the currency of the scrutiny proceedings for the relevant assessment year, a survey was conducted under Section 133A at the business premises of the assessee. During the survey proceedings, the assessee surrendered Rs. 2 crores and filed a revised return declaring that amount as additional income.
The Assessing Officer (AO) completed the scrutiny assessment, by adding up the amount surrendered to the returned income. The AO also initiated penalty proceedings, on the footing that the assessee had concealed the income and filed inaccurate particulars and subsequently the penalty order was passed.
The assessee appealed to CIT (A) against imposition of penalty contending that she neither concealed particulars of income nor furnished inaccurate particulars and that all material disclosures were made during the assessment proceedings. The revised return merely reflected the voluntary disclosures made by her. It was also urged that during survey, no documents or evidence was gathered by the Revenue Department, establishing that the assessee did not, in fact, conceal any particulars of income. The disclosures were not related to any incriminating document or material recovered or gathered during the survey action. It was stated that the amount was surrendered to buy peace of mind and to avoid further proceedings. The assessee relied upon the statement made by her in the course of the survey in this regard.
The CIT-A found that the assessee had disclosed the income only after a survey was conducted. Moreover, the disclosure was made as the assessee was unable to produce the books of account. Since the assessee had admitted that part of the receipts had not been declared for taxation while filing the Income Tax Return , the CIT-A was of the view that the claim was not bona fide. Therefore, CIT-A held that the information furnished in the return of income was factually incorrect and the appellant cannot escape the rigors of section 27l(l)(c) of the Act.
The Tribunal however held that since the assessee disclosed the income in the revised return which was in consonance with the voluntary statement made, the exercise of discretion in assuming jurisdiction and imposing penalty was unwarranted. The ITAT was also of the opinion that the AO was wrong in invoking jurisdiction without first premising the notice upon one or the other condition i.e. with respect to concealing of income or filing inaccurate particulars. For these two reasons, the ITAT allowed the assessee’s appeal and granted the relief.
Observations made by the High Court:
The Hon’ble High Court observed that the Tribunal relied on the judgment of the High Court that that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the income tax return filed by it. The High Court had relied on the decision of the Hon’ble Supreme Court wherein it was held that he assessee can furnish the particulars of income in his return and everything would depend upon the income tax return filed by the assessee.
The Hon’ble High Court noted that after the the Hon’ble Supreme Court in a subsequent judgment where the assessee volunteered and surrendered amount by way of voluntary disclosure without admitting any concealment and subject to non-initiation of penalty proceedings and prosecution. Rejecting the assessee’s appeal, the Supreme Court had opined that the surrender was not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the survey conducted. The Hon’ble Supreme Court observed that had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year.
In the said decision the Hon’ble Supreme had Court did not accept the surrender was made with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. The Hon’ble Supreme Court opined that the Statute does not recognize those types of defences under the explanation 1 to Section 271(1)(c) of the Act. It is trite law that the voluntary disclosure does not release the Appellant-assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty.
The Hon’ble High Court observed that in the present case too, the assessee merely made a voluntary surrender; did not offer any explanation as to the nature of income or its source. Therefore, in view of the observations made by the Supreme Court, it reinforced the views of the AO and CIT (A) that the revised return was an afterthought, based on the subsequent event of disclosure of income.
The Hon’ble High Court further noted that by reason of Explanation 1 to Section 271(1)(c), an assessee is not absolved of penalty, if he is not able to substantiate the explanation offered and fails to prove that explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. The mere offer of the amount during the search in the absence of any explanation for the source of income, renders the assessee’s argument insubstantial in the totality of circumstances.
Decision/ Conclusion/Held:
The question framed was answered against the assessee and in favour of the revenue.
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