Income Tax Appellate Tribunal (ITAT) Ahmedabad has held that if the assessee has filed itr return of income voluntarily within the prescribed due date, penalty for concealment u/s 271(1)(c) can not be imposed on the presumption that the assessee has disclosed the income as a result of survey conducted.

Case Details:
ITA No. 221/Ahd/2015 A.Y. 2010-11
R.Umedbhai Jewellers Pvt.Ltd (Appellant) vs Dy. DCIT (Respondent)
Date of Order: 09-10-2015

Brief Facts of the Case:

The assessee filed its return of income for the Assessment Year (AY) 2010-11 within the prescribed due date u/s 139(1) on 31/08/2010 which was elected for scrutiny u/s 143(3). Vide Assessment Order dated  26/02/2013, the Assessing Officer (AO) accepted the income declared as per return dated 31/08/2010. However, the AO initiated the penalty proceedings u/s.271(1)(c) of the Act in respect of the amount of share capital of Rs.5,86,50,000/- admitted being unaccounted income for AY 2010-11 during the course of survey proceedings carried out u/s.133A at the premises of the assessee on 01-07-2010. Although the assessee had duly included the said amount in the return of income filed, The AO holding that, had not been the survey carried out at the premises of the assessee, it might have not included this amount into its return of income, levied the penalty amounting to Rs.1,99,35,135/-. According to AO, the assessee has not voluntarily disclosed the amount of share capital in its return and it was declared only as a result of detection during survey proceedings on 01-07-2010.

On appeal, CIT(A), dismissed the appeal and confirmed the penalty.

Before ITAT, the assessee contended that there was no dispute with regard to the fact that the assessee had filed return of income before the due date of filing of such return. The assessee had declared and disclosed the amount on which penalty has been levied. He submitted that a bare-reading of section 271(1)(c) would make it clear that the action of the authorities below is unjustified, illegal and without authority of law. It was argued that under the facts, no proceedings u/s.271(1)(c) can be initiated. It was submitted that as per section 271(1)(c) of the Act, the AO is empowered to initiate proceedings if he is satisfied that any person has concealed the particulars of income or furnished inaccurate particulars of such income. It was submitted that at the time of filing of the return, the assessee has declared all particulars of income, the income so declared is duly accepted by the AO, therefore, under these facts, the penalty proceedings initiated is illegal and bad in law.

Excerpts from the ITAT Order:

The AO further observed that the disclosure by the assessee and then subsequent inclusion of the entire amount as “income from other sources” and payment of taxes on the same were clearly the results of the survey. Therefore, the AO has proceeded on the basis of assumption in our view, the penalty proceedings cannot be based on conjectures and surmises. Further, as per AO, there was an obvious and deliberate concealment of income under the meaning of “concealment of income” as per section 271(1)(c) of the Act. In our opinion, this observation of the AO is contrary to the provisions of law, since it is purely based upon conjectures and surmises. The initiation of penalty proceedings is different from the assessment proceedings u/s.143(3) of the Act. It is not in dispute that the return so filed by the assessee including the amount was a valid return and same was duly filed within the time prescribed under the law. In our considered view, unless the return is filed before the Revenue, the provisions of section 271(1)(c) of the Act would not come into play for the simple reason that section 271(1)(c) envisages two conditions; i.e., concealment of particulars of his income or furnishing inaccurate particulars of such income. The AO has initiated the penalty proceedings for “concealment of income”. However, the AO has accepted the fact that this amount was duly disclosed in the return of income. The return so filed is not declared as illegal or invalid by the AO. Under these facts, we are unable to accept the reasoning given by the AO.

We find that the ld.CIT(A) has wrongly applied and misconstrued the judgement of the Hon’ble Apex Court rendered in the case of MAK Data (P.)Ltd. vs. CIT[supra] as the facts in that case recorded by the Hon’ble Apex Court are as under:-

“AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. 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. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961.”

In the present case, it is not the case where the assessee has surrendered the amount during the course of the assessment proceedings. In the case of MAK Data (P.)Ltd.[supra] before the Hon’ble Apex Court, the assessee had already filed its return of income for AY 2004-05 on 27/10/2004, wherein assessee declared a total income of Rs.16,17,040/-, however, before the AO, assessee surrendered another amount of Rs.40.74 lacs to avoid litigation, buy peace and amicable settlement of the dispute. In the present case, the assessee had filed its return of income before the due date of filing and including the amount on which penalty has been levied, admittedly, prior to initiation of assessment proceedings.

...... In the present case, the assessee has included the amount into the return of income, therefore, in our considered view, the assessee cannot be held guilty of concealing the particulars of income. The Coordinate Bench of the Tribunal (ITAT “A” Bench Ahmedabad) in ITA No.1960/Ahd/2011 for AY 2006-07 in the case of ITO vs. Shri Valibhai Khanbhai Mankad, vide its order dated 27/02/2015 has confirmed the view of the ld.CIT(A) by observing as under:-

“6. …… . The Id. CIT(A) has followed the decision of this Bench of the Tribunal rendered in the case of DCIT Vs. Dr. Satish B Gupta (42 SOT 48)(Ahd). Ld. CIT-DR has contended that the CIT(A) failed to appreciate the fact that the additional income amounting to Rs.41,73,000/- was declared in consequence to the survey action by the Revenue. However, it is not disputed by the Id. CIT-DR that the assessee has declared this income in his original Return of Income, although it was belated return. As per provisions of Section 271(l)(c) of the Income-tax Act, penalty can be imposed if the assessee has concealed the particulars of income or furnishing the inaccurate particulars of such income. There is no dispute with regard to the fact that the particulars of income are reflected in the Return of Income. It is not the case of the Revenue that the returns of income filed were invalid. In fact, the Assessing Officer has proceeded on the basis of the returns filed by the assessee and particulars furnished therein. Therefore, we do not see any good reason to interfere with the order of the Id. CIT(A) which is hereby confirmed. Thus, this ground of appeal of the Revenue is rejected.”

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