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Sec.271 of INCOME TAX ACT = The AO has to initiate penalty proceedings when he found difference between the reported and assessed income – No separate reasons not necessary to record whether to intiate proceedings or not – but the burden lies on the assessee to give suffcient reasons for show cause notice and the burden shift on the Ao then he has to given reasons for imposing penalty = MAK Data P. Ltd. … Appellant Versus Commissioner of Income Tax-II … Respondent = http://judis.nic.in/supremecourt/filename=40925

Sec.271 of INCOME TAX ACT = The AO has to initiate penalty proceedings when he found

 

English: The supreme court of india. Taken abo...

English: The supreme court of india. Taken about 170 m from the main building outside the perimeter wall (Photo credit: Wikipedia)

 

difference between the reported and assessed income – No separate reasons not necessary to record whether to intiate proceedings or not – but the burden lies on the assessee to give suffcient reasons for show cause notice and the burden shift on the Ao then he has to given reasons for imposing penalty =

 

whether the penalty proceedings be initiated or

 

not during the course of the assessment  proceedings  and  the  AO  is  not required to record his satisfaction in a particular  manner  or  reduce  it into writing. =

 

 

 

whether the  assessee  has  offered  any  explanation  for  concealment  of particulars of income  or  furnishing  inaccurate  particulars  of  income. = Explanation to Section 271(1) raises a presumption of concealment,  when  a difference is noticed by the AO, between reported and assessed income.  – The burden is then on the assessee to show otherwise, by  cogent  and  reliable

 

evidence.   =

 

 

 

The  department  initiated  penalty  proceedings  for  concealment  of

 

income and not furnishing true  particulars  of  its  income  under  Section

 

271(1)(c) of the Income Tax Act.  

 

During the  course  of  the  hearing,  the

 

assessee contended that penalty proceedings  are  not  maintainable  on  the

 

ground that the AO had not recorded his  satisfaction  to  the  effect  that there has been concealment of income/furnishing  of  inaccurate  particulars of  income  by  the  assessee  and  that  the  surrender  of  income  was  a

 

conditional surrender before any investigation in the matter.   

 

The  AO  did

 

not accept those contentions and imposed a penalty of  Rs.14,61,547/-  under Section 217(1)(c) of the Act.  

 

 

 

the scope of Explanation 1 to Section  271(1)(c)  of  the  Act,

 

which reads as follows :-

 

      “Explanation 1 – Where  in  respect  of  any  facts  material  to  the

 

      computation of the total income of any person under this Act, —

 

 

 

 

 

      A) Such person fails to offer an explanation or offers an  explanation

 

         which is  found  by  the  Assessing  Officer  or  the  Commissioner

 

         (Appeals) or the Commissioner to be false, or

 

 

 

 

 

      B) Such  person  offers  an  explanation  which  he  is  not  able  to

 

         substantiate and fails to prove that such 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,  then

 

         the amount added or disallowed in computing  the  total  income  of

 

         such person as a result thereof shall, for the purposes  of  clause

 

         (c) of this sub-section, be  deemed  to  represent  the  income  in

 

         respect of which particulars have been concealed.”

 

 

 

 

 

 

 

7.    The AO, in our view, shall not be carried away by  the  plea  of  the

 

assessee like “voluntary  disclosure”,  “buy  peace”,  “avoid  litigation”,

 

“amicable settlement”, etc. to explain away its conduct.  The  question  is

 

whether the  assessee  has  offered  any  explanation  for  concealment  of

 

particulars of income  or  furnishing  inaccurate  particulars  of  income.

 

Explanation to Section 271(1) raises a presumption of concealment,  when  a

 

difference is noticed by the AO, between reported and assessed income.  The

 

burden is then on the assessee to show otherwise, by  cogent  and  reliable

 

evidence.  When the initial  onus  placed  by  the  explanation,  has  been

 

discharged by him, the onus shifts on the Revenue to show that  the  amount

 

in question constituted the income and not otherwise.

 

 

 

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.

 

 

 

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.

 

 

 

10.   The AO has to satisfy 

 

whether the penalty proceedings be initiated or

 

not during the course of the assessment  proceedings  and  the  AO  is  not required to record his satisfaction in a particular  manner  or  reduce  it into writing.  

 

The scope of Section 271(1)(c)  has  also  been  elaborately

 

discussed by this Court in Union of India vs. Dharmendra Textile Processors

 

(2008) 13 SCC 369 and CIT vs. Atul Mohan Bindal (2009) 9 SCC 589.

 

 

 

11.   The principle laid  down  by  this  Court,  in  our  view,  has  been

 

correctly followed by  the  Revenue  and  we  find  no  illegality  in  the

 

department  initiating  penalty  proceedings  in  the  instant  case.   

 

We,

 

therefore, fully agree with the view of the High Court.  Hence, the  appeal

 

lacks merit and is dismissed.  

 

There shall be no order as to costs.

 

 

 

REPORTABLE

 

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 9772 OF 2013
(Arising out of Special Leave Petition (Civil) No.18389 of 2013)

 

MAK Data P. Ltd. … Appellant

 

Versus

 

Commissioner of Income Tax-II … Respondent

 

 

 

J U D G M E N T

 
K.S. Radhakrishnan, J.

 

1. Leave granted.

 

2. The Appellant-assessee filed his return of income for the assessment
year 2004-05 on 27th October, 2004, declaring an income of Rs.16,17,040/-
along with Tax Audit Report. The case was selected for scrutiny and
notices were issued under Sections 143(2) and 142(1) of the Income Tax Act.
During the course of the assessment proceedings, it was noticed by the
Assessing Officer (AO) 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 had been impounded. These documents had
been found in the course of survey proceedings under Section 133A conducted
on 16.12.2003 in the case of M/s Marketing Services (a sister concern of
the assessee). The AO then proceeded to seek information from the assessee
and issued a show-cause notice dated 26.10.2006. By the show-cause notice,
the AO sought specific information regarding the documents pertaining to
share applications found in the course of survey, particularly, bank
transfer deeds signed by persons, who had applied for the shares. Reply to
show-cause notice was filed on 22.11.2006, in which the assessee made an
offer to surrender a sum of Rs.40.74 lakhs with a view to avoid litigation
and buy peace and to make an amicable settlement of the dispute.
Following are the words used by the assessee:-
“The offer of surrender is by way of voluntary disclosure of without
admitting any concealment whatsoever or with any intention to conceal
and subject to non-initiation of penalty proceedings and prosecution.”

 
3. The AO after verifying the details and calculations of the share
application money accepted by the Company completed the assessment on
29.12.2006 and a sum of Rs.40,74,000/- was brought to tax, as “income from
other sources” and the total income was assessed at Rs.57,56,700/-.

 

4. The department initiated penalty proceedings for concealment of
income and not furnishing true particulars of its income under Section
271(1)(c) of the Income Tax Act. During the course of the hearing, the
assessee contended that penalty proceedings are not maintainable on the
ground that the AO had not recorded his satisfaction to the effect that
there has been concealment of income/furnishing of inaccurate particulars
of income by the assessee and that the surrender of income was a
conditional surrender before any investigation in the matter. The AO did
not accept those contentions and imposed a penalty of Rs.14,61,547/- under
Section 217(1)(c) of the Act. The assessee challenged that order before
the Commissioner of Income Tax (Appeals) by filing Appeal No.2/07-08, which
was dismissed vide order dated 17.2.2010. The assessee filed an appeal
being ITA No.1896/Del/10 before the Income Tax Appellate Tribunal, Delhi.
The Tribunal recorded the following findings :-
“The assessee’s letter dated 22.11.2006 clearly mentions that “the
offer of the surrender is without admitting any concealment whatsoever
or any intention to conceal.”

 

The Tribunal took the view that the amount of Rs.40,74,000/- was
surrendered to settle the dispute with the department and since the
assessee, for one reason or the other, agreed or surrendered certain
amounts for assessment, the imposition of penalty solely on the basis of
assessee’s surrender could not be sustained. The Tribunal, therefore,
allowed the appeal and set aside the penalty order.

 

5. The Revenue took up the matter in appeal before the High Court by
filing ITA No.415 of 2012. The High Court accepted the plea of the
Revenue that there was absolutely no explanation by the assessee for the
concealed income of Rs.40,74,000/-. The High Court took the view that in
the absence of any explanation in respect of the surrendered income, the
first part of clause (A) of Explanation 1 is attracted. Holding so, the
judgment of the Tribunal was set aside and the appeal filed by the Revenue
was allowed.

 

6. We have heard counsel on either side. We fully concur with the view
of the High Court that the Tribunal has not properly understood or
appreciated the scope of Explanation 1 to Section 271(1)(c) of the Act,
which reads as follows :-
“Explanation 1 – Where in respect of any facts material to the
computation of the total income of any person under this Act, —

 
A) Such person fails to offer an explanation or offers an explanation
which is found by the Assessing Officer or the Commissioner
(Appeals) or the Commissioner to be false, or

 
B) Such person offers an explanation which he is not able to
substantiate and fails to prove that such 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, then
the amount added or disallowed in computing the total income of
such person as a result thereof shall, for the purposes of clause
(c) of this sub-section, be deemed to represent the income in
respect of which particulars have been concealed.”

 

 

 

7. The AO, in our view, shall not be carried away by the plea of the
assessee like “voluntary disclosure”, “buy peace”, “avoid litigation”,
“amicable settlement”, etc. to explain away its conduct. The question is
whether the assessee has offered any explanation for concealment of
particulars of income or furnishing inaccurate particulars of income.
Explanation to Section 271(1) raises a presumption of concealment, when a
difference is noticed by the AO, between reported and assessed income. The
burden is then on the assessee to show otherwise, by cogent and reliable
evidence. When the initial onus placed by the explanation, has been
discharged by him, the onus shifts on the Revenue to show that the amount
in question constituted the income and not otherwise.

 

8. Assessee has only stated that he had surrendered the additional sum
of Rs.40,74,000/- 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. 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.

 

9. We are of the view that the surrender of income in this case is not
voluntary in the sense that the offer of surrender was made in view of
detection made by the 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.

 

10. The AO has to satisfy whether the penalty proceedings be initiated or
not during the course of the assessment proceedings and the AO is not
required to record his satisfaction in a particular manner or reduce it
into writing. The scope of Section 271(1)(c) has also been elaborately
discussed by this Court in Union of India vs. Dharmendra Textile Processors
(2008) 13 SCC 369 and CIT vs. Atul Mohan Bindal (2009) 9 SCC 589.

 

11. The principle laid down by this Court, in our view, has been
correctly followed by the Revenue and we find no illegality in the
department initiating penalty proceedings in the instant case. We,
therefore, fully agree with the view of the High Court. Hence, the appeal
lacks merit and is dismissed. There shall be no order as to costs.

 
……..……………………..J.
(K.S. Radhakrishnan)

 
……………………………J.
(A.K. Sikri)
New Delhi,
October 30, 2013.

 

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