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Thursday, October 31, 2013

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 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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