Income offered to “buy peace” no longer a pretence to avoid penalty – Supreme Court


MAK Data P. Ltd vs. CIT [CIVIL APPEAL NO. 9772 OF 2013 (dated 30/10/2013)] – Supreme Court

Background:

Assessee filed his return of income for the AY 2004-05 declaring an income of Rs.16,17,040. During the course of assessment proceedings, 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.

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.  AO after verifying the details and calculations of the share application money completed the assessment and a sum of Rs.40,74,000/- was brought to tax, as “income from other sources”.

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 and imposed a penalty of Rs.14,61,547. The assessee challenged that order before the CIT (Appeals) which was dismissed. 

Tribunal’s view

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

High Court’s order

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.

HELD:

  • 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.
  • Assessee has only stated that he had surrendered the additional income 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 assessee from the mischief of penal proceedings.
  • 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.
  • 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. 

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