Under Explanation 1 to s. 271(1)(c),
voluntary disclosure of concealed income does not
absolve assessee of s. 271(1)(c) penalty if the assessee
fails to offer an explanation which is bona fide and proves
that all the material facts have been disclosed
The assessee filed a return of income for AY 2004-05
declaring an income of Rs.16 lakhs. During the course of
the assessment proceedings, the AO noticed certain
documents comprising of share application forms, bank
statements, blank share transfer deeds etc had been
impounded in the course of s. 133A survey proceedings
conducted in the case of the assessee’s. The AO
sought specific information regarding the documents from
the assessee. In reply to the show-cause notice, the
assessee made an offer to surrender Rs.40.74 lakhs with a
view to avoid litigation and buy peace and to make an
amicable settlement of the dispute. The AO assessed the
said sum of Rs.40.74 lakhs to tax and levied penalty u/s
271(1)(c) for concealment of income and not furnishing true
particulars. This was upheld by the CIT(A) though the
Tribunal reversed it on the ground that the surrender was
without admitting any concealment. On appeal by the
department, the High Court (
87 DTR 172 (Del)) reversed the Tribunal
on the ground that as there was absolutely no explanation
by the assessee for the concealed income of Rs.40.74 lakhs,
the first part of clause (A) of Explanation 1 to s.
271(1)(c) is attracted. On appeal by the assessee to the
Supreme Court HELD dismissing the appeal:
(i) The Tribunal has not properly understood or
appreciated the scope of Explanation 1 to s. 271(1)(c). The
AO 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
s. 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;
(ii) The assessee has only stated that he had surrendered
the additional sum of Rs.40.74 lakhs 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 statute does
not recognize those types of defences under Explanation 1
to s. 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 law does not provide
that when an assessee makes a voluntary disclosure of his
concealed income, he had to be absolved from penalty;
(iii) On facts, the surrender of income 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 etc have been impounded in the
course of survey proceedings u/s 133A conducted in the case
of the assessee’s sister concern. 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;
(iv) 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 has recorded a categorical finding that he was
satisfied that the assessee had concealed true particulars
of income and is liable for penalty proceedings u/s 271
read with s. 274 of the Act;
(v) The AO has to satisfy himself whether penalty
proceedings be initiated or not during the course of the
assessment proceedings. He is not required to record his
satisfaction in a particular manner or reduce it into
writing. The scope of s. 271(1)(c) has also been elaborately
discussed by the Supreme Court in
UOI vs. Dharmendra Textile
Processors 306 ITR 277 (SC) and
CIT vs. Atul Mohan Bindal 317
ITR 1 (SC). The principle laid down by this Court has been
correctly followed by the Revenue and there is no illegality
in the department initiating penalty proceedings in the
instant case.
Contrast with
Suresh Chandra Mittal 241 ITR
124 (MP) (
affirmed in
251 ITR 9 (SC) that an offer to
“
buy peace” may be
bona fide.