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Voluntary surrendering of income does not mean immunity from penalties - SC

If there is voluntary surrender of income it does not mean that there is automatic immunity from penalty for concealment of income.  This has been so held by the Supreme Court of India in the case of Mak Data P. Ltd. v. CIT (2013) 358 ITR 593 (SC).   In this case, the assessee-company filed its return of income for the assessment year 2004-05 declaring an income of Rs. 16,17,040 with the tax audit report.

It was the statutory duty of the assessee to record all the transactions in the books of account, to explain the source of payments made and declare its true income in the returns filed

Certain documents comprising 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 were found in the course of survey proceedings under section 133A of the IT Act on 16.12.2003, in the case of a sister concern of the assessee and impounded.  During the course of the assessment proceedings, the Assessing Officer sought specific information regarding the documents pertaining to share applications found in the course of survey, particularly, blank 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 by way of voluntary disclosure without admitting any concealment or any intention to conceal and subject to non-initiation of penalty proceedings and prosecution.  The Assessing Officer completed the assessment bringing the sum of Rs. 40.74 lakhs to tax and in penalty proceedings under section 271(1)© of the Income-tax Act, 1961, imposed a penalty of Rs. 14,61,547.  The Commissioner (Appeals) dismissed the appeal of the assessee.  On further appeal, the Tribunal took the view that the amount of  Rs. 40.74 lakhs was surrendered to settle the dispute with the IT 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 the assessee’s surrender could not be sustained.  The Tribunal, therefore, set aside the penalty order.  The IT Department appealed to the High Court which 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 to section 271(1)(c) of the IT Act was attracted.

The assessee filed an appeal to the Supreme Court which affirmed the decision of the High Court, that the assessee had only stated that it had surrendered the additional sum of Rs. 40,74,000 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 did not recognize those types of defences under Explanation 1 to section 271(1)(c) of the IT Act.  The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in view of detection by the Assessing Officer in the search conducted in the 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 assessment proceedings.

Consequently, it was clear that the assessee had no intention to declare its true income.  It was the statutory duty of the assessee to record all the 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 Assessing Officer had recorded a categorical finding that he was satisfied that the assessee had concealed the true particulars of income and was liable for penalty proceedings under section 271 read with section 274 of the IT Act.

There was no illegality in the IT Department initiating penalty proceedings.  The Supreme Court affirmed the decision of the Delhi High Court in the case of CIT v. Mac Data Ltd. (2013) 352 ITR 1.

It was further held by the Supreme Court that the Assessing Officer has to satisfy himself whether or not penalty proceedings should be initiated during the course of assessment proceedings and the Assessing Officer is not required to record his satisfaction in a particular manner or to reduce it into writing.

Article referred: http://freepressjournal.in/voluntary-surrendering-of-income-does-not-mean-immunity-from-penalties/

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