2006 (8) TMI 162 - HC - Income Tax

Penalty levied u/s 271(1)(c) - For concealment of income - HELD THAT - On a perusal of the notice to show cause it would clearly appear that the Assessing Officer had already decided the question that there was concealment of the income but before the final determination he wanted to give an opportunity to the assessee to satisfy the authority in relation to the genuineness of the said entries. Acceptance of the revised return without much ado would not mean that the Department had not detected the concealment. In the present case the detection of concealment led to the notice to show cause and service of show-cause notice upon the assessee even for the sake of repetition we would say led to filing of the revised return. Taking into consideration that the detection was much before the filing of the revised return we cannot hold that the assessee would be entitled to any benefits of the amnesty scheme. It is also to be noted that after the submission of the revised return on March 7 1986 the assessee submitted the revised return and on March 18 he filed the reply to the notice to show cause and prior thereto he had submitted his explanation on March 10 1986. It is to be seen from the assessment order wherein the Assessing Officer has observed that prior to submission of the revised return in letter dated March 30 1986 the assessee explained the reasons as to why he disclosed the income. The Assessing Officer accepted the said contention and computed the income as per the revised return but that does not mean that the concealment was not detected. Thus we are of the opinion that the subordinate Tribunals were not unjustified in initiating the penalty proceedings u/s 271(1)(c) of the Act and imposing the penalty. The question is answered against the interest of the assessee and in favour of the Revenue. The reference is disposed of with costs payable by the assessee to the Revenue.

Summary

Issues Involved:
1. Whether the Tribunal was right in confirming the levy of penalty of Rs. 67,002/- under section 271(1)(c) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The core issue is whether the penalty of Rs. 67,002/- under section 271(1)(c) of the Income-tax Act was rightfully confirmed by the Tribunal. The assessee, a construction firm, initially declared an income of Rs. 1,27,824 for the assessment year 1983-84. Upon scrutiny, the Assessing Officer (AO) issued a show-cause notice on February 24, 1986, regarding squared-up cash credits. Subsequently, the assessee filed a revised return on March 7, 1986, declaring an additional income of Rs. 1 lakh. The AO accepted the revised return but initiated penalty proceedings under section 271(1)(c) due to the concealment of income.

Arguments by the Assessee:
The assessee argued that the revised return was filed under the amnesty scheme as per Circular Nos. 450 and 451 issued by the Central Board of Direct Taxes (CBDT), which provided immunity from penalty if income was disclosed honestly. The assessee contended that the revised return was filed in compliance with these circulars, thus deserving immunity from penalty.

Arguments by the Revenue:
The Revenue argued that the protection under the circulars was meant for honest taxpayers who voluntarily disclosed their income, not for those who did so after being detected. The AO had already detected the concealment before the revised return was filed, distinguishing between "detection" and "determination." The detection was evident from the AO's observations in the show-cause notice, indicating unaccounted money.

Analysis of CBDT Circulars:
The court examined questions Nos. 4, 19, and 30 from Circular No. 451. The answers clarified that immunity applied if the assessee admitted the truth and paid taxes before detection by the Department. Detection was defined as the AO finding material evidence of concealment, not merely having a prima facie belief.

Court's Observations:
The court noted that the AO's notice dated February 24, 1986, clearly indicated detection of concealment. The AO had identified unaccounted money and intended to add it to the income. The revised return filed by the assessee was a reaction to this notice, not a voluntary disclosure. The court emphasized that detection and determination are distinct; detection had occurred before the revised return, leading to the determination of income.

Distinction from Calcutta High Court Judgment:
The court distinguished the present case from the Calcutta High Court's judgment in Anand Kumar Saraf v. CIT, where the revised return was filed before any action on seized materials. In the present case, the AO had already detected the concealment before issuing the notice, making the revised return a consequence of detection.

Conclusion:
The court concluded that the detection of concealment occurred before the revised return was filed. Therefore, the assessee was not entitled to the benefits of the amnesty scheme. The Tribunal's decision to confirm the penalty under section 271(1)(c) was justified. The question was answered against the assessee, and the reference was disposed of with costs of Rs. 10,000/- payable by the assessee to the Revenue.