2014 (1) TMI 128 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - The assessee has filed return of income in response to notice u/s 148 - Following MAK Data (P.) Ltd. V. CIT 2013 (11) TMI 14 - SUPREME COURT - The voluntary disclosure does not free the assessee from the mischief of penal proceedings under section 271(1)(c) - The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty - The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in view of detection made by the Assessing Officer in the survey conducted - The Assessee had not given any reasonable explanation for not offering the income he had offered in the return filed pursuant to the Notice issued u/s 148 - Such income offered in the return filed is concealed income and exigible to penalty u/s 271(1)(c). Quantum of concealed income - Held that - Only income which was returned in the return filed by the Assessee should be considered as concealed income - In the reassessment the AO has accepted the turnover and depreciation as returned by the Assessee - The additions made by the Assessing Officer in the reassessment order is merely based on his estimate that profitability should be at 8% in the place of the profits offered by the Assessee - This is merely an adhoc estimate made by the AO without any cogent reason for adopting such percentage - The issue was restored to the files of AO to determine the income eligible for penalty at the income returned by the Assessee in his return of income filed on 5.10.2009 and re-work and levy minimum penalty.

Issues Involved:
1. Validity of penalty under section 271(1)(c) of the IT Act.
2. Distinction between assessment proceedings and penalty proceedings.
3. Applicability of penalty on estimated income versus computed income.
4. Burden of proof in penalty proceedings under section 271(1)(c).

Detailed Analysis:

Issue 1: Validity of penalty under section 271(1)(c) of the IT Act

The assessee, engaged in the construction business, faced a survey under section 133A on 29-10-2007. Notices under section 148 were issued for the assessment years 2007-2008 and 2008-2009 due to non-filing of returns. The assessee declared incomes of Rs.46,82,540/- and Rs.17,30,000/- respectively. The Assessing Officer (AO) estimated incomes at 8% of the gross turnover, leading to higher assessed incomes and initiation of penalty proceedings under section 271(1)(c). The AO imposed penalties amounting to Rs.21,34,298/- and Rs.6,91,500/- for the respective years. The CIT(A) upheld the penalties, citing precedents where income offers during surveys justified penalties.

Issue 2: Distinction between assessment proceedings and penalty proceedings

The assessee contended that penalty proceedings are distinct from assessment proceedings and relied on the Supreme Court's decision in Jain Brothers v. Union of India, which states that evidence for assessment may not suffice for penalty. The assessee argued that penalties should not be imposed merely due to income estimation and that penalties require concrete evidence of concealment.

Issue 3: Applicability of penalty on estimated income versus computed income

The assessee argued that penalties should apply only to computed income, not estimated income, citing Shivlal Tak vs. CIT and other cases. The CIT(A) rejected this argument, relying on decisions like Durga Timber Works vs. CIT and others, which supported penalty imposition based on income offers during surveys.

Issue 4: Burden of proof in penalty proceedings under section 271(1)(c)

The Tribunal referenced the Supreme Court decision in MAK Data (P.) Ltd. v. CIT, which clarified that the Explanation to section 271(1) raises a presumption of concealment when discrepancies exist between reported and assessed income. The burden shifts to the assessee to provide reliable evidence to counter this presumption. The Tribunal found that the assessee failed to explain why the income was not offered earlier and upheld penalties on the returned income but not on the estimated income.

Conclusion:

For both assessment years, the Tribunal upheld the penalties on the income returned by the assessee in response to the notice under section 148 but not on the AO's estimated income. The Tribunal directed the AO to levy penalties based on the income declared in the returns filed on 5.10.2009, stating that the AO's estimation lacked a cogent basis and could not be considered concealed income.

Result:

The appeals for the assessment years 2007-2008 and 2008-2009 were partly allowed for statistical purposes, directing the AO to rework and levy minimum penalties based on the income declared by the assessee in their returns.

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