2016 (5) TMI 818 - AT - Income Tax

Penalty u/s 271(1)(c) - income surrendered - Held that - As during survey, admittedly, certain documents were found, which were not explainable by the assessee. However, there was neither any detection by the Department on the basis of these documents, that these contain some element of income pertaining to the assessee. Admittedly, also that the assessee made surrender, however, the assessee kept on maintaining that this is not its total income, at best, these are the advances, against which it will have to deliver goods in future. This fact is very clearly emerging from the surrender letter. These contentions of the assessee had nowhere been rebutted by the lower authorities at any stage. In the present case, without any rebuttal by the lower authorities, we can very safely infer that whatever amount was surrendered by the assessee was not its actual income, but just an estimate. Why and how the assessee decided to surrender the same and pay additional taxes on it, is not a question, before us, to go into. In these circumstances, it cannot be said that the income was surrendered after detection by the Department. As no income accrued to the assessee during the relevant assessment year. Though it is also a matter to be deliberated upon that there were certain amounts jotted down on the seized documents, which were not explainable by the assessee. However, none has gone into to find the nature of these figures, in view of the fact that the assessee itself surrendered certain amounts and paid due taxes thereon. In the absence of a categorical finding by the Department that the surrendered amount was in the nature of income, the penalty under section 271(1)(c) of the Act cannot be levied. - Decided in favour of assessee

Summary

Issues:
- Appeal filed by Revenue against orders of Commissioner of Income Tax (Appeals) for assessment years 2006-07 and 2007-08.
- Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 on surrendered income of ?1 crore.
- Interpretation of surrender of income and its implications on penalty imposition.
- Analysis of relevant case laws and judgments regarding penalty on surrendered income.

Analysis:
1. The appeals were directed against separate orders of the Commissioner of Income Tax (Appeals) for different assessment years, but the issue was common. The assessee had surrendered an additional income of ?1 crore during a survey operation, leading to penalty proceedings under section 271(1)(c) of the Act.

2. The Revenue contended that the penalty should not be deleted merely because the assessee surrendered the income. The Department relied on the judgment in the case of MAK Data (P) Ltd. Vs. CIT to support this argument, emphasizing that surrender post-detection does not absolve the assessee from penalty liability.

3. The assessee argued that the surrendered amount was not actual income but advances against future deliveries, citing the project completion method for revenue recognition. The Tribunal analyzed the MAK Data (P) Ltd. judgment, highlighting the importance of the assessee's intention to declare true income and the burden of proof on the Revenue.

4. The Tribunal compared the facts of the present case with MAK Data (P) Ltd., noting that the income in the current case was surrendered without Departmental detection and was related to future project completion. The Tribunal found no conclusive evidence that the surrendered amount constituted income, especially considering the assessee's accounting policies and lack of proven concealment.

5. Referring to the Gujarat High Court's decision in National Textiles Vs. CIT, the Tribunal emphasized that penalty cannot be imposed if circumstances do not conclusively prove concealed income. The Tribunal held that in the absence of concrete evidence showing the surrendered amount as income, the penalty under section 271(1)(c) was not justified.

6. Ultimately, the Tribunal dismissed the Revenue's appeals, concluding that the penalty on the surrendered amount was not leviable due to the lack of proof establishing it as income. The judgment highlighted the importance of assessing the nature of surrendered income and the burden of proof in penalty proceedings.

7. The Tribunal's decision was pronounced on April 29, 2016, after a detailed analysis of the facts, legal precedents, and the specific circumstances surrounding the surrender of income and the imposition of penalty under the Income Tax Act, 1961.