2009 (5) TMI 130 - AT - Income Tax

Levy of Penalty u/s 271(1)(c) - Concealment of Income Or Furnishing Inaccurate Particulars of Income in the returns - search and seizure operation - issued notice u/s 153A - Gifts received in the previous years - surrendered for taxation - Gifts from NRI persons - Difference of opinion between the two members - Third member Order - CIT(A) deleted the imposed penalty - Assessee explained that he had filed copies of gift deed and other related papers and also offered additional incomes for taxation before any inquiry or commencement of any investigation - The offer was voluntary and without any prior detection by the revenue. HELD THAT - Order AM - We are also of the view that the theory of gift is not probable in this case for the reason that, - (i) no one has stood up to own up the making the gift, (ii) the beneficiary, being the assessee, disowned the theory by sudden surrender of the amounts for taxation. Therefore, we are of the view that the conduct of the assessee was not bonafide when the returns were filed without in any manner disclosing the factum of the gifts even after search and seizure operation. The decision in the case of K.C. Builders 2004 (1) TMI 7 - SUPREME COURT is thus not applicable to the facts of the case. Therefore, we are of the view that the assessee furnished inaccurate particulars of the income in the returns, making himself liable for the penalties. In the result, appeals filed by the Revenue are allowed. Order JM - Merely because an assessee had agreed to the assessment that cannot bring in automatic levy of penalty. If the assessee offers an explanation as in the present case, revenue authorities are expected to consider the acceptability of explanation and thereupon to judicially arrive at the conclusion of concealment of facts and figures. In the penalty proceedings if the explanation is found acceptable, notwithstanding addition was made by treating the amount as income from undisclosed source but penalty may not be levied. Contrary to this if the explanation is vague or futile or remained unsupported then certainly it is open for the revenue to impose the penalty however, otherwise not. Resultantly the findings of Learned CIT(A) are hereby affirmed and the grounds of the Revenue are dismissed - Both the appeals of the Revenue are hereby dismissed. Order Third Member - The Full Bench decision of the Supreme court in Dharmendra 2008 (9) TMI 52 - SUPREME COURT there is no requirement of mens rea to be established and it is only a civil liability and therefore K.C. Builders 2004 (1) TMI 7 - SUPREME COURT decision of the Supreme Court holding that the word concealment inherently involves the mental condition of the assessee with regard to the default may not be a good law. However, that does not mean that the provision contained in Explanation 1 are given a complete go bye and are not applicable. The surrender of the amount after receipt of the questionnaire cannot lead to an inference that it was not voluntary in absence of any material on record suggesting it to be bogus or untrue or the income the assessee before such surrender. The correct and accurate disclosure may be by filing the revised return or by furnishing the particulars of such income before the detection by the AO. The mere fact that the assessee had not revised returns or that the offer was by letter to avoid harassment to the assessee and the donors who were non-resident persons, it cannot convert an offer to tax as concealment of income. Therefore, in my opinion the assessee has not furnished inaccurate particulars of the income in the returns before detection by the Revenue. Therefore, mere omission of the surrendered income from the return of an item of receipt does neither amount to concealment nor furnishing of inaccurate particulars of income unless and until there is some evidence to show exist or some circumstances found from which it can be gathered that the omission was attributable to an intention or a desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. Apart from the surrender there was nothing more on record to hold the assessee guilty of offering the said amount on detection of the concealment. Even in assessment order there is nothing of that sort. There was no specific provocation or an apprehension of detection prevailing at the time when the offer was made and in the absence of any such imminent fear from the side of the revenue, if the assessee came forward and paid the tax thereon by adding the same in the returned income, it has to be taken as a voluntary offer to tax. On the face of the evidence in the shape of confirmation letters, bank accounts, passport etc. in the hands of the assessee, it might be valid gift that would have convinced a reasonably minded person, specially a person exercising a judicial function. The accepted position of law is that merely because an assessee had agreed to the assessment that cannot bring in automatic levy of penalty. The facts and circumstances and the merits of the case and the cogent evidences placed on record are such as to exonerate the assessee from concealment penalty. The CIT(A) in my opinion is right in deleting the penalty, his order is affirmed and the appeals of the Revenue are dismissed.

Summary

Issues Involved:
1. Search and Seizure Operation
2. Issuance of Notice under Section 153A
3. Filing of Return and Declaration of Income
4. Initiation of Penalty Proceedings under Section 271(1)(c)
5. Explanation and Substantiation by the Assessee
6. Applicability of Judicial Precedents
7. Determination of Voluntary Surrender and Detection by Revenue
8. Mens Rea and Civil Liability in Penalty Proceedings
9. Difference of Opinion Between Judicial and Accountant Members

Detailed Analysis:

1. Search and Seizure Operation:
The judgment begins by detailing a search and seizure operation conducted under Section 132(1) of the Income-tax Act, 1961, at the residence of the assessee on 18.06.2003. This operation led to the issuance of a notice under Section 153A, requiring the assessee to file returns for the assessment years 2003-04 and 2004-05.

2. Issuance of Notice under Section 153A:
Following the search, a notice under Section 153A was issued on 05.01.2006. The assessee responded by requesting that the previously filed returns be considered as filed under this provision. The returns initially declared incomes of Rs. 1,22,820/- and Rs. 1,36,860/- for the respective years.

3. Filing of Return and Declaration of Income:
During the assessment proceedings, the assessee disclosed gifts amounting to Rs. 14.31 lakh and Rs. 1,15,11,748/- for the years 2003-04 and 2004-05, respectively. These amounts were surrendered for taxation, leading to revised assessments of Rs. 15,53,820/- and Rs. 1,16,48,608/-.

4. Initiation of Penalty Proceedings under Section 271(1)(c):
The Assessing Officer initiated penalty proceedings under Section 271(1)(c), alleging that the assessee had furnished inaccurate particulars of income and concealed income. The assessee contended that the additional incomes were voluntarily offered before any detection by the Assessing Officer.

5. Explanation and Substantiation by the Assessee:
The assessee argued that the gifts were disclosed voluntarily to avoid harassment and that the gifts were genuine, supported by gift deeds and banking channels. The Assessing Officer, however, held that the surrender was not voluntary and occurred only after detailed questionnaires were issued.

6. Applicability of Judicial Precedents:
The Assessing Officer referenced the Supreme Court's decision in K.P. Madhusudhanan v. CIT, which held that the Explanation to Section 271(1)(c) is part of the section, and the burden of proof lies with the assessee to substantiate their explanation. The CIT(A) and the Judicial Member, however, relied on the decision in K.C. Builders and Anr. v. ACIT, which emphasized the element of mens rea in concealment.

7. Determination of Voluntary Surrender and Detection by Revenue:
The CIT(A) concluded that there was no evidence of non-genuineness of the gifts found during the search. The surrender was made to avoid litigation and was not a result of detection by the Assessing Officer. The Judicial Member supported this view, stating that mere inquiry does not equate to detection.

8. Mens Rea and Civil Liability in Penalty Proceedings:
The Judicial Member emphasized that the penalty proceedings are penal in nature and require proof of mens rea. The Accountant Member, however, argued that the conduct of the assessee indicated awareness of the non-genuine nature of the gifts, making the penalty justified.

9. Difference of Opinion Between Judicial and Accountant Members:
The Judicial Member proposed deleting the penalty, highlighting the voluntary nature of the surrender and lack of specific detection by the Revenue. The Accountant Member disagreed, asserting that the surrender was not voluntary and the gifts were not substantiated, thus justifying the penalty.

Conclusion by the Third Member:
The Third Member sided with the view that the surrender was voluntary and made to avoid litigation, with no specific detection by the Revenue. The CIT(A)'s order was affirmed, and the appeals by the Revenue were dismissed, emphasizing that the mere omission from the return does not amount to concealment unless there is evidence of intent to hide income.