PENALTY FOR CONCEALED INCOME

[Mr. M. GOVINDARAJAN]

Concealment of income

The dictionary meaning of 'conceal' is to 'keep secret, not allow to be seen or noticed'. The meaning of the word "concealment" as found in Shorter Oxford English Dictionary, third edition is — ‘In law, the intentional suppression of truth or fact known, to the injury or prejudice of another’. Webster in his New International Dictionary equates its meaning ‘to hide or withdraw from observations; to cover up or keep from sight to prevent discovery of: to withhold knowledge of’.

Penalty for concealment of income

Section 271(1)(d)  of the Income Tax Act, 1961 (‘Act’ for short) provides that If the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person has concealed the particulars of the fringe benefits or furnished inaccurate particulars of such fringe benefits,  he may direct that such person shall pay by way of penalty, in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income  or the furnishing of inaccurate particulars of such income.

Difference between ‘concealment’ and ‘furnishing of inaccurate particulars’

The difference between 'concealment' and 'furnishing inaccurate particulars' has been analyzed by the Orissa High Court in COMMISSIONER OF INCOME-TAX VERSUS INDIAN METALS AND FERRO ALLOYS LIMITED - 1993 (11) TMI 15 - ORISSA HIGH COURT.  The High Court held that the expression ‘has been concealed the particulars of income’ and ‘has furnished inaccurate particulars of income’ have not been defined either in Section 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in detail although they may lead to the same effect, namely, keeping off a certain portion of income. The former is direct and the latter may be indirect in its execution. The word "conceal" is derived from the Latin concelare which implies to hide. Webster in his New International Dictionary equates its meaning to ‘hide or withdraw from observation, to cover or to keep from sight; to prevent the discovery of; to withhold knowledge of’. The offence of concealment is thus a direct attempt to hide an item of income or portion thereof from the knowledge of income-tax authorities. In furnishing its return of income an assessee is required to furnish particulars and accounts on which the return income has been arrived at. These may be particulars as per its books of account, if he has maintained them, or any other basis upon which it had arrived at the returned figure of income. Any inaccuracy made in such books of account or otherwise which resulted in keeping off or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income.

In THE PRINCIPAL COMMISSIONER OF INCOME TAX KOCHI-1, KOCHI VERSUS SHRI. AMBADY KRISHNA MENON - 2024 (5) TMI 1259 - KERALA HIGH COURT, the assessee (respondent in this case) filed his income tax return for the assessment year 2011-12, declaring income to the tune of Rs.70.75 lakhs on 30.07.2011.  He also declared capital gains to the extent of Rs.37.66 lakhs.  His return was scrutinized by the Department. The Department doubted that there might have been a suppression of capital gain.  Therefore, a summon was issued under Section 131 of the Act to the respondent assessee, calling for certain particulars to ascertain whether there was any suppression of income on 19.05.2014.  The assessee sought time for furnishing the said particulars.  Again, the Department issued a summons on 05.06.2014.   The assessee furnished the required details on 13.06.2014.

Again, the Department issued summons to the assessee on 18.06.2014 calling for further details.  These details were furnished by the assessee on 19.06.2014.  On 23.06.2014 the assessee informed the Department that he had inadvertently taken into account the cost of bonus shares under the capital gains on the sale of equity shares of a company.  Since he realized the mistake, he was ready to pay the differential tax Rs.15.83 crore under capital gain.

On 03.07.2014 , the Department issued a notice under section 148 of the Act for reassessing the tax including the capital gains. On receipt of the said summons, the assessee filed a revised return including the differential amount of capital gain and informed the same to the Department.  He also paid the tax to the tune of Rs.3.43 crores along with the interest liability of Rs.1.40 crore.  The Department completed the re-assessment and no addition has been done to the income of the assessee which was revised by him. The assessment order was passed on 23.06.2014.

However, the department proceeded to impose penalty on the assessee on that ground that the assessee has concealed his income.  The said show cause notice did not indicate the grounds on penalty was proposed to be imposed on the assessee. The assessee filed a detailed reply to the said show cause notice.  The Authorities did not satisfy with the reply given by the assessee.  An order was passed on 20.07.2015 confirming a penalty equal to 100% of tax allegedly sought to be evaded, Rs.3.27 crore.

The assessee filed an appeal before Commissioner of Income Tax (Appeals) challenging the order of Assessing Officer.  The First Appellate Authority found that the requirement of ‘concealment of income’ which was a pre-requisite for invoking the provisions of section 271(1)(c) of the Act.  The Revenue filed an appeal before the Income Tax Appellate Tribunal challenging the order of the First Appellate Authority.  The Income Tax Appellate Tribunal dismissed the appeal filed by the Revenue confirming the order passed by the First Appellate Authority.

Being aggrieved against the order of the Tribunal, the Revenue filed the present appeal before the Kerala High Court.  The Revenue raised the following questions of law-

• Whether on the facts and in the circumstances of the case, the Tribunal was right to hold that 'the penalty proceedings initiated by the Assessing Officer is ’void abinitio' and is not such a decision perverse? And should not the Tribunal have considered the case on merits?
• (a) Whether on the facts and in the absence of any prejudice and violation of natural justice being alleged or caused, the Tribunal is right in law in declaring the penalty order?

(b) Whether the Tribunal is justified in entertaining the belated Ground raised for the first time?

• Whether the assessee having well understood the purport and import of the notice and having acted upon the same, is justified in challenging the same for the reason alleged?
• Are not the 271(1)(c) penalty proceedings and penalty order legal and with jurisdiction and should not the Tribunal have upheld the same?
• Whether, on the facts and in the circumstances of the case should not the Tribunal have held that the appellant had concealed long term capital gain on transfer of equity shares by furnishing inaccurate and false particulars and therefore liable to penalty under Section 271(1)(c) of the Act?

The High Court analyzed the facts and circumstances of the case and also the provisions of Section 271 of the Act under which powers is given to the Income Tax Authorities to imposed penalty.  The High Court observed that Section 271 of the Act that it is a specific provision providing for imposition of penalties, and is a complete code in itself, regulating the procedure for the imposition of penalties prescribed. The proceedings are therefore to be conducted in accordance therewith, subject always to the rules of natural justice.  it is trite that it alone will govern the imposition of penalties. In terms of Section 271(1)(c) of the Act, the penal provision is attracted only when the conditions therein are fulfilled namely, when there is a concealment of the particulars of an assessee's income or when the assessee has furnished inaccurate particulars of such income.

Section 271(1)(c) no doubt authorizes the imposition of a penalty irrespective of whether the assessee had any mens rea to occasion the default specified therein. The liability in that sense is a strict one.   It is therefore all the more necessary to strictly construe the provisions of Section 271(1)(c) to ensure that only the clear and unambiguous cases of defaults specified therein would attract a penalty. On the facts of this case, the High Court failed to see how an assessee who disclosed his liability to tax, well before the Assessing Authority himself could determine it, can be seen as having concealed or incorrectly stated the facts leading to his liability. To invoke the penal provisions of the Act against an assessee in such a situation would throw to the winds the elements of fairness in tax administration and discourage asssessees from disclosing defects in their tax returns before their Assessing Authorities.

In the present case, the assessee had also paid the interest on the differential tax to cover the period of delay in payment thereof.  The High Court was of the firm view that the honesty of an assessee cannot attract the penal provisions under the Act and that, in the instant case, the essential pre-conditions for the invocation of the provisions of Section 271(1) (c) of the I.T. Act against the assessee were not established.  Therefore, the High Court dismissed the appeal filed by the Revenue.