2011 (4) TMI 888 - HC - Income Tax

Penalty u/s 271(1)(C) - assessee had itself voluntarily surrendered the amount to avoid litigation and to buy peace of mind and had not concealed any income - Held that - It is a settled position of law as enunciated in various judicial pronouncements that penalty cannot be based on presumptions and surmises . Section 271(1)(c) is a penal provision and such a provision has to be strictly construed. Unless the case falls within the four corners of the said provision, penalty cannot be imposed. No penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, may be, it would have not disclosed the income but for the said survey, however there cannot be any penalty only on surmises, conjectures and possibilities. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the income-tax return and offered the surrendered amount for the purposes of tax. When the survey is conducted by a survey team, the question of satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise - Decided in favour of the assessee

Summary

Issues:
Appeal against deletion of penalty under section 271(1)(c) of the Income-tax Act by the Commissioner of Income-tax (Appeals) and the Tribunal.

Analysis:
The case involved a penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, which was deleted by the Commissioner of Income-tax (Appeals) and upheld by the Tribunal. The penalty was imposed based on discrepancies found during a survey at the business premises of the assessee, leading to the surrender of a significant amount. The Assessing Officer believed that the surrender was an attempt to avoid detection and evade tax. However, the Commissioner of Income-tax (Appeals) ruled that since the surrendered amount was duly reflected in the income-tax return filed by the assessee, there was no concealment of income.

The Tribunal dismissed the appeal of the Revenue, leading to the current appeal. The substantial questions of law admitted for consideration were whether the Tribunal was correct in law in deleting the penalty and holding that no concealment was made by the assessee despite the surrender during the survey. The facts presented during the survey revealed discrepancies in cash, stock, and renovation expenses, leading to the surrender of a substantial amount by the assessee.

The key contention was whether the penalty under section 271(1)(c) could be imposed when the assessee had disclosed the surrendered income in the income-tax return. The Department argued that the intention of the assessee to maintain false records indicated a clear attempt to conceal income. However, the assessee's counsel argued that the penal provision should only apply if the concealment or inaccurate particulars were related to the filed return.

The court emphasized that section 271(1)(c) is a penal provision that must be strictly construed. It clarified that concealment or furnishing inaccurate particulars must be related to the income-tax return filed by the assessee. The court rejected the Revenue's argument that the survey findings constituted concealment during proceedings under the Act, highlighting that the satisfaction of the Assessing Officer or the Commissioner is crucial for invoking the penalty.

Ultimately, the court held in favor of the assessee, stating that no penalty could be imposed as there was no actual concealment or non-disclosure of income since the surrendered amount was disclosed in the income-tax return. The court emphasized that penalties cannot be based on presumptions and surmises, and the conditions under section 271(1)(c) must be unambiguously satisfied for imposition. The appeal was dismissed, upholding the decisions of the Commissioner of Income-tax (Appeals) and the Tribunal.