2013 (11) TMI 14 - SC - Income Tax

Penalty u/s 271(1)(c) of the Income Tax Act Held that - Surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary - The survey was conducted on the sister concern more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings - it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year Decided against the Assessee.

Summary

Issues:
1. Concealment of income and penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Analysis:
The appellant-assessee filed the return of income for the assessment year 2004-05, declaring an income of Rs.16,17,040, along with a Tax Audit Report. During the assessment proceedings, certain documents related to share applications were found in a survey conducted on a sister concern of the assessee. The Assessing Officer (AO) sought specific information regarding these documents, and the assessee made an offer to surrender a sum of Rs.40.74 lakhs to avoid litigation and settle the dispute. The AO accepted this surrender and brought the amount to tax as "income from other sources." Subsequently, penalty proceedings were initiated for concealment of income under Section 271(1)(c) of the Act.

The assessee contended that penalty proceedings were not maintainable as the surrender was conditional and made before any investigation. The AO imposed a penalty of Rs.14,61,547, which was challenged before the Commissioner of Income Tax (Appeals) and later before the Income Tax Appellate Tribunal. The Tribunal set aside the penalty order, stating that the surrender was made to settle the dispute and could not be the sole basis for imposing a penalty.

The Revenue appealed to the High Court, which held that the assessee failed to provide any explanation for the concealed income, attracting the provisions of Explanation 1 to Section 271(1)(c) of the Act. The High Court set aside the Tribunal's judgment, leading to the present appeal before the Supreme Court.

The Supreme Court analyzed Explanation 1 to Section 271(1)(c) and emphasized that the burden is on the assessee to explain any difference between reported and assessed income. The Court noted that the voluntary disclosure of concealed income does not absolve the assessee from penalty proceedings. In this case, the Court found that the surrender of income was not voluntary, as it was made after detection by the AO in a survey conducted on a sister concern of the assessee.

The Court held that the AO is not required to record satisfaction in a specific manner during the assessment proceedings to initiate penalty proceedings. Referring to previous judgments, the Court affirmed the legality of the department initiating penalty proceedings in this case. Consequently, the Court dismissed the appeal, upholding the penalty imposed on the appellant-assessee for concealment of income under Section 271(1)(c) of the Income Tax Act.