2017 (3) TMI 98 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disclosure of additional income consequent to survey operation - Held that - The assessee has admitted additional income to cover up the deficiencies found during the course of survey. The assessee also filed revised returns in pursuance of survey admitting additional income disclosed during the course of survey. We do not find any merits in the findings of the A.O. that the assessee would not have disclosed true and correct income, unless survey had taken place. When the assessee has filed revised return disclosing income admitted during the course of survey, even though the said surrender of additional income was after persistent queries by the A.O., once the revised returns found regularized by the revenue, the explanations of the assessee that he has declared additional income to buy peace and to come out of vexed litigation could be treated as bonafide and penalty u/s 271(1)(c) of the Act cannot be levied. - Decided in favour of assessee

Issues Involved:
1. Legitimacy of penalty proceedings under Section 271(1)(c) of the Income Tax Act for concealment of income.
2. Validity of additional income disclosure during survey operations.
3. Applicability of judicial precedents on voluntary disclosure and penalty.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty Proceedings under Section 271(1)(c):
The primary issue concerns whether the penalty under Section 271(1)(c) for concealment of income was justified. The Assessing Officer (A.O.) initiated penalty proceedings based on the difference between the original and revised income returns, asserting that the additional income disclosed during the survey represented unaccounted income. The A.O. relied on the Supreme Court's decision in Union of India vs. Dharmendra Textile Processors to justify the penalty, concluding that the assessee had concealed income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty, emphasizing that the revised return was filed solely due to the survey and incriminating material found.

2. Validity of Additional Income Disclosure During Survey Operations:
The assessee argued that the additional income was disclosed voluntarily to avoid litigation and buy peace with the department, asserting that no direct incriminating evidence was found during the survey. The CIT(A) and A.O. disagreed, stating that the disclosure was not voluntary but prompted by the survey findings. The Tribunal noted that the revised return, which included the additional income, was filed and taxes were paid accordingly. The Tribunal found merit in the assessee's argument, emphasizing that the disclosure was made in response to the survey and no further additions were made by the A.O. beyond disallowance of certain deductions.

3. Applicability of Judicial Precedents on Voluntary Disclosure and Penalty:
The assessee cited the Supreme Court's decision in CIT vs. Suresh Chandra Mittal, where it was held that penalty cannot be imposed if the additional income disclosure is to buy peace and avoid litigation. The Tribunal agreed, noting that the revised return regularized by the revenue indicated a bona fide disclosure. The Tribunal also referenced the Delhi High Court's decision in CIT vs. SAS Pharmaceuticals Pvt. Ltd., which stated that penalty under Section 271(1)(c) cannot be levied merely on the basis of survey findings if the income is disclosed in the return.

Conclusion:
The Tribunal concluded that the assessee did not conceal income warranting penalty under Section 271(1)(c). The revised return filed post-survey was accepted, and the income assessed by the A.O. matched the disclosed income. The Tribunal directed the deletion of the penalty, emphasizing that the disclosure was bona fide and aimed at avoiding litigation. Consequently, the appeals were allowed, and the stay applications were dismissed as infructuous.

Judgment Pronouncement:
The order was pronounced in the open court on 28th February 2017, allowing the appeals filed by the assessees and dismissing the stay applications as infructuous.

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