2018 (5) TMI 1161 - HC - Income Tax

Penalty u/s 271(1)(c) - undisclosed bank accounts and sizeable cash deposits in such bank accounts - Held that - The assessee virtually admitted that cash deposits were undisclosed. The assessee only argued that not the entire tally of cash deposited in different accounts during the year but the peak credit thereof could be added under section 68 of the Act. The Assessing Officer accepted such a contention and added a sum of ₹ 19,55,500/to the income of the assessee. It is true that during the assessment proceedings the Assessing Officer also accepted the assessee s contention of derivative loss as business loss. By offsetting such added income against the business loss, assessment did not give rise to any fresh tax demand. Nevertheless, the Assessing Officer initiated penalty proceedings because of concealment of income and particulars thereof. Even in such penalty proceedings, the assessee did not offer any explanation about the cash deposits in his different undisclosed bank accounts. In that view of the matter, the Assessing Officer was justified in imposing penalty which was levied at the minimum 100% of the tax sought to be evaded. There is nothing on record to suggest that the assessee agreed to the addition of such income to cutshort the litigation in view of the fact that in any case, even after making the additions, there would be no tax liability in the hands of the assessee. Even if we were to accept the assessee s contention that such surrender was to avoid protraction of the litigation and which is often times referred to as to buy peace as held by the Supreme Court in case of Mak Data P. Ltd (2013 (11) TMI 14 - SUPREME COURT), this would not necessarily avoid initiation of penalty proceedings. - Decided against assessee.

Summary

Issues:
1. Imposition of penalty despite absence of mens rea
2. Justification of penalty due to additions made during assessment
3. Confirmation of penalty order despite nil total income after additions

Detailed Analysis:
1. The issue pertains to penalty levied by the Assessing Officer and confirmed by the Tribunal. The assessee filed a return of income for the assessment year 2009-2010, declaring a total income of ?1.81 lacs. The Assessing Officer detected undisclosed cash deposits in the assessee's bank accounts, leading to additional income of ?19,55,500. Despite the assessed tax liability becoming nil due to losses claimed by the assessee, penalty proceedings were initiated for concealing income. The Assessing Officer imposed a penalty of ?5,77,433, which was challenged by the assessee.

2. The Commissioner upheld the penalty, emphasizing the deliberate concealment of income and lack of proper explanations or evidence regarding the undisclosed cash deposits. The Commissioner highlighted that the assessee's conduct indicated a premeditated attempt to evade tax benefits. The Commissioner cited judicial precedents to support the imposition of penalties for false claims and concealment of income.

3. The Tribunal dismissed the assessee's appeal, leading to the present appeal before the High Court. The appellant argued that the voluntary surrender of income should not trigger penalty proceedings and that no fresh tax liability arose despite the additions made. However, the department contended that the undisclosed cash deposits and lack of explanations warranted the penalty. Citing legal precedents, the department argued that penalty could be imposed even if there was a reduced loss compared to the returned income.

4. The High Court upheld the penalty, noting that the assessee failed to provide explanations for the undisclosed cash deposits despite voluntary surrender. The Court emphasized that voluntary disclosure does not absolve an assessee from penalty proceedings. Referring to legal interpretations, the Court rejected the argument that penalty cannot be imposed if the assessed income results in a loss. The Court clarified that the absence of tax liability post-assessment does not preclude the imposition of penalties under the Income Tax Act.

5. In conclusion, the High Court dismissed the tax appeal, affirming the imposition of the penalty by the Assessing Officer. The judgment underscores the importance of transparency in income disclosures and the consequences of concealing income, even if the assessed tax liability is nil post-adjustments.