Where assessee consequent to survey conducted under section 133A had declared income from business at Rs. 81 lakhs and further in return of income filed also declared said income, which was accepted and brought to tax, Assessing Officer was wrong in imposing penalty under section 271(1)(c)
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[2013] 37 taxmann.com 440 (Bangalore - Trib.)
IN THE ITAT BANGALORE BENCH 'C'
Muninaga Reddy
v.
Assistant Commissioner of Income-tax, Circle- 6(1), Bangalore*
N. BARATHVAJA SANKAR, VICE-PRESIDENT
AND N.V. VASUDEVAN, JUDICIAL MEMBER
AND N.V. VASUDEVAN, JUDICIAL MEMBER
IT APPEAL NO. 1488 (BANG.) OF 2012
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
AUGUST 14, 2013
Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income [Survey, declaration of income after, effect of] - Assessment year 2008-09 - Assessee alongwith one 'E' developed a layout of house site - Competent Authority conducted a survey under section 133A upon 'E' on 11-11-2009 - Consequent to survey, assessee declared his share of income from joint venture at Rs. 81 lakhs - In return of income filed for assessment year 2008-09 on 9-6-2010, assessee apart from other income also declared aforesaid income of Rs. 81 lakhs as income from business - Assessing Officer accepted said income and passed assessment order - He also levied penalty under section 271(1)(c) on plea that but for survey operations under section 133A assessee had declared income of Rs. 81 lakhs and, therefore, he had concealed particulars of income to extent of Rs. 81 lakhs - Whether since assessee had made a complete disclosure in return of income and offered surrendered amount for purposes of tax, which was accepted and brought to tax, there could be no question of treating assessee as having concealed particulars of income or furnished inaccurate particulars of income - Held, yes - Whether, therefore, there was no justification for imposition of penalty under section 271(1)(c) on income of Rs. 81 lakhs - Held, yes [Paras 7, 10 & 12] [In favour of assessee]
Words and Phrases : 'In the course of any proceedings under this Act' occurring in section 271(1) of the Income-tax Act, 1961
FACTS
| ■ | The assessee alongwith one 'E' developed a layout of house site. The competent authority conducted a survey under section 133A upon 'E' on 11-11-2009. Consequent to survey, the assessee declared his share of income from the joint venture at Rs. 81 lakhs. In the return of income filed for the assessment year 2008-09 on 9-6-2010, the assessee apart from other income also declared the aforesaid income of Rs. 81 lakhs as income from business. | |
| ■ | Since the return of income filed by the assessee was a belated return, the Assessing Officer to regularize the said return issued on the assessee a notice under section 148. Thereupon the assessee by his letter dated 16-9-2010 pleaded that the return filed on 9-6-2010 should be treated as return filed in response to notice under section 148. Thereafter the Assessing Officer accepted the income declared by the assessee in the return and passed the assessment order. He also initiated penalty proceedings under section 271(1)(c) against the assessee. | |
| ■ | The assessee in reply to the penalty notice submitted that the income declared in the return of income had been accepted by the Assessing Officer. Therefore, there was no question of any concealment of particulars of income. Therefore, there could not be any imposition of penalty on him. | |
| ■ | The Assessing Officer took the view that but for the survey operations under section 133A the assessee had declared income of Rs. 81 lakhs from the joint venture carried out with 'E'. He accordingly held that the assessee had concealed the particulars of income to the extent of Rs. 81 lakhs and imposed penalty under section 271(1)(c) on him. | |
| ■ | On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. He also rejected the argument of the assessee that mere acceptance of additional income declared at the time of assessment would not tantamount to concealment. | |
| ■ | On second appeal: |
HELD
| ■ | As far as imposition of penalty on the income offered in the return of income by the assessee is concerned, there cannot be any penalty on income which is declared in a return of income. Penalty under section 271(1)(c) is imposed for concealing particulars of income or furnishing inaccurate particulars of income. When an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the assessee as having concealed particulars of income or furnished inaccurate particulars of income. The starting point of determining concealment for imposing penalty is the return of income. If the return of income declares income which is ultimately brought to tax, there can be no complaint by the revenue that the assessee is guilty of concealing particulars of income or furnishing inaccurate particulars of income. This legal position would be implicit if one reads section 271(1)(c) together with Explanations 3, 4, 5 and 5A of section 271(1). [Para 7] | |
| ■ | Explanation 3 of section 271(1) is an exception to the rule that when an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the assessee as having concealed particulars of income or furnished inaccurate particulars of income. Explanation 4 to section 271(1) lays down what is the amount of tax sought to be evaded on which penalty can be imposed and clause (b) of Explanation 4 lays down in any case to which Explanation 3 applies, means the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148. This means that the income declared in the return of income can be ignored and penalty can be imposed even in respect of such income. Explanation 3 of section 271(1) applies also in the case of assessees, who have not been assessed as yet. According to this Explanation, if a person fails, without reasonable cause, to furnish a return of his income voluntarily under section 139 within the period specified under section 153(1), i.e., within two years from the end of the assessment year in which the income was first assessable, he shall be deemed to have concealed the particulars of his income in respect of such assessment year if he has taxable income for that year. But this is subject to two limitations. Firstly it applies to assessment year 1989-90 and subsequent years and secondly no notice under section 142(1) or 148 was issued within the said period of two years. In other words, Explanation 3 shall have no application if a notice under section 142(1) or 148 was issued within two years. But if an assessee files a return of his income after the period of two years in response to a notice issued under section 148, he would be caught within the mischief of this Explanation. [Para 8] | |
| ■ | In the instant case, Explanation 3 to section 271(1) will not apply, because the assessee filed the original return of income on 9-6-2010 and in response to notice issued under section 148 by letter dated 16-9-2010 requested the Assessing Officer to treat the return filed earlier as a return filed in response to notice under section 148. Thus the return of income was filed within a period of 2 years from the end of the assessment year 2008-09. Moreover the notice under section 148 had been issued prior to 16-9-2010, which is within two years from the end of the assessment year 2008-09. Therefore, Explanation 3 will not apply to the instant case. [Para 9] | |
| ■ | There can be no concealment or non-disclosure, as the assessee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax and, therefore, no penalty under section 271(1)(c) could be levied. The words 'in the course of any proceedings under this Act' in section 271(1) are prefaced by the satisfaction of the Assessing Officer or the Commissioner (Appeals). When a survey is conducted by a survey team, the question of satisfaction of Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise. One has to keep in mind that it is the Assessing Officer who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is thus obvious that the expression 'in the course of any proceedings under this Act' cannot have the reference to survey proceedings. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the return filed by him. The assessee can furnish the particulars of income in his return and everything would depend upon the return filed by the assessee. This view gets supported by Explanations 4, 5 and 5A of section 271(1). Obviously no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Section 271(1)(c) has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income, penalty cannot be imposed. There is no such concealment or non-disclosure, as the assessee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax. [Para 10] | |
| ■ | Explanations 5 and 5A are also an exception to the rule that when an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the assessee as having concealed particulars of income or furnishing inaccurate particulars of income. [Para 11] | |
| ■ | For the reasons given above, there could be no justification for imposition of penalty on the income of Rs. 81 lakhs offered in the return of income by the assessee. [Para 12] |
CASES REFERRED TO
Union of India v. Dharmendra Textiles Processors [2007] 295 ITR 244/[2008] 166 Taxman 65 (SC) (para 4), Vasavi Shelters v. ITO [2013] 141 ITD 590/32 taxmann.com 26 (Bang. - Trib.) (para 6) and CIT v. SAS Pharmaceuticals [2011] 335 ITR 259/199 Taxman 255/11 taxmann.com 207 (Delhi) (para 6).
P. Dinesh for the Appellant. Smt. Priscilla Singsit for the Respondent.
ORDER
N.V. Vasudevan, Judicial Member - This appeal by the assessee is against the order dated 31.08.2012 of the CIT(Appeals)-III, Bangalore relating to assessment year 2008-09.
2. In this appeal, the assessee has challenged the order of the CIT(Appeals) wherein the CIT(Appeals) confirmed the order of the AO imposing penalty on the assessee u/s. 271(1)(c) of the Act.
3. The facts and circumstances under which penalty was imposed on the assessee by the Assessing Officer are as follows. The assessee is an individual. The assessee along with one Shri E. Krishnappa developed a layout of house sites known as "Singapore Layout". There was a survey conducted u/s. 133A of the Act in the case of the assessee on 01.02.2008. In the course of the said survey, the assessee declared an amount of Rs.5.26 crores and Rs.70 lakhs for the A.Y. 2006-07 & 2007-08 respectively. There was also a survey u/s. 133A of the Act conducted in the case of E. Krishnappa on 11.11.2009. Consequent to survey in the case of E. Krishnappa, the assessee and E. Krishnappa declared income from joint venture of developing a layout known as 'Singapore Layout'. The assessee declared his share of income from the joint venture of Rs.81,36,400. The assessee had also declared income of Rs.88,00,098 from business. The assessee in all declared income for the A.Y. 2008-09 of a sum of Rs.1,76,94,888, which apart from business income stated above also included an amount of Rs.7,57,401 as income from property and Rs.979 as income from other sources. Return of income was filed by the assessee on 09.06.2010. Since it was a belated return, the same was lodged. To regularize the return filed by the assessee, a notice u/s. 148 was issued. The assessee through his AR by letter dated 16.09.2010, pleaded that the return filed on 09.06.2010 may be treated as return filed in response to notice u/s. 148 of the Act. Thereafter, the AO referred to the survey and the outcome of the survey, accepted the income declared by the assessee in the return of income. The following are the relevant observations of the AO:—
"5.2 The assessee had not maintained proper books of accounts and did not file any audit report in respect of business income. After verifying all the supporting materials, the income returned at Rs.1,76,94,888/- in response to notice u/s. 148, is found to be in order and the same is accepted."
4. In the assessment order, the AO initiated penalty proceedings u/s. 271(1)(c) of the Act. In response to the notice issued by the AO before imposing penalty, the assessee submitted that the income declared in the return of income has been accepted by the AO and therefore there was no question of any concealment of particulars of income and therefore there cannot be any imposition of penalty on the assessee. The AO, however, took the view that but for the Survey operations u/s. 133A of the Act, the assessee would not have declared income of Rs.81,36,400 from the joint venture carried out with E. Krishnappa for forming a layout known as 'Singapore Layout'. The AO accordingly held that the assessee has concealed his particulars of income to the extent of Rs.81,36,400 and imposed penalty on the assessee, which was 100% of the tax sought to be evaded. The AO also made a reference to the decision of the Hon'ble Supreme Court in the case of Union of India v. Dharmendra Textiles Processors [2007] 295 ITR 244/[2008] 166 Taxman 65, wherein the Hon'ble Supreme Court took a view that penalty u/s. 271(1)(c) is a civil liability and is compensatory in nature, hence the element ofmens rea is not required.
5. On appeal by the assessee, the CIT(Appeals) confirmed the order of the AO. The CIT(Appeals) also rejected the argument of the assessee that mere acceptance of additional income declared by the assessee at the time of assessment would not tantamount to concealment. Aggrieved by the order of the CIT(Appeals), the assessee has preferred an appeal before the Tribunal.
6. We have heard the rival submissions. The learned DR relied on the order of the CIT(A). The learned counsel for the Assessee submitted before us that since the return of income filed by the Assessee has been accepted by the AO and since the income declared in the return of income was due to findings in a Survey u/s.133A of the Act, there can no imposition of penalty for concealment and in this regard relied on the decision of the ITAT Bangalore Bench in the case of Vasavi Shelters v. ITO [2013] 141 ITD 590/32 taxmann.com 26 (Bang. - Trib.). Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of CIT v. SAS Pharmaceuticals [2011] 335 ITR 259/199 Taxman 255/11 taxmann.com 207, wherein on identical facts of the case, the Hon'ble Delhi High Court took the view that penalty u/s.271(1)(c) of the Act, cannot be imposed.
7. We have considered the rival submissions. As far as imposition of penalty on the income offered in the return of income by the Assessee is concerned, we are of the view that there cannot be any penalty on income which is declared in a return of income, on the facts and circumstances of the present case. Penalty u/s.271(1)( c) of the Act is imposed for "concealing particulars of income or furnishing inaccurate particulars of income". When an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the Assessee as having "concealed particulars of income or furnished inaccurate particulars of income". The starting point of determining concealment for imposing penalty is the return of income. If the return of income declares income which is ultimately brought to tax there can be no complaint by the revenue that the Assessee is guilty of "concealing particulars of income or furnishing inaccurate particulars of income". This legal position would be implicit if one reads Sec.271(1)(c) of the Act together with Expln.3, 5 and 5A of the Act, which carves out exception for the legal position as stated above.
"Sec.271— Failure to furnish returns, comply with notices, concealment of income, etc.—(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person—
| (a) to (b)** | ** | ** |
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,—
| (d) to (ii)** | ** | ** |
(iii) in the cases referred to in clause (c) or clause (d), 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 fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits:
Explanation 1 — Where in respect of any facts material to the computation of the total income of any person under this Act,—
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals)or the Commissioner to be false, or
(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,
then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed.
Explanation 3 — Where any person, fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and, until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.
Explanation 5 — Where in the course of a search initiated under section 132 before the 1st day of June, 2007, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,—
| (a) | for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date, or, where such return has been furnished before the said date, such income has not been declared therein; or | |
| (b) | for any previous year which is to end on or after the date of the search; |
then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless,—
(1) such income is, or the transactions resulting in such income are, recorded,—
| (i) | in a case falling under clause (a), before the date of the search; and | |
| (ii) | in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or |
(2) he, in the course of the search, makes a statement under sub- section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income.
Explanation 5A — Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of—
| (i) | any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or | |
| (ii) | any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, | |
| which has ended before the date of search and,— |
| (a) | where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or | |
| (b) | the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, |
then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income."
8. Explanation-3 is an exception to the rule that when an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the Assessee as having "concealed particulars of income or furnished inaccurate particulars of income". Explan.-4(b) to Sec.271(1) of the Act makes this clear. Expln.-4 to Sec.271 (1) of the Act lays down what is "the amount of tax sought to be evaded" on which penalty can be imposed and clause (b) lays down in any case to which Explanation 3 applies, means the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self assessment tax paid before the issue of notice under section 148. This means that the income declared in the return of income can be ignored and penalty can be imposed even in respect of such income. Explanation 3 of section 271(1)(c)(iii) applies also in the case of assessees, who have not been assessed as yet. According to this section, if a person fails, without reasonable cause, to furnish a return of his income voluntarily under section 139 within the period specified under section 153(1), i.e., within two years from the end of the assessment year in which the income was first assessable, he shall be deemed to have concealed the particulars of his income in respect of such assessment year if he has taxable income for that year. But this is subject to two limitations - firstly, it applies to assessment year 1989-90 and subsequent years and secondly, no notice under section 142(1) or 148 was issued within the said period of two years. In other words, Explanation 3 shall have no application if a notice under section 142(1) or 148 was issued within two years. But if an assessee files a return of his income after the period of two years in response to a notice under section 148, he would be caught within the mischief of this Explanation.
9. In the present case, Expln.-3 to sec.271(1) of the Act will not apply because, as we have seen the Assessee filed the original return of income on 09.06.2010 and in response to notice u/s.148 of the Act by letter dated 16.9.2010, requested the AO to treat the return filed earlier as a return filed in response to notice u/s.148 of the Act. Thus the return of income was filed within a period of 2 years from the end of AY 08-09. Moreover the notice u/s.148 had been issued in the present prior to 16.9.2010 which is within two years from the end of AY 07-08. Therefore Explanation 3 will not apply to the present case.
10. There can be no concealment or non-disclosure, as the assessee had made a complete disclosure in the IT return and offered the surrendered amount for the purposes of tax and therefore no penalty under s. 271(1)(c) could be levied. The words 'in the course of any proceedings under this Act' in Sec. 271 (1)(c) of the Act are prefaced by the satisfaction of the AO or the CIT(A). When a survey is conducted by a survey team, the question of satisfaction of AO or the CIT(A) or the CIT does not arise. One has to keep in mind that it is the AO who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is, thus, obvious that the expression 'in the course of any proceedings under this Act' cannot have the reference to survey proceedings. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the IT return filed by it. The assessee can furnish the particulars of income in his return and everything would depend upon the IT return filed by the assessee. This view gets supported by Explanations 4 as well as 5 and 5A of s. 271. Obviously, 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. Sec. 271(1)(c) has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income, penalty cannot be imposed. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the IT return and offered the surrendered amount for the purposes of tax.
11. Expln.5 and 5A are also an exception to the rule that when an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the Assessee as having "concealed particulars of income or furnished inaccurate particulars of income". Those Explanations will also not apply in the present case because those Explanations are applicable only when there is a search u/s.132 of the Act and to a case of Survey u/s.133A of the Act.
12. For the reasons given above we hold that there can be no justification for imposition of penalty on the income offered in the return of income by the Assessee, because there cannot be any penalty on income which is declared in a return of income, on the facts and circumstances of the present case.
13. The Hon'ble Delhi High Court in the case of SAS Pharmaceuticals (supra) and this Tribunal in the case of Vasavi Shelters (supra) have also taken the view as stated above.
14. In the result, the appeal by the assessee is allowed.
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