Section 271(1)(c) Penalty not sustainable if failure in Disclosure of Income was unintentional

Shri Himanshu Prafulchandra Varia Vs DCIT (ITAT Ahmedabad)

We find merit in the contention of the Ld. Counsel for the assessee that the failure to disclose the income was by mistake and not deliberate and the assessee had in fact come clean during assessment proceedings before the Revenue authorities even before detection by the Revenue. In fact, the facts on record reveal that the assessee could not have possibly disclosed this income in its return originally filed since the survey action, during the course of which the income was surrendered, took place subsequent to the filing of return of income by the assessee. The return for the impugned year had been filed on 31.07.2010, while the survey proceedings were conducted on the assessee on 06.08.2010. Therefore the question of disclosure of the income surrendered income by the assessee during survey in the return of income originally filed u/s 139(1) of the Act, does not arise at all. There was no possibility of disclosing the same in his original return. The assessee could very well have disclosed this income in a revised return subsequently, , but it is not highly improbable that having already filed a return of income, he by mistake failed to take the logical step of filing a revised return .Further it is a fact on record that when the assessment proceedings were initiated, even before the Revenue could confront him with the fact of non­disclosure of the undisclosed income in his return of income filed, the assessee on his own, suo moto, disclosed the same by way of a revised return filed, though belatedly.

Considered in the backdrop of the aforestated facts and circumstances, the entire conduct of the assessee vis a vis the disclosure of the surrendered income for taxation appears bonafide and above board. The surrender having been made after the filing of return of income for the impugned year, the assessee clearly forgot disclosing the same by way of a revised return and on commencement of assessment proceedings, at the first and earliest opportunity, realizing his mistake, he disclosed the same by way of filing a revised return. There is nothing to show that the disclosure was made on detection by the Revenue.

The assessee, we hold, had bonafidely failed to disclose the surrendered income and therefore it is clearly not a fit case for levy of penalty u/s 271(1)(c) of the Act.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

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