Case Law Details
Kapilaben Mahendrabha Patel Vs DCIT (ITAT Ahmedabad)
Introduction: In a significant ruling by the Income Tax Appellate Tribunal (ITAT) Ahmedabad, the case of Kapilaben Mahendrabha Patel vs. Deputy Commissioner of Income Tax stands out for its critical examination of penalty levied under section 271(1)(c) of the Income Tax Act, 1961. The appeal by the assessee against the order of the Commissioner of Income Tax (Appeals)-12, Ahmedabad, brings to light the nuances of penalty levies for undisclosed income and the pivotal role of voluntary disclosure.
Detailed Analysis
The crux of the matter lies in the penalty imposed by the Assessing Officer (AO) for the concealment of particulars of income amounting to Rs. 6 lakhs, which was disclosed in the return filed in response to the notice under section 148 of the Act for the Assessment Year 2012-13. The AO’s decision was based on the premise that the disclosure was made only after the Department issued a notice for reopening under section 148, upon discovering the investment of Rs.6.00 lakhs in Kotak Mahindra Insurance, the source of which was not explained by the assessee.
The Commissioner of Income Tax (Appeals) upheld the AO’s penalty levy, referencing the Supreme Court’s judgment in the case of MAK Data P.Ltd., which dealt with the nature of voluntary disclosures post-detection by the Department. However, the ITAT Ahmedabad, in its wisdom, delved deeper into the circumstances under which the disclosure was made by the assessee, highlighting a crucial distinction – the absence of evidence that the assessee was aware of the Department’s knowledge about the escapement of income.
Tribunal’s Decision
ITAT Ahmedabad emphasized that for a penalty under section 271(1)(c) to be justified, it must be established that the assessee was aware of the Department’s findings regarding the undisclosed income and disclosed the income only when cornered. The Tribunal observed that the assessment order did not demonstrate that the assessee was in such a position of awareness, leading to the conclusion that the disclosure of Rs. 6 lakhs was indeed voluntary and not a result of being cornered by the Department.
In light of these observations, ITAT Ahmedabad directed the deletion of the penalty levied under section 271(1)(c), amounting to Rs. 1,85,400. This ruling underscores the Tribunal’s recognition of the significance of voluntary disclosure and the necessity for the Department to prove the assessee’s awareness of the Department’s knowledge on the escapement of income for penalties to be valid.
Conclusion: The ITAT Ahmedabad’s decision in Kapilaben Mahendrabha Patel vs. DCIT marks a pivotal moment in the interpretation of penalties under section 271(1)(c) of the Income Tax Act, emphasizing the essence of voluntary disclosure. By setting aside the penalty, the Tribunal not only provided relief to the assessee but also laid down an important precedent on the conditions under which penalties for concealment of income are to be evaluated. This judgment reinforces the principle of fairness in tax assessments and the critical role of the assessee’s intent and awareness in determining the applicability of penalties for undisclosed income.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the assesseeagainst order passed by the Commissioner of Income Tax(Appeals)- 12, Ahmedabad under section 250(6) of the Income Tax Act, 1961 dated 13.06.2023 pertaining to Asst.Year2012-13 confirming the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the AO.
2. The ground raised by the assessee is as under:
“1. The ld. CIT(A) on the facts and in the circumstances of th3 case and in law has grossly erred in levying the penalty of Rs. 1,85,400/- u/s.271(1)(c) of the Act. The penalty of Rs. 1,85,400/- as levied by the ld.CIT(A) is totally against the law and is devoid of any merit.”
3. The facts from the orders of the authorities below reveal that the penalty was levied by the AO for concealing particulars of income of Rs.6 lakhs in the return filed in response to notice u/s 148 of the Act. The assessee had disclosed Rs. 6 lacs as other income in the said return, but the AO charged the assessee with concealment of particulars of the same noting that the disclosure was made only when the assessee was issued notice for reopening u/s 148 of the Act on the Department coming in possession of information that the assessee had made investment of Rs.6.00 lakhs in Kotak Mahindra Insurance source of which was not explained. The relevant para-5 of the assessment order passed u/s 147 of the Act dated 9.12.2019 recording satisfaction as above of the AO for initiation of penalty fis reproduced as under:
4. Thereafter, penalty proceedings were initiated, during the course of which, the assessee contended that the assessee had included impugned income in its return filed under section 148 of the Act, and had also paid due taxes thereon; that non-inclusion of such income in his return filed under section 139(1) of the Act, was a human error, and he therefore pleaded that the penalty levied under section 27 1(1)(c) of the Act be deleted.
5. The ld.CIT(A), however, rejected the contention of the assessee holding that disclosure of the unaccounted investment of Rs.6.00 lakhs being made only in pursuance to the notice issued under section 148 of the Act, and it was a fit case for levy of penalty under section 271(1)(c) of the Act. His findings in this regard at para-5 of the order are as under:
6. Before the ld.CIT(A), the assessee reiterated this contention which was rejected by theld.CIT(A) who applied the ratio of the judgment of the Hon’ble Supreme Court in the case of MAK Data P.Ltd.,(2013) 38 taxmann.com 448 (SC), and confirmed the levy of penalty. His finding at para 6.3 to 6.5 are as under:
7. We have heard both the parties; gone through the order of the authorities below.
The charge of the Revenue right upto the ld.CIT(A) for finding assessee to have concealed particulars of income of Rs.6 lakhs in his return of income filed under section 148 of the Act, was that the assessee was forced to make the disclosure on account of law catching up on him, since the non disclosure of the same was detected by the Department and reopening of the case of the assessee resorted to u/s 147/148 of the Act. Para 6.5 of the ld.CIT(A)’s order categorically states so, and in this backdrop, theld.CIT(A) has applied the ratio laid down by the Hon’ble Apex Court in the case of MAK Data P.Ltd.(supra) which held that voluntary disclosure or surrender made in view of detection made by the AO in search conducted in the sister concern of the assessee could not be termed as voluntary disclosure, and it only reveals that the disclosure was made only when the assessee was cornered.
8. Having noted so, I find that in the present case before me, it does not come from any of the orders of the Revenue authorities as to how the Revenue officers came to the conclude that the assessee disclosed the income of Rs.6 lakhs only when she was cornered and when she knew that the Department was aware that she was caught by the Department and there was no other way out but to declare the same in the return filed under section148 of the Act. The assessment order passed under section 147 of the Act only reveals that the Department had information of Rs.6.00 lakhs of investment made by the assessee from unexplained sources. But it does not come from the assessment order that the assessee was also aware of the fact that the Department knew of the same. The assessee can be stated to be cornered only when she is aware that the Department was in the know of herincome having escaped assessment. In the facts of the case before me the Department knew of the assessee’s income having escaped assessment. But there is nothing in the assessment order before me revealing that the assessee was also aware of the same, and therefore, she disclosed the income in her return filed in response to notice under section 148 of the Act. For applying the ratio of the decision of the Hon’ble Apex Court in the case of MAK Data P.Ltd. (supra), the Revenue should have pointed out that the assessee was aware of the fact that the Department had discovered escapement of income, and therefore, the assessee had disclosed the same in its return filed under section 148 of the Act.
Nothing of such circumstances having been demonstrated by the Revenue, I am inclined to believe the assessee that the disclosure of Rs.6.00 lakhs in the return of income filed by the assessee under section 147 of the Act is a pure voluntary disclosure made by the assessee, without being cornered by the Department. Therefore, the decision of the Hon’ble Apex Court in the case of MAK Data P.Ltd. (supra) will not apply to the facts of the present case, and the assessee cannot be said to have concealed particulars of income to the tune of Rs.6.00 lakhs, particularly, when the said income was disclosed in its return of income filed under section 148 of the Act, that too, voluntarily.
9. In view of the same, I hold, the penalty levied under section 271(1)(c) of the Act to the tune of Rs. 1,85,400/- to be unjustified and direct the deletion of the same. Thus, the ground of appeal of the assessee is allowed.
10. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 15th December, 2023 at Ahmedabad.
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