In the present case, the assessee not only surrendered the income during the course of survey but also paid the tax thereon before filing the return of income. However, the assessee did not reflect the surrendered amount and tax paid thereon in the said return but when the mistake was pointed out, the assessee surrendered that income. It is well settled that the assessment proceedings and the penalty proceedings are two different and separate proceedings. Therefore, even when some addition is to be made to the income of the assessee, it is not always necessary that the penalty u/s 271(1)(c) of the Act is to be levied. In the present case, it cannot be said that the surrendered income was not voluntarily and the assessee wanted to conceal the income since the tax had already been paid on the amount which was surrendered during the course of survey.
Moreover, the AO in the notice issued u/s 274 r.w.s. 271 of the Act (copy of which is placed ate page no. 28 of the assessee’s paper book) was not sure as to whether the assessee concealed the particulars of income or furnished inaccurate particulars of such income which is evident from the said notice wherein neither of the two was struck off.
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal by the assessee against the order dated 01.06.2017 of ld. CIT(A)-16, New Delhi.
2. The only grievance of the assessee in this appeal relates to the confirmation of penalty of Rs.3,00,000/- levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act).
3. Facts of the case in brief are that the assessee filed the return of income on 30.09.2009 declaring an income of Rs.17,74,378/-. During the year under consideration, a survey was conducted u/s 133A of the Act at the premises of the assessee on 03.02.2009 and unexplained stock of Rs.10,00,000/- was found. The assessee surrendered this additional stock and paid the taxes thereon. But in the return of income this additional stock surrendered had not been offered as income. The AO asked the assessee for the said discrepancy. In response, the assessee offered an additional income of Rs.10,00,000/- to be added to his total income. Accordingly, addition of Rs.10,00,000/- was made. The AO also initiated penalty proceedings u/s 271(1)(c) of the Act and levied the penalty of Rs.3,00,000/-.
4. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the penalty proceedings were completed in a hurry and that an adequate opportunity was not provided to the assessee. It was further submitted that it was a bonafide mistake.
5. The ld. CIT(A) after considering the submissions of the assessee observed that one should not loose the sight of the fact that the assessee was confronted by the AO on 13.07.2011 whereas the assessee chose to make a disclosure on 15.12.2011. According to the ld. CIT(A), the assessee had no business to take four months to decide that he had made a disclosure of Rs.10,00,000/- before the Income Tax authority during the survey proceedings. The ld. CIT(A) was of the view that the intention of an individual was gauged by the deeds and in this case the assessee had betrayed the trust of the department by going back on his promise which by no stretch of imagination could be construed as bonafide. Accordingly, the penalty of Rs.3,00,000/- was confirmed.
6. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee disclosed the income and paid the tax on it but inadvertently the amount could not be credited into profit and loss account, however, it was credited in the capital account. A reference was made to page no. 5 of the assessee’s paper book which is the copy of proprietor’s capital account wherein stock surrendered of Rs.10,00,000/- was added in the capital account. The reliance was placed on the decision of the ITAT Delhi, dated 08.06.2012 in ITA No. 4462/Del/2009 in the case of Saran Kumar Goel Prop., Ganpati Plywood Industries Vs ITO. It was further submitted that no penalty on any addition made by the AO on account of inadvertent claim made by the assessee could have been levied as has been held in the following case laws:
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> CIT Vs M/s Bennett Coleman and Co. Ltd. 2013(3) TMI 373
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7. It was further submitted that the AO in the penalty notice had not specified the charge on which the penalty was levied i.e. either the concealment of income or furnishing of inaccurate particulars of income. A reference was made to page no. 28 of the assessee’s paper book which is the copy of notice issued u/s 274 r.w.s. 271 of the Act dated 27.12.2011. The reliance was placed on the following case laws:
> CIT & Anr. Vs M/s SSA’s Emerald Meadows 2016(8) TMI 1145 (SC)
> CIT, Bangalore and ITO, Ward-6(3), Bangalore Vs M/s SSA’s Emerald Meadows 2015(11) TMI 1620 (Kar)
> CIT Vs Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar)
8. In his rival submissions, the ld. Sr. DR strongly supported the orders of the authorities below and reiterated the observations made by the ld. CIT(A) in the impugned order.
9. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, It is an admitted fact that the assessee surrendered the amount of Rs.10,00,000/- during the course of survey and paid the taxes thereon. The assessee has also credited the said amount in his capital account. However, in the return of income, the amount was not disclosed and when this discrepancy was pointed out the assessee surrendered the amount of Rs.10,00,000/-. The AO considered the said amount as concealed income and levied the penalty of Rs.3,00,000/- which has been confirmed by the ld. CIT(A). It is noticed that a similar issue has been adjudicated by the ITAT Delhi Bench in the case of Saran Kumar Goel Vs ITO (supra) wherein the relevant findings have been given in paras 7 to 9 which read as under:
“7. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions. Indisputably, the disclosure of an amount of Rs.10,39,079 was made during the course of survey u/s 133A of the Act conducted in the premises of the assessee on 12.12.2003 (wrongly mentioned 12.12.2005 in the penalty order and impugned order) and the assessee is also stated to have paid tax of Rs.3 lacs in three instalments of Rs. 1 lac each on 19.12.2003, 20.2.2004 & 23.12.2004 before filing the return. However, inadvertently, the surrendered amount was not disclosed in the return filed on 1.2.2005 nor credit for tax of Rs. 3 lacs paid by the assessee before filing the return, was sought. When confronted, the assessee immediately submitted a revised computation of income, disclosing the surrendered amount and tax paid thereon.
The AO, accordingly, completed the assessment on the basis of revised computation of income. Since the entire amount disclosed during the course of survey was offered to tax during the course of assessment proceedings and tax was paid on the surrendered amount before filing the return for the year under consideration , we are of the opinion that no penalty is leviable in such situation. It is well established that the concealment of the particulars of income is effected only when an assessee files the return of income and does not disclose the particulars of income of that year [Brij Mohan vs. CIT, 120 ITR 1(SC), CIT Vs. Onkar Saran & Sons,195 ITR 1(SC), B.N.Sharma Vs. CIT, 226 ITR 442(SC)]. The basis for levy of penalty is return of income. If any amount has been shown in the return of income then it cannot be said that assessee has concealed any particulars of that income or furnished inaccurate particulars thereof. There cannot be any concealment prior to filing of return and certainly not during the survey proceedings as held in S.A.S. Pharmaceuticals (supra). Hon’ble Rajasthan High Court in the case of CIT vs. Unique Precured Retraders  13 DTR (Raj) 215 concluded that no penalty is leviable in respect of disclosure of additional income after the survey.
7.1 Now adverting to decisions relied upon by the Id. DR. In K. P. Sampath Reddy (supra) the assessee had filed a return of his income at Rs. 11,310/- for the assessment year 1976-77 from his business in kirana. The ITO suspected the correctness of this return. Thereafter, the assessee filed a revised return showing an income of Rs. 69,800. During the survey of his business, books of accounts were impounded, which recorded several erroneous entries. While the investigation was in progress as to the stocks, sales and various cash credit entries, the assessee filed his revised returns for the years 1972-73, 1973-74 and 1974-75, in response to a notice issued under section 148, in which the assessee disclosed a total income of Rs. 3,00,840 for the three years. The ITO found the books of account not dependable and the income stated in the revised returns unacceptable. Ultimately, on a consideration of several factors, the total income for the years 1972-73 to 1977-78 was estimated at Rs. 6,00,000 For the assessment year 1976-77, the income allocated for the period thus arrived at was Rs. 1,44,000.On the date of the assessment, the assessee gave a letter to the ITO, agreeing to the total income of Rs. 6,00,000 as estimated by the Income-tax Officer. The ITO, accordingly, concluded the assessments and then simultaneously penalty proceedings were initiated, inter alia, u/s 271(1)(c) for concealment of income by the assessee in the returns filed by the assessee ; subsequently, penalty was levied at 100 per cent, of the tax levied. The assessee appealed and contended that he agreed to have the assessments made on a total income of Rs.6,00,000 for the years 1972-73 to 1977-78, and the assessment order was the result of the agreement with the Revenue and, therefore, penalty ought not to have been levied. The alleged agreement was held not proved before the Commissioner (Appeals). The ITAT, however, cancelled the penalty on the ground that the assessment order did not show any other basis for determining the income assessable for this assessment year, except the letter dated March 28, 1979. Accordingly, it was concluded penalty could not be imposed on the basis of the letter of the assessee. However, the Hon’ble High Court held that the Appellate Tribunal completely ignored the assessment order which was not based on any concession by the assessee; concealment of income in the return filed by the assessee being a glaring fact and it was not possible to infer any agreement by the Revenue, either in clear terms or by necessary implication, to act on the basis of the assessee’s letter. But such are not the facts and circumstances in the instant case, wherein income surrendered during the course of survey was, inadvertently, not shown in the subsequent return. The assessee before us had even paid the tax due on the surrendered amount and immediately on being pointed out, the assessee realized the mistake and filed revised computation of income. Thus, reliance by the Id. DR on the aforesaid decision is totally misplaced.
7.2 Facts, in the other decision relied on by the Id. DR in C Ananthan Chettiar(supra) are that consequent to a search in the assessee’s shop and residence on November 22, 1985, when cash, jewellery and certain documents were seized, a revised return for the AY 1986-87was filed by the assessee for this assessment year, which return was accepted and assessment made on the basis of that return. In response to a notice seeking to impose penalty, the assessee took the stand that there was no concealment and it was only for the purpose of buying peace with the Department that the additional income was disclosed and the return filed. The Tribunal, relying on the decision of the Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT  168 ITR 705, held that no penalty was in the circumstances leviable. Hon’ble High Court while relying upon Explanation to section 271(1)(c) of the Act and the decision in the case of K.P. Madhusudhanan v. CIT  251 ITR 99 (SC), upheld the levy of penalty, the reason for not having disclosed the income earlier having not been stated. As is apparent from these facts, such is not the situation in the case before us nor the Id. DR demonstrated before us as to how this decision helps the Revenue.
8. Mere enquiry about surrendered income having not been shown in the return, does not tantamount to detection of concealment of income u/s. 271(1)(c) of the Act. Hon’ble Madhya Pradesh High Court in the case of CIT v. S.V. Electricals P. Ltd., 155 Taxman 158 and Hon’ble Jharkhand High Court in CIT v. Ashim Kumar Agarwal, 153 Taxman 226 held that where the assessee surrenders his full income, though at a later stage, there was no question of any concealment on his part and consequently no penalty under Section 271(1)(c) was leviable, and that a omission from return of income did not amount to concealment. Hon’ble jurisdictional High Court while adjudicating the issue of levy of penalty u/s 271(1)(c) of the Act in the case of CIT vs. Harnarain in their decision dated 31st October,2011 in ITA no.2072/2010 concluded that “surrender of the amount by the assessee after receipt of the questionnaire could not lead to an inference that it was not voluntary, in the absence of any material on record to suggest that it was bogus or untrue. It is further evident that there was neither any detection nor any information in the possession of the Revenue which might lead to a conclusion that there was a detection by the Revenue of concealment. Accordingly, the question of law framed is answered against the Revenue and in favour of the assessee.”
8.1. In the instant case, not only the assessee surrendered the income during the course of survey, he paid tax of 3 lacs thereon before filing the return on 1.2.2005. Inadvertently, the assessee did not reflect the surrendered amount and tax paid thereon, in the said return. Immediately on being pointed out, a revised computation of income was filed, revealing the surrendered amount and tax paid thereon. In such circumstances, it cannot be said that surrender of income was not voluntary or that the assessee wanted to conceal the income, on which tax had already been paid.
9. In view of the foregoing, we are of the opinion that mere inadvertence in not showing the amount surrendered during the course of survey, on which tax had also been paid before filing the return , in the absence of any concealment or furnishing of inaccurate particulars, is no ground for levying penalty, especially when there is nothing on record to show that any material particulars were concealed or furnished inaccurate . In these circumstances, we are of the opinion that levy of penalty is not justified. Consequently, we have no hesitation, in vacating the findings of the lower authorities. Therefore, ground no.1 in the appeal is allowed.”
10. In the present case also, the assessee not only surrendered the income during the course of survey but also paid the tax thereon before filing the return of income. However, the assessee did not reflect the surrendered amount and tax paid thereon in the said return but when the mistake was pointed out, the assessee surrendered that income. It is well settled that the assessment proceedings and the penalty proceedings are two different and separate proceedings. Therefore, even when some addition is to be made to the income of the assessee, it is not always necessary that the penalty u/s 271(1)(c) of the Act is to be levied. In the present case, it cannot be said that the surrendered income was not voluntarily and the assessee wanted to conceal the income since the tax had already been paid on the amount which was surrendered during the course of survey.
11. Moreover, the AO in the notice issued u/s 274 r.w.s. 271 of the Act (copy of which is placed ate page no. 28 of the assessee’s paper book) was not sure as to whether the assessee concealed the particulars of income or furnished inaccurate particulars of such income which is evident from the said notice wherein neither of the two was struck off.
12. On a similar issue, the Hon’ble Karnataka High Court in the case of CIT Vs Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (supra) held as under:
“Chapter XXI of the Income-tax Act, 1961, enacts provisions for the levy, imposition and collection of penalty. The general principles relating to penalty or concealment of income are: (a) penalty under section 271(1)(c) is a civil liability; (b) mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities; (c) wilful concealment is not an essential ingredient for attracting civil liability ; (d) existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty pro-ceedings under section 271; (e) the existence of such conditions should be discernible from the assessment order or order of the appellate authority or revisional authority ; (f) even if there is no specific finding regarding the existence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and (B) should be discernible from the order which uould by legal fiction constitute concealment because of deeming provision ; (g) even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision contained in sub-section (1B).”
13. The aforesaid case was also relied by the Hon’ble Karnataka High Court in the case of CIT & Anr. Vs M/s SSA’s Emerald Meadows (supra) and the SLP against the said order was dismissed on the basis of devoid of any merit. In the present case also, as we have already pointed out that the charge of the AO was not specific. He was not sure while issuing the notice u/s 274 r.w.s. 271 of the Act as to whether the assessee concealed the income or furnished the inaccurate particulars of the income. Therefore, considering the totality of the facts of the present case, I am of the view that in this case, the penalty u/s 271(1)(c) of the Act was not leviable. In that view of the matter, the impugned penalty levied by the AO and sustained by the ld. CIT(A) is dismissed.
14. In the result, the appeal of the assessee is allowed.
(Order Pronounced in the open Court on 07/05/2018)