Voluntary disclosure does not release assessee from mischief of penal proceedings

Brief of the case:

In the case of S.L. Shiva Raj Vs. DCIT Hyderabad Bench of ITAT uphold the penalty order by holding that the penalty is levied with reference to original return of income and not with reference to the assessment made consequent to the disclosure by assessee.

Facts of the case:

• Assessee is a Sales Tax Practitioner and filed ROI for the AY 2002-03 disclosing an income of Rs. 2,99,263/-.
• There were search and seizure operations conducted in assessee’s case on 16-06-2008, when he was intercepted at Rajiv Gandhi International Airport at Hyderabad on his way from Chennai and cash of Rs. 12.65 Lakhs was found. During search 27 undisclosed bank accounts of the assessee were detected.
• In his deposition u/s. 132(4), it was admitted that the deposits were out of the unaccounted sources of income. Hence, Assessee was asked to submit cash flow statement.
• Assessee had filed necessary cash flow statements and the excess application of funds over the explainable sources came to an extent of Rs. 90.47 Lakhs as on 31-03-2008.
• For the impugned assessment year, the unexplained negative cash balance came to an amount of Rs. 9,16,321/-.
• Since assessee’s income has escaped assessment, proceedings u/s. 147 were initiated and notice u/s. 148 was issued. In response to which assessee filed ROI after admitting amount of Rs. 9,16,321/-.
• AO completed the assessment proceedings determining the total income at Rs. 12,15,580/- as admitted in the return in response to notice u/s. 147 after quantified the peak negative balance of Rs. 9,16,321/- and separately brought to tax taking the income as per the original return and initiated penalty proceedings u/s 271 (1) (c).
• As assessment was accepted no appeal was filed against the assessment order.

Contention of the assessee:

• Assessee has admitted additional income as declared u/s. 132(4) of the Act, complying with all the conditions laid down in sub-clause 2 to Explanation-5 of Section 271(1)(c) of the Act.
• The assessment has been completed on the same income which was declared in the return in response to notice u/s. 148.
• As there is no difference between returned income and assessed income, no penalty can be levied.
• Assessee relied upon the decision of Durga Kamal Rice Mills Vs. CIT [265 ITR 25] (Cal.) where it was held that levy of penalty is not automatic.
• Penalty will not be ordinarily be imposed unless the party applied either acts deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation.
• In the block period, in all the six assessment years, assessee has disclosed incomes and penalty proceedings thereon were dropped by the AO.
• Levy of penalty in the impugned year is not correct as assessee has bonafidely declared the incomes.

Contention of the revenue:

• Even though assessee declared income, it was in response to notice u/s. 148 which amounts to furnishing on inaccurate/concealment of particulars in the original return of income filed by assessee.
• Provisions of Explanation-5 to Section 271(1)(c) are not applicable w.e.f. 01-06-2007. Therefore, there is no immunity to assessee under this section.
• The additions made in the order u/s. 143(3) come clearly within the meaning of concealment u/s. 271(1)(c).
• Revenue relied on the judgment of the Hon’ble Supreme Court in the case of Dharmendra Textile Processors & Others [306 ITR 277] that penalty is a civil liability and willful concealment is not an essential ingredient.
  

Held by CIT (A):

• Disclosure was made by the appellant u/s. 132(4) only when the incriminating material was confronted to him and in view of this, the penalty imposed by the AO u/s. 271(1)(c) r.w. Explanation-5A is sustained.
  

Held by ITAT:

• Assessee admitted the transactions in the bank accounts only after the search and seizure proceedings undertaken on him.
• It is also a fact that he has disclosed most of the incomes u/s. 132(4) in the respective assessment years of the block and he got immunity from penalty in view of the provisions as applicable to the facts of the case therein.
• Just because he got immunity from penalty in other years, it does not automatically lead to cancellation of penalty in the impugned assessment year unless the facts of the case also warrant such immunity.
• Explanation-1 to Section 271(1)(c) is certainly applicable to the facts of the case. Assessee has not given any bonafide explanation why the incomes are not disclosed in the original return.
• In the case of CIT Vs. Mohd. Mohtram Farooqui [259 ITR 132], Hon’ble Rajastan High Court confirmed the penalty when cash was seized from assessee by police authorities. It was explained by assessee that part of cash belong to third persons. There is no evidence to support the explanation, that assessee has surrendered the amount for assessment. It is held that surrender is not voluntary and levy of penalty is warranted.
• It was considered by the Hon’ble Supreme Court in the case of Mak Data (P) Ltd., Vs. CIT [358 ITR 0593], there cannot be any surrender of income with a view to avoid litigation by peace and to channelise energy and resources towards productive working and to make amicable settlement with the Income Tax Department. Statute does not recognize those types of defenses in Explanation-I, Section 271(1)(c) of the Act.