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Penalty: Concealment of income - Voluntary surrender of income
December, 06th 2008

Santosh Narain Kapoor vs DCIT
Citation 115 TTJ 402
 
Penalty: Concealment of income - Voluntary surrender of income

There was a general investigation by the Investigation wing regarding a fake gift racket. There was no information with the AO when the assessee voluntarily surrendered the income, that gifts or credits received by assessee were fake. In the assessment order or even in the penalty order, there was no discussion that the assessee had concealed his income or had filed inaccurate particulars with a mala fide intention. No penalty could be imposed.

ITAT, Lucknow

Santosh Narain Kapoor vs DCIT

ITA No. 1272/Luck/2006; Asst. yr. 2000-01

H.L. Karwa, J.M and D.C. Agrawal, A.M

25 January 2008

Kanchon Kaushal for the Appellant
Debashisha Chanda, for the Respondent

ORDERH.L. Karwa, J.M :

This appeal, filed by the assessee, is directed against the order of CIT(A)-I, Agra dt. 7th Sept., 2006 in confirming the penalty of Rs. 6,31,800 imposed under s. 271(l)(c) of the IT Act, 1961 for the asst. yr. 2000-01.

2. Briefly stated, the facts of the case are that the assessee is a partner in M/s R.P. Fragrances, which is engaged in the business of perfumes and derives income from the partnership firm and other sources. For the asst. yr. 2000-01, the assessee filed the return on 30th Nov., 2000 declaring an income of Rs. 5,94,641. The said return was processed under s. 143(1) of the IT Act, 1961 on 17th Sept., 2001. The assessee had some credits in his account amounting to Rs. 9,00,000 received through bank drafts. Para 2 of the letter dt. 29th April, 2002 reads as under :

"2. I had some credits in my accounts of Rs. 9,00,000 (rupees nine lakhs) in asst. yr. 2000-01 received through bank drafts duly recorded. On seeking confirmations for my income-tax purposes from the payers, they have not come up which in absence I may not be able to prove the said credits and thus to buy peace, to avoid litigation and to co-operate with the Department, I hereby surrender the sum suo moto as income for asst. yr. 2000-01.

I am surrendering the aforesaid amount as suo motu as income in good faith as no penalty/prosecution proceedings be initiated against/humble request in the true spirit."

3. According to AO no revised return was filed by the assessee till that date. The AO initiated proceeding under s. 147/148 of the IT Act considering the fact that a bogus gift racket was unearthed by the Director .of IT (Inv.), Kanpur after recording his reasons. During the course of proceedings under s. 148, the assessee further surrendered a sum of Rs. 8,50,000 vide letter dt. 3rd Jan., 2003 stating as under :

"I had some credits in my accounts of Rs. 8,50,000 (rupees eight lakhs fifty thousand) in asst. yr. 2000-01 received through bank drafts duly recorded. On seeking confirmations for my income-tax purposes from the payers, these have not come up which in absence I may not be able to prove the said credits and thus to buy peace, to avoid litigation and to cooperate with the Department hereby surrender the same suo moto as income for asst. yr. 2000-01.

I am surrendering the aforesaid amount suo moto as income in good faith as no penalty/prosecution proceedings be initiated against me for which and in the circumstances I make an earnest/humble request in the true spirit."

4. The AO observed that on 24th Dec., 2003, in the course of assessment proceedings, the assessee filed a return declaring income of Rs. 23,74,614 in which he surrendered Rs. 17,50,000 (Rs. 9,00,000 + Rs. 8,50,000) as unexplained cash credits. In addition, the assessee surrendered Rs. 50,000 deposited in cash with Annapurna Preservation as unexplained deposit. In penalty order, the AO mentioned that a bogus gift racket has been detected by the Director of IT (Inv.), Kanpur, involving amounting of over Rs. 40 crores. He further observed that scared by the investigation, the assessee chose to surrender the amount of Rs. 9,00,000 on 29th April, 2002 and further amount of Rs. 8,50,000 on 3rd Oct., 2003. According to AO, none of the above surrenders were voluntary. In fact, the revised return filed on 24th Dec., 2003 was not a revised return as contemplated under s. 139(5) of the Act. According to AO, the revised return filed by the assessee on 24th Dec., 2003 was barred by limitation. He therefore held that the assessee was liable for penalty under s. 271(l)(c) of the IT Act inasmuch as he has concealed the particulars of income and furnished wrong statement. The amount of Rs. 17,50,000 surrendered by the assessee was treated as his concealed income. Further, a sum of Rs. 50,000 as unexplained deposit was also treated as concealed income of the assessee. Taking into consideration the entire facts of the case, the AO imposed minimum penalty @ 100 per cent amounting to Rs. 6,31,800 under s. 271(l)(c) of the IT Act, 1961.

5. On appeal, the CIT(A) confirmed the penalty concluding as under :

"4.6 The appellant alone knew the true nature and source of deposits he had himself made his bank accounts which he had originally accounted for as gifts but subsequently in three stages surrendered as his income for tax. Either in the penalty proceedings or in the appellate proceedings the appellant has not shown as to under what circumstances he has shown the unexplained cash credits as gifts in original return of income which was accepted under s. 143(1) by the Department and under what circumstances did he come to know that the gifts were actually his income liable for tax. Further, even the first surrender of Rs. 9 lakhs is false insomuch that the appellant had subsequently admitted additional amounts of Rs. 8,50,000 and Rs. 50,000 as his unexplained cash credits and therefore his income which he has neither shown in the original return nor in the first statement of surrender. The entire conduct of the appellant shows that the appellant had concealed the particulars of income in the original return which he subsequently disclosed to the Department in various letters over a period of 3 years, much after the time prescribed under s. 139(5) "to file a revised return, had expired. The appellant has not furnished any evidence in the course of penalty proceedings or appellate proceedings to show that he had duly disclosed all facts relating to the impugned unexplained credits and that disclosure of the unexplained cash credits as gifts was inadvertent and bona fide. Therefore, I hold that the AO was justified in levying the penalty under s. 271(1)(c) of the Act. The penalty levied at Rs. 6,31,800 is accordingly confirmed."

6. Before us, Shri Kanchan Kaushal, learned counsel for the assessee submitted that revised income suo moto intimated vide letters dt. 29th April, 2002 and 3rd Oct., 2003 and the revised returned income was of Rs. 23,74,641 and the same income was assessed vide order under s. 143(3)/148 of the IT Act, 1961 dt. 31st Dec., 2003 after further addition of Rs. 50,000 surrendered during assessment proceedings. He further submitted that due tax as per return were paid including interest before filing the return of income. The assessment under s. 143(3)/147/148 was also made on 31st Dec., 2003 oh the basis of revised return filed on 24th Dec., 2003 and in turn the revised return was accepted. Shri Kanchan Kaushal, learned counsel for the assessee vehemently argued that original as well as revised returns were filed suo moto without any notice whatsoever from the Department and/or any prior detection by the Department and not in fear when caught. Learned counsel for the assessee further submitted that the assessee had received some amounts aggregating to Rs. 17,50,000 through banking channels vide account payee cheques during the year and surrendered the same as income vide aforesaid two letters dt. 29th April, 2002 and 3rd Oct., 2003 addressed to AO and vide revised return to avoid litigation and to buy mental peace. He further submitted that the receipts of such credits and the particulars submitted were not controverted during the assessment proceedings. It was also submitted that the assessee had proved the identity of the depositors, genuineness of the transactions and capacity of the depositors. He therefore submitted that penalty proceedings under s. 271(l)(c) have been initiated without assigning the specific reasons/grounds. He further submitted that where the assessee bona fide surrendered the amounts as undisclosed income, it could not be considered as concealment and no penalty under s. 271(l)(c) of the IT Act can be levied. Learned counsel for the assessee also submitted that the expression "has concealed the particulars of his income" used the word concealed. It means that there should be a deliberate act on the part of the assessee. It was also submitted that concealment is direct attempt to hide an item of income or a portion thereof from the knowledge of the IT authorities. Learned counsel for the assessee further submitted that all particulars were given correctly to the authorities below and all facts were brought to the notice of the AO during assessment proceedings itself and nothing was detected by the AO to show that the assessee had deliberately filed any false claim or filed inaccurate particulars of income. From assessee's agreeing to addition to his income, it does not follow that the amount was agreed to be treated as concealed income. Therefore, the penalty was not leviable. It was also submitted by learned counsel for the assessee that the assessee has neither concealed the particulars of income nor furnished incorrect particulars of such income. It was also added that the intention of the assessee is quite clear that the assessee with bona fide intention surrendered the amount of Rs. 18,00,000 (Rs. 17,50,000 with revised return and Rs. 50,000 during assessment proceedings) and paid tax along with the interest to avoid litigation and to buy peace and to co-operate with the Department. Such surrender cannot be treated as concealment. Learned counsel for the assessee relied on the following decisions :

(i) Smt. Sunita Tuli vs. ITO 2006 (8) MTC 1011 (Trib)(Lucknow)

(ii) ITO vs. Rakesh Gupta (2007) 15 SOT (Asr)(SMC)(URO)

(iii) Asstt. CIT vs. Shiv Nadar (2007) 15 SOT 57 (Del)

(iv) Dy. CIT vs. Ms. Aishwarya Rai (2007) 12 SOT 114 (Mumbai)

(v) Smt. Brij Bala Chaudhary vs. ITO (2004) 82 TTJ (Lucknow) 355 : (2003) 87 ITD 173 (Lucknow)

7. Shri Debashish Chanda, learned senior Departmental Representative strongly supported the orders of the authorities below. He further submitted that the assessee has introduced undisclosed income and once surrendered income, the onus of the Department stood discharged. He further submitted that it was open for the assessee, during the course of assessment proceedings as well as in the course of penalty proceedings, to establish that the amount of Rs. 17,50,000 was received from genuine depositors. He further submitted that the assessee has also not submitted in his explanation that concealment of income or furnishing of inaccurate particulars was not deliberate on his part, but the mistake was bona fide. Learned Departmental Representative further submitted that there is no material on record to show that the assessee had surrendered the amount in question voluntarily. He also submitted that the amount of Rs. 17,50,000 was offered for taxation only when Investigation Wing of Kanpur unearthed a fake gift racket and found that certain persons on payments by cheque to a large number of persons and the payments so made were shown as credits. It was also submitted by learned Departmental Representative that the return filed by the assessee on 24th Dec., 2003, declaring the amounts offered as unexplained cash credits is obviously not a revised return within the meaning of s. 139(5) of the IT Act, 1961. He further pointed out that even the letter surrendering Rs. 9,00,000 dt. 29th April, 2002 was filed after the expiry of time limit prescribed under s. 139(5) of the Act. It was also stated that the further surrender of Rs. 8,50,000 was made vide letter dt. 3rd Oct., 2003, i.e. after expiry of limitation specified under s. 139(5) and still further surrender of Rs. 50,000 was made much later in the course of assessment proceedings. Accordingly, it was submitted that there is no merit in the arguments of learned counsel for the assessee that the assessee suo moto and voluntarily filed revised statements and therefore he is not liable for penalty under s. 271 (l)(c) of the Act. In view of above, learned Departmental Representative submitted that the impugned penalty order confirmed by the CIT(A) may be upheld.

8. We have carefully considered the rival submissions and have also perused the orders of the authorities below. In the instant case, it is an admitted fact that the AO treated the amount of Rs. 17,50,000 and Rs. 50,000 surrendered during the course of assessment proceedings as undisclosed income on the ground that a fake gift racket was unearthed by the Director of IT (Inv.), Kanpur and gifts were being purchased by payment of amount in cash. He-further observed that this goes to show that the assessee was fully aware of the fact that investigation was being carried on by the Investigation Wing of the Department and he might be investigated in respect of bogus credits/gifts received by him as credited in his bank account. From this observation of the AO, it can be safely inferred that there was no such investigation in the case of the assessee and there was no information with the Department that gifts/credits were fake or bogus on the dates when the assessee surrendered the amounts voluntarily. In our view, the onus was on the Department to prove that the assessee had concealed his particulars of income and furnished wrong statement and burden shifts to the assessee only if the assessee fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the AO.

9. At this stage we may mention the facts of the case of Smt Sunita Tuli (supra). In that case, original return was filed by the assessee beyond the time allowed under s. 139(1) of the Act. A revised return was filed after expiry of one year from the end of relevant assessment year surrendering gifts of Rs. 3,00,000 on apprehension of inability to prove gifts in strict legal sense. The AO did not take cognizance of revised return and issued notice under s. 148 of the Act. In penalty proceedings under s. 271(l)(c), the AO did not accept the contention of the assessee that she had surrendered the amount bona fide and voluntarily, observing that the assessee had concealed particulars of her income by showing bogus gifts in the original return and revised return was filed after the Investigation Wing had unearthed a fake gift racket, the assessee being one of the recipient of such gifts. Penalty imposed was confirmed by CIT(A) observing that assessee had surrendered gifts to avoid roaming enquiries. In second appeal, the Tribunal cancelled the penalty observing as under :

"8. There is no dispute to the fact that the assessee had offered the sum of Rs. 3 lakhs as her income in the revised return by offering gifts stated to be received from six persons of Rs. 50,000 each as her income. We observe that the AO has considered the said amount of Rs. 3 lakhs as undisclosed income of the assessee on the ground that Investigation Directorate, Kanpur, unearthed a fake gift racket and it was found that certain persons of Kanpur had made payments by cheques to a large number of other persons and the payments so made were shown as gifts etc. There is no dispute to the fact that there is no such investigation by the Investigation Directorate against the assessee on the date assessee revised her return and surrendered the said sum of Rs. 3 lakhs as her income by filing revised return of income. The said revised return was filed by the assessee on 12th Aug., 2002, voluntarily, as on that date no investigation/survey/search had taken place against the assessee to establish that the said gifts of Rs. 3 lakhs stated to be received by the assessee were fake or bogus gifts or it was her own money which was disclosed as gifts by the assessee. The Department has also not brought any material on record to prove that the said gifts aggregating to Rs. 3 lakhs was concealed income of the assessee. We observe that the AO rested his conclusion on the act of voluntary surrender by the assessee to offer the said gift as her income. The Department has not established by any facts on record that it was concealed income of the assessee or assessee had furnished inaccurate particulars of her income in the original return. We are of the considered view that onus is on the Department to prove that the assessee had concealed her income or had furnished inaccurate particulars of her income and burden shifts to the assessee only if the assessee fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing authority. The above view has been taken by the Hon'ble Madhya Pradesh High Court in the case of CIT us. Suresh Chandra Mittal (2000) 158 CTR (MP) 26 : (2000) 241 ITR 124 (MP) and the said decision of the Hon'ble Madhya Pradesh High Court has been confirmed by the apex Court in CIT us. Suresh Chandra Mittal (2001) 170 CTR (SC) 182 : (2001) 251 ITR 9 (SC). We are of the considered view that the decision of the Hon'ble Karnataka High Court in the case of CIT us. K.P. Sampath Reddy (supra), as relied upon by the authorities below is not applicable to the facts of the case, as in that case the assessee agreed to assessment on higher income only after there was a survey of his business and impounding of books that he recorded several erroneous entries. On the date of assessment, the assessee gave a letter to the ITO agreeing to the total income of Rs. 6 lakhs, therefore in the said case there was no voluntary revision of return by the assessee but the assessee offered to be assessed at an higher amount only when erroneous entries were found to be recorded in the impounded books of account of the assessee. Hence, there was concealment of income by the assessee in the said case. On the other hand, in the case before us, we observe that the assessee had revised her return on 12th Aug., 2002 to offer the said gifts of Rs. 3 lakhs as her income and as on that date, i.e., 12th Aug., 2002, there was no material or information against the assessee with the AO that the gifts stated to be received by the assessee were fake or bogus. The authorities below are obliged to establish, based on material or evidence, that gifts received by assessee were bogus or fake and the assessee surrendered the same only on being detected by the Department. The penalty proceedings are quasi criminal proceedings. Therefore, the Department is obliged to establish with authentic evidence that assessee concealed her particulars of income or furnished inaccurate particulars of income to justify penalty under s. 271(l)(c) of the Act. We observe that no such evidence or material is available on record to show that gifts were bogus and they were concealed income of the assessee. Hence, the above case of CIT us. K. P. Sampath Reddy (supra) does not support the case of the Department and has not been correctly relied upon by the authorities below."

10. In the above case, the Tribunal, Lucknbw Bench has categorically held that the Department has also not brought any material on record to prove that the said gifts aggregating to Rs. 3,00,000 was concealed income of the assessee. The Tribunal further held that the Department has not established by any fact on record that it was concealed income of the assessee or assessee had furnished inaccurate particular of income in the original return. In the instant case also, the AO has not brought any material on record to prove that the credits aggregating to Rs. 17,50,000 was concealed income of the assessee. There is no material on record to establish that the aforesaid credits represented the concealed income of the assessee or assessee had furnished inaccurate particulars of his income in the original return. In our considered view, the above decision of the Tribunal is squarely applicable to the facts of the present case.

11. In the case of Bry Bala Ghaudhory (supra), the assessee could not explain a part of capital introduced in her business, she surrendered Rs. 35,000 for addition under s. 68 due to unexplained cash credit in her capital account. The AO imposed penalty for concealment of income. The Tribunal held that since assessee had made surrender only to purchase peace with the Department and after being compelled by the AO, it was not a fit case for imposition of penalty for concealment of income because concealment of income or particulars of income was not found to be established from the material on record and Department had also failed to prove by independent material that the assessee had concealed her income or particulars thereof. The Tribunal cancelled the penalty imposed under s. 271(l)(c) of the Act. It is relevant to state that while deciding the case of Bry Bala Chaudhary (supra), the Tribunal relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Suresh Chandra Mtttal (2001) 170 CTR (SC) 182 : (2001) 251 ITR 9 (SC). In the instant case, the Department had not discharged its burden of proving concealment and it simply rested its conclusion on the act of voluntary surrender done by the assessee in good faith and therefore no penalty can be validly levied in this case.

12. The Hon'ble Madras High Court in the case of CIT vs. M.P. Narayanan (1998) 149 CTR (Mod) 1 : (2000) 244 ITR 528 (Mad) held that in the penalty proceedings under s. 271(1)(c) of the Act, it is the duty of the ITO to establish by evidence that there was concealment of income and the amount added represents assessee's income. The Hon'ble High Court further held that it is well settled that a mere fact that the assessee agreed to inclusion of cash credit and other amounts in the total income on account of inability to prove source or to avoid protracted litigation would not justify Department in levying penally. The Hon'ble Madras High Court categorically held that it is for the Department to prove that there was conscious and deliberate concealment on the part of the assessee and the amount added represented assessee's income.

13. Recently Lucknow Bench 'A' of the Tribunal, in the case of Asstt. CIT vs. Shiva Poly Plast (P) Ltd. (ITA No. 710/Luck/2006 relating to asst. yr. 2001-02, dt. 31st Oct., 2007) held that there should be some discussion in the assessment order that assessee is guilty of contumacious conduct or addition is based on some positive material reflecting that assessee had filed inaccurate particulars of income or has concealed the particulars of income. The Tribunal further held that though a formal record of satisfaction as held in the decision of Hon"ble Allahabad High Court in Shyam Bin Works (P) Ltd. vs. CIT (2003) 185 CTR (All) 510 : (2003) 259 ITR 625 (All) is not compulsory before assuming jurisdiction junder s. 271(l)(c) but assessment order must show satisfaction of the IAO. Though it is not necessary to use statutory words of s. 271(l)(c) but satisfaction about contumacious conduct of the assessee is necessary such as he is not filing correct particulars of income or hiding some part of income followed by initiation of penalty proceedings relating to such conduct or furnishing inaccurate particulars or hiding income. The Tribunal observed that if the assessment order is silent on these aspects accept making addition on the basis other than contumacious conduct filing inaccurate particulars or concealing some income, the AO cannot assume jurisdiction for initiating penalty proceedings.

14. In the case of ITO vs. Rakesh Gupta (supra), the Tribunal, Amritsar Bench, SMC has held that for the purpose of levy of penalty under s. 71(l)(c), the AO is required to establish that the explanation furnished y the assessee is false or the same is not bona fide and that all the material facts relating to computation of income have not been disclosed, he Bench further observed that the word concealment voluntary means idden and implies mala fide intention on the part of the assessee to vade tax or contumacious conduct. In the absence of the same, penalty under s. 271(l)(c) could not be levied.

15. In the instant case, there is no discussion in the assessment order or penalty order that the assessee had concealed the particulars of income and furnished wrong statement with mala fide intention to evade tax or the explanation given by the assessee was not bona fide or false.

6. In view of the above discussion, in our view, it is not a fit case for imposition of penalty, because the concealment of income and furnishing wrong statement are not found to be established from the material on record and there is no material on record to prove that the assessee had concealed his income and furnished wrong statement. We may also add here that the surrender made by the assessee was voluntary and the Department failed to detect any concealment of income. Thus, the penalty levied by the AO and confirmed by the CIT(A) is not sustainable in law and, therefore, we cancel the same.

7. In the result, the appeal is allowed.

 
 
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