NARAYANANSAMY VIJAYKUMAR,THIRUVARUR vs. ITO WARD 2, THIRUVARUR, THIRUVARUR

The brief facts of the case emanating from the records are that the assessee is an individual, filed his return of income for the AY 2014-15 on 31.03.2016. Based on the information in OLTS, there was a TDS credit of Rs.3,79,717/- related to property transactions for Rs.3,79,71,700/- during the AY 2014-15. Though the assessee had claimed the refund of TDS of Rs.3,79,717/-, he has not shown the income from capital gains of the property transaction or claimed any exemption u/s.54 of the Act. Hence, the case was reopened by issuing notice u/s.148 of the Act. The assessee filed a return of income in response to notice u/s.148 of the Act on 12.11.2019 admitting the total income of Rs.1,090. During the assessment proceedings, the assessee furnished a copy of sale deed, bank accounts, lease agreement copies and statement for withdrawals from bank and other details and also filed an explanation regarding sources for the property purchased during the FY 2013- 14 for Rs.3,79,61,700/- along with registration and stamp expenses of Rs.30,50,500/-. Further, the assessee also explained the source for investment in the properties of Rs.4,10,11,700/-. However, the assessee did not produce any details for agricultural income savings shown as a source for acquisition of the asset of Rs.14,94,517/- and hence, the AO made an addition of Rs.14,95,417/- as admitted by the assessee as his income for the AY 2014-15 and passed an assessment order u/s.147 of the Act dated 29.12.2019. Further, the AO initiated penalty proceedings u/s.271(1)(c) of the Act separately.

Accordingly, notices were issued to the assessee to levy penalty u/s.271(1)(c) of the Act in respect of the additions made on account of agricultural income savings and bank account interest of Rs.14,95,417/- and Rs.80,424/- respectively. Since the assessee has concealed the true particulars of income, the penalty proceedings have been initiated. In response to the notices, the assessee requested to drop the penalty proceedings stating that he has already offered the income and also gave justification for agreeing for additions to buy the peace with the Department though the income was related to agricultural activities. Further, he also stated that the tax demanded as per the order has already been paid by the assessee without preferring any further

Aggrieved by the order of the penalty levied by the AO, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee reiterated the facts and also circumstances under which the assessee agreed for additions during the assessment proceedings, and hence, prayed for deleting the penalty, which has been levied by the AO. However, the ld.CIT(A) was not convinced with the explanation given by the assessee and confirmed

The AO, in our view, shall not be carried away by the plea of the assessee like "voluntary disclosure", "buy peace", "avoid litigation", "amicable settlement", etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise.

Assessee has only stated that he had surrendered the additional sum of Rs.40,74,000/- with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. Statute does not recognize those types of defences under the explanation 1 to Section 271(1)(c) of the Act. It is trite law that the voluntary disclosure does not release the Appellant-assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty.

We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it :-6-: SCC 589." It is a fact the appellant had not declared the agricultural income savings and interest income in the ITR. It is only after the case was reopened the appellant had admitted the income of Rs. 14,95,417/- on account of agricultural income savings, as the appellant had failed to submit supporting documents to justify his claim. Further, even during the penalty proceedings as well as during the appeal proceedings the appellant had not submitted any details/documents in support of his claim of agricultural income savings.

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us, by raising the sole ground that the penalty levied u/s.271(1)(c) of the Act needs to be deleted. The ld.AR for the assessee submitted that though the assessee had earned agricultural income to the tune of Rs.14.95 lakhs, has agreed for additions during the assessment to buy peace with the Department. Since the agricultural income is not taxable, the assessee had not disclosed in his return of income. The assessee did not have taxable income for the impugned assessment year if the agricultural income had not been added to the total income of the assessee in the assessments concluded by the AO. Therefore, the question of levying penalty u/s.271(1)(c) of the Act does not arise when the assessee had only the exempt income, which was not liable for income-tax. In view of the above, the ld.AR prayed for deleting the penalty as the assessee had already discharged the taxes as per the assessment order

Per contra, the ld.DR supported the orders of the authorities and submitted that as rightly held by the ld.CIT(A), the assessee would not have disclosed the additions made during the assessment proceedings if the case had not been reopened for reassessment u/s.147 of the Act. The ld.DR prayed for upholding the order of the ld.CIT(A) by dismissing the appeal of the assessee.

We have heard the rival submissions, perused the orders of the lower authorities and carefully examined the material available on record. The solitary issue arising for our consideration is whether the penalty of Rs.3,11,835/- levied by the AO u/s.271(1)(c) of the Act and confirmed by the ld.CIT(A) is liable to be sustained on the facts of the present case.

From the facts borne out from the record, it is an undisputed position that the assessee had filed the original return of income claiming refund of TDS of Rs.3,79,717/-. Subsequently, based on information available with the Department regarding property transactions, the assessment was reopened u/s.147 of the Act. During the reassessment proceedings, the assessee was called upon to explain the source of investment made in the immovable properties. Though the assessee explained various sources, a sum of Rs.14,95,417/- claimed to represent agricultural income savings remained unsupported by any documentary evidence. Further, interest income of Rs.80,424/- was also not disclosed in the return of income. Consequently, additions aggregating to Rs.15,75,841/- were made and accepted by the assessee. Thereafter, penalty proceedings u/s.271(1)(c) were initiated and culminated in levy of penalty equivalent to 100% of the tax sought to be evaded.

Before us, the primary contention of the assessee is that the amount represented agricultural income, which is exempt from tax, and that the :-8-:

The explanation offered by the assessee that the addition was agreed to only to buy peace with the Department cannot, by itself, absolve the assessee from penalty proceedings. The Hon'ble Supreme Court in the case of MAK Data Pvt. Ltd. v.CIT has categorically held that pleas such as “buy peace”, “avoid litigation” or “voluntary disclosure” do not constitute valid defences against penalty where the assessee fails to offer a bona fide and substantiated explanation regarding the undisclosed income. The ratio laid down by the Hon'ble Apex Court squarely applies to the facts of the present case.

We further observe that Explanation-1 to section 271(1)(c) creates a deeming fiction whereby an addition shall be deemed to represent concealed income where the assessee fails to substantiate the explanation offered and also fails to prove that such explanation is bona fide. In the present case, the assessee has neither substantiated the claim of agricultural income savings nor

The contention of the assessee that agricultural income is exempt and therefore penalty cannot be levied is also devoid of merit. The issue is not whether agricultural income is exempt from tax, but whether the assessee has established with evidence that the amount represented agricultural income. In the absence of any supporting material, the claim remains a mere assertion. Once the assessee failed to discharge the burden cast upon him, the authorities were justified in treating the amount as undisclosed income and invoking the provisions of section 271(1)(c) of the Act.

Considering the totality of facts and circumstances of the case, we are of the considered view that the AO was fully justified in levying penalty u/s.271(1)(c) of the Act and the ld. CIT(A) has rightly confirmed the same. We do not find any infirmity in the impugned order warranting interference. Accordingly, the penalty of Rs.3,11,835/- levied u/s.271(1)(c) of the Act is hereby confirmed.

In the result, the appeal filed by the assessee is dismissed.