ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -9,, PUNE vs. M/S. EAST WEST DEVELOPERS,, PUNE

Having heard the rival submissions and gone through the relevant material on record, it is observed that the assessee was subjected to survey on 25-10-2012. During the course of survey proceedings, the assessee surrendered income of Rs.6.44 crore, which was promptly included in the return of income filed afterwards. The AO accepted the returned income and did not make any addition. After that, he imposed penalty on the amount offered by the assessee in the return of income pursuant to survey. Under these circumstances, a question arises as to whether the assessee can be visited with penalty u/s.271(1)(c) on such income?

Explanation 1 to section 271(1) provides that where in respect of any facts material to the computation of total income, the assessee fails to offer an explanation or offers explanation which is found by the AO etc. to be false or he is unable to substantiate, “then the amount added or disallowed in computing total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed”. On going through the mandate of the Explanation, it becomes overt that the penalty is leviable in respect of the amount of income added or disallowed in the computation of total income. A particular income can be added only when it is not offered in the return of income. If it is offered in the return of income, then it cannot be said to be added by the AO for the purposes of Explanation 1 to section 271(1). Explanations 5 and 5A of section 271(1) deal with the imposition of penalty under this provision even where the income in the given circumstances is declared in any return of income. The Explanations apply only in the case of search u/s.132 and not the survey u/s.133A of the Act. If the Explanations are excluded from the purview, which are applicable only in search cases and not otherwise, then, addition to income is sine qua non for imposition of penalty u/s.271(1)(c) of the Act. In the absence of any addition or disallowance made by the AO in the computation of total income, there can be no question of any penalty on the income suo motu offered by the assessee in his return of income.

The judgment of the Hon’ble Supreme Court in MAK Data Pvt. Ltd. Vs. CIT (2013) 358 ITR 593 (SC) does not come to the rescue of the Revenue. The assessee in that case filed his return on 27-10-2004 declaring income of Rs.16.17 lakh. Prior to that, a survey action was taken against the assessee on 16-12-2003. No income was offered during the course of survey and as such nothing was included in the return filed after the date of survey on that count. It was during the course of assessment proceedings and in reply to show cause notice filed on 22-11-2006 that the assessee made an offer of surrendering a sum of Rs.40.74 lakh. The AO accordingly completed the assessment by making this addition and thereafter imposed penalty. It was in that backdrop of the facts that the Hon’ble Supreme Court held that the penalty u/s.271(1)(c) was rightly imposed because the disclosure of the assessee was immaterial.

The Hon’ble Supreme Court observed that “Explanation to section 271(1) raises a presumption of concealment, when difference is noted by the AO, between reported and assessed income”. It was in this factual scenario where the income reported by the assessee in the return of income was lower than the income finally assessed by the AO, that the Hon’ble Supreme Court held that the penalty was rightly leviable.

Turning to the facts of the extant case, it is found that the reported income and the assessed income of the assessee remain the same. The AO has imposed penalty only with reference to the amount of Rs.6.44 crore which was suo motu declared by the assessee in the return. In that view of the matter, the ratio laid down in MAK data Pvt. Ltd. (supra) has no application to the facts of the extant case as the income under consideration, forming the foundation for the penalty, is not the one which was added by the AO beyond the income returned. In view of the fact that the assessee voluntarily offered the income, declared in the survey, in the return of income and the assessment was made without making any addition on that score, we hold that such an income cannot constitute the bedrock for the imposition of penalty u/s.271(1)(c) of the Act.

In the result, the appeal is dismissed. Order pronounced in the Open Court on 16th August, 2022.