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Facts
During a survey conducted on 09.09.2015 u/s 133A, the assessee, a hardware trader, disclosed a discrepancy of Rs. 56.26 lakhs in stock and cash. This amount was surrendered as additional income and subsequently included in the income tax return for AY 2016-17. The assessment was completed with a minor addition of Rs. 98,557/-, but a penalty of Rs. 17,68,888/- u/s 271(1)(c) for concealment of income was imposed by the DCIT and upheld by the CIT(A), who argued the surrender was not voluntary.
Held
The Tribunal observed that the additional income was voluntarily offered during the survey and included in the timely filed return, with full taxes paid. Since there was no substantial difference between the returned and assessed income (except a minor estimated variation), the issue of concealment did not arise. Relying on High Court precedents, the Tribunal ruled that a disclosure made during a survey, if incorporated into the return, should not attract penalty. Therefore, the penalty imposed under section 271(1)(c) was deleted.
Key Issues
1. Whether penalty under section 271(1)(c) is leviable when income detected during a survey operation is voluntarily disclosed and included in the income tax return, and there is no significant difference between the returned and assessed income. 2. Whether a disclosure made during a survey can be considered involuntary, thereby attracting a penalty for concealment of income.
Sections Cited
Section 250 of the Income Tax Act 1961, Section 271(1)(C) of the Income Tax Act 1961, Section 133A of the Income Tax Act 1961, Section 143(3) of the Income Tax Act 1961, Section 271 of the Income Tax Act 1961, Section 274 of the Income Tax Act 1961, Explanation 4 to Section 271 of the Income Tax Act 1961, Explanation 5 to Section 271 of the Income Tax Act 1961, Explanation 5A to Section 271 of the Income Tax Act 1961, Rule 34(4) of the Income Tax Appellate Tribunal Rules 1963
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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. UDAYAN DASGUPTA & SH. BRAJESH KUMAR SINGH
ORDER Per: Udayan Dasgupta, J.M.: This appeal is filed by assessee against order of Ld. CIT (A), NFAC, Delhi, passed u/s 250 of the Income Tax Act 1961, dated 03.06.2024 which has arisen from the order of the DCIT, Circle-2, Jalandhar, passed u/s 271(1) (C) of the Act dated 26.06.2019. 2. The grounds of appeal raised in Form No. 36 are as under:
1. That on the facts & circumstances of the case, Learned CIT(Appeals), NFAC, Delhi has grossly erred in law in confirming penalty of Rs. 17,68,888/- imposed u/s 271(1)(C) of the Act. Penalty confirmed is illegal & bad in law.
2. That on the facts & circumstances of the case, Learned CIT(Appeals), NFAC, Delhi has grossly erred in confirming penalty imposed u/s 271(1)(c) of the Act since no satisfaction has been recorded by the Assessing Officer before initiation of penalty proceedings u/s 271( 1 )(C) of the Act which makes the penalty imposed illegal and bad in law.
3. That on the facts & circumstances of the case, Learned CIT(Appeals), NFAC, Delhi has grossly erred in law in confirming penalty u/s 271(1)(C) of the Act imposed at Rs. 17,68,888/- on alleged concealment of income of Rs. 56,26,000/- whereas assessment has been framed at income of Rs. 96,04,900/- as against returned income of Rs. 95,06,340/-by making addition of Rs. 98,557/- being l/4th of car expenses and depreciation. Penalty u/s 271(1)(C) of the Act is neither attracted when there is no addition to returned income nor is attracted on addition made on estimate basis.
4. That penalty imposed u/s 271(1)(c) of the Act, confirmed by Ld. ClT(Appeals), NFAC, Delhi is opposed to the judgment of Honourable Delhi High Court in the case of CIT vs. SAS PHARMACEUTICALS (2011) 335 ITR 0259 wherein it has been held that once assessee has duly offered income on account of amount surrendered during survey there is no concealment and as such no penalty u/s 271(1)(c) of the Act could be levied.
5. That penalty imposed u/s 271(1)(C) of the Act of Rs. 17,68,888/- as confirmed by Ld. CIT(Appeals), NFAC, Delhi is illegal and bad in law since additional income was offered to tax during survey operations on 09.09.2015 subject to no penal action. Penalty imposed is opposed to judgement of Honourable Punjab and Haryana High Court in the case of CIT vs. SMT. SUDERSHAN GUPTA THROUGH L/H 10 DTR 0184 (P&H) wherein it has been held that statement of surrender has got to be accepted in toto or has to be ignored.
6. That penalty has been imposed in an arbitrary manner on assumptions & presumptions without affording adequate opportunity to the assessee and in violation of principles of natural justice and therefore may kindly be quashed.
7. That the appellant requests for leave to add or amend the grounds of appeal before the appeal is heard or disposed off.”
Brief facts emerging from the records are that the assessee is engaged in the business of hardware items (as a retail trader under the name and style of “Malhotra Hardware Store”, Jalandhar). A survey was conducted u/s 133A of the Act on 09.09.2015 at the business premises of the assessee and discrepancy in stock and cash were found on physical verification, amounting to Rs.56.26 lakhs. (excess stock found 49.3 lakhs and excess cash found was Rs.7.21 lakhs).
3.1 During the course of survey, the assessee has disclosed both the stocks and the cash and offered an additional amount of Rs.56.26 lakhs as income to be taxed for the year ending 31.03.2016 and has duly incorporated the said additional stock and the excess cash in his regular books of account. Subsequently regular return has been filed within due time on 2nd September, 3.2 2016, along with the copies of audited accounts disclosing a total income of Rs.95,06,340/- ( which included the additional disclosure of Rs.56.26 lakhs offered during the survey). The assessment was completed u/s 143(3) of the Act on a total income of Rs.96,04,900/- with a minor addition of Rs.98,557/- on account of estimated one fourth disallowance for car expenses and depreciation. However, penalty u/s 271(1)(c) initiated in the assessment order itself for concealment of income. 3.3 Subsequently, penalty u/s 271(1)(c) was imposed amounting to Rs.17.68 lakhs on the ground that, had the department not conducted survey u/s 133A this additional disclosure which has now been surrendered by the assessee on account of discrepancy in stock and cash could not have been made, since the surrender was after detection of discrepancies by the survey team and the DCIT arrived at the conclusion that the surrendered income was not voluntary and the huge discrepancies in stock and cash resulting from unrecorded transactions found from the loose sheets and impounded during the course of survey, clearly indicates that the assessee was never disclosing the true and correct income and has not also recorded the complete business transactions in the regular books. It was further observed that in course of recording of statement of the assessee initially stated that the books of account are all correct and complete and it is only after physical verification of stock and cash the assessee has come out with the disclosure which proves that the surrendered was not voluntary done. In other words, the AO submitted that the surrendered was after deduction of discrepancy in course of survey and not before the deduction.
The matter was carried in appeal before the first appellate authority, and the ld. CIT(A) dismissed the appeal by observing as follows: “5. Observation and Decision: From the perusal of the details and documents, it is seen that the appellant is engaged in the business of trading of hardware items under the name and style of M/s Malhotra Hardware Store. Survey u/s 133A was conducted on 09.09.2015 at business premises of the appellant and appellant had surrendered an amount of Rs. 56,26,000/- being cash and stock found during the course of survey proceedings. Penalty proceedings were initiated and order u/s 271(1)(c) was passed on 26- 06-2019, imposing a penalty of Rs. 17,68,888/- on account of surrendered income and on account of disallowance of personal expenses pertaining to car expenses and depreciation. Against the said penalty being imposed, the appellant preferred the instant appeal and raised various grounds of appeal
and the same is taken up herein under together. The appellant submitted its submission and the same has been perused. At the outset, it is pertinent to note that Sec. 271(1)(c) deals with two specific offences, viz., concealment of particulars of income and furnishing of inaccurate particulars of income. Offence of concealment is a direct attempt to hide an item of income or a portion thereof from the knowledge of the Income-tax Authorities. The latter is an offence of disclosing the income but giving inaccurate particulars thereof. The appellant submitted that penalty was imposed amounting to Rs. 17,68,888/- on account of surrendered income and on account of disallowance of personal expenses pertaining to car expenses and depreciation. In the case of MAK Data (P.) Ltd. -vs.- CIT- II, 358 ITR 593 (SC), The Hon’ble Apex Court had held that:
9. We are of the view that the surrender of income in this case fs 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 would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961. Hence, in the light of the above judgement, it is clear that that voluntary disclosure does not absolve the appellant from penalty u/s 271(1)(c) of the IT Act, 1961. Furthermore, with regards to the penalty imposed on disallowance of personal expenses on account of car expenses and depreciation, it is to be noted that the appellant has incurred certain expenses being personal in nature and claimed the same as business expenses thereby inflating the expenses. Furthermore, the fact that the appellant has not disputed the said addition and accepted the same cannot be refuted. In the light of the above discussion and considering the details and documents, submitted and relying on the above referred judicial pronouncement, I see no reason to interfere with the findings of the assessing officer regarding imposing penalty u/s 271(1)(c). Hence, these grounds of appeal are dismissed.”
5. Now, in course of hearing before the tribunal, the ld. AR of the assessee filed a written submission and argued that the penalty u/s 271(1)(c) of the Act is attracted with reference to income tax return filed and ultimately assessed. He further submitted that the act of concealment or furnishing of inaccurate particulars will come into play after filing of income tax return and the satisfaction of the AO will be recorded on the basis of comparison between returned income and the assessed income and the concealment is to be concluded from the income tax return filed by the assessee. 5.1 In other words he submitted that if the income returned as per original return and the income finally assessed, remains the same there could not be any concealment of income (and in the instant case penalty has been initiated for concealment of income).
5.2 In support of his contention he relied upon various decisions which are as follows:
1) CIT vs. SAS PHARMACEUTICALS (2011) 335 ITR 0259 2) CIT vs. RELIANCE PETROPRODUCTS (P) LTD. (2010) 322 ITR 0158, 3) PCIT (CENTRAL) Vs. SHREE SAI DEVELOPERS (2019) 418 ITR 0306 (Guj). 4) PCIT Vs. YAMUNAJI CORPORATION (2020) 424 ITR 0369 (Guj), 5) PCIT vs. VALIBHAI KHANBHAI MANKAD (2015) 94 CCH 0331 Guj) 6) He further relied upon the decision of the Amritsar Bench in the case of Late Sh. Krishan Gopal Marwaha vs Dy. Commissioner of Income Tax in ITA / 724/Asr/2019 (vide their order dated 02.03.2023), where on identical facts, the tribunal have quashed the penalty imposed. 7) ACIT vs. East West Developers, ITAT, Pune Bench. 8) CIT vs. Smt. Sudershan Gupta Through L/H 10 DTR 0184 (P & H).
5.3 Thereafter, the Ld AR distinguished the facts of the instant case with the facts of “Mak Data Pvt Ltd vs CIT ( 2013) 358 ITR 593 ( SC )” relied upon by the Ld CIT ( A ).
He submitted that the assessee ( Mak Data P Ltd ) , filed its return disclosing of income at Rs.16.17 lakhs, which was subsequent to a survey and no income was offered ( or disclosed ) during the course of survey and as such, nothing was included in the return filed, after date of survey. Subsequently, facing a SCN in course of assessment proceedings the said assessee , offered and surrendered an additional income of Rs.40.74 lakhs and the AO completed the assessment accordingly, on the basis of the additional income offered in course of assessment and initiated penalty. The Hon’ble Apex court in the said case, has observed that explanation to section 271(1) raises a presumption of concealment, when difference is noted by the AO between reported and assessed income” The ld. AR further explained that the backdrop of the facts in the case of Mak Data was quite different from the facts of the instant case before us , because in the case of Mak Data, there was difference in between the returned income and ultimately assessed income ( because the disclosure was made post filing of the return ) , but in this particular case, the assessed income was almost the same as returned income ( except the minor difference in estimated personal disallowance on car depreciation and expenses A/c.) 5.4 He further submitted that in this present case, since the AO has not noted any difference between returned income and assessed income, the very foundation of initiation of penalty is not present in this case. Further, in support of his argument he also referred to the judgment of the jurisdictional High Court in the case of CIT vs. Sudarshan Gupta ( reported in 10 DTR 0184 (P & H), where it has been held that the statement of surrender has got to be accepted in toto or has to be ignored, and in the instant case he pointed out that the additional income disclosed ( offered ) or surrendered , before the survey team on the spot, has been accepted by the team at the spot and the assessee, keeping to his word , has also disclosed the said amount as additional income in the return itself ( which covers the excess stock and cash found in course of survey) and has paid the tax accordingly , and the said amount of additional disclosure has also been accepted by the AO in course of assessment without a noise and as such he prays that the additional disclosure should be accepted in toto in its true spirit and should not be subjected to penalty. Finally, the Ld. AR, relying upon the decision of the Hon’ble Delhi High court 5.5 in the case of CIT vs SAS Pharmaceuticals ( 2011 ) 335 ITR 259 ( Delhi ) he argued that concealment or furnishing of inaccurate particulars is relatable only in respect of a return being filed. In the instant case, he argued that on the date of survey, the stage of return filing is not yet reached and a penal provision could not be invoked simply on the basis of an assumption that the assessee would not have included the said income while filing his return had there not been any detection during survey, because penalty cannot be based on presumption and surmise. He further submitted that as per explanation 4 – the expression “ amount of tax sought to be evaded”, is the basis for imposition of penalty, which means that there has to be a direct nexus in between the income returned and the income finally assessed and in the instant case there is practically no difference and tax sought to be evaded in this case is nil.
5.6 Before concluding his arguments, he distinguished the judgments referred to in the penalty order and relied upon by the DCIT, on facts of the case:
CIT vs ZOOM Communications : ASSESSEE Case: 327 ITR 510 Untenable Claims were made No such claim without any basis and which in audited accounts has no foundation . Income tax amount debited in P & L A/c and claimed as expenditure along with claim on Equipment written off
PCIT vs DR Vandana Gupta 301 CTR 460 Original Return filed on 25/09/2009 Full disclosure in Original Survey on 22/02/2010, where Surrender Return explaining source of income made Rs. 2 crore without of Income . any explanation regarding its nature and source and filed REVISED return Penalty was imposed in absense of any explanation regarding its source.
As such he prayed before the Hon’ble bench for deletion of the penalty wrongly imposed.
The ld. DR relied on the order of the ld. CIT(A) and submitted that the disclosure of the assessee in case of survey has not been voluntarily done and the same has been done when discrepancy in physical stock and excess cash was found in the business premises, in course of survey. He further relied on the decision of the ITAT Pune Bench in the case of DCIT Central Vs Shreehari Associates Pvt Ltd dated 26/11/2024, for support and prayed for upholding the CIT(A) order .
We have considered the rival submissions and materials on record and the various decisions cited by the counsels. We are of the opinion that in the instant case the assessee has offered the additional income of Rs.56.26 lakhs , on account of excess stock and excess cash , detected in course of survey , over and above the normal business income , before the survey team itself ( vide letter dated 10th September, 2015 ) and subsequently, has offered the said amount as additional income in the regular return filed within due time and has paid full taxes on the same , which has been accepted in scrutiny assessment by the AO . In the instant case the nature and source of the additional income disclosed, to have arisen out of regular business activity is also accepted by the AO and the returned income of Rs. 95.06 lakhs has been accepted with minor variation of Rs.98,557/- only (on estimate ), and as such the difference in between returned income and assessed income is not there and in absence of any such difference the issue of concealment of income does not arise in this case, because no concealment is found in the return of income filed. 7.1 In respect of the case cited by the Ld. DR, Shreehari Associates Pvt Ltd the same is distinguishable on facts, in as much, in that case the disclosure was made after issue of SCN , in course of assessment proceedings , assessee being unable to prove the genuineness of sub contract payments.
Regarding the argument raised by the department that detection of income has been made in survey proceedings, we would like to rely upon the observation of the Hon’ble Delhi high court in the case of SAS Pharma ( supra ) where in an almost identical case the court has observed as follows: “14. We may first of all, reject the contention of the learned counsel for the Revenue relying upon the expression "in the course of any proceedings under this Act" occurring in sub-section (1) of s. 271 of the Act and contending that even during survey when it was found that the assessee had concealed the particular of his income, it would amount to concealment in the course of "any proceedings". The words "in the course of any proceedings under this Act" are prefaced by the satisfaction of the AO or the CIT(A) When the survey is conducted by a survey team, the question of satisfaction of the AO or the Commissioner (Appeals) or the Commissioner does not arise. We have to keep in mind that it is the AO who initiated the penalty proceedings and directed the payment of penalty. He had not recorded any satisfaction during the course of survey. The decision to initiate penalty proceedings was taken while making the assessment order. It is, thus, obvious that the expression "in the course of any proceedings under this Act" cannot have the reference to the survey proceedings, in this case.
It necessarily follows that concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee has to be in the Income-tax return filed by it. There is sufficient indication of this in the judgment of this Court in the case of CIT vs. Mohan Das Hassa Nand (1983) 34 CTR (Del) 361 (1983) 141 ITR 203 (Del) and in Reliance Petroproducts Pvt. Ltd. (supra), the Supreme Court has clinched this aspect, viz., the assessee can furnish the particulars of income in his return and everything would depend upon the Income-tax return filed by the assessee. This view gets supported by Expln. 4 as well as Expln. 5 and Expln. 5A to s. 271 of the Act as contended by the learned counsel for the respondent.
No doubt, the discrepancies were found during the survey. This has yielded income from the assessee in the form of amount surrendered by the assessee. Presently, we are not concerned with the assessment of income, but the moot question is to whether this would attract penalty upon the assessee under the provisions of s. 271 (1 )(c) of the Act. Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the asses see was exposed during survey, may be, it would have not disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Sec. 271(1)(c) of the Act has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income, penalty cannot be imposed. There is no such concealment or non- disclosure as the assessee had made a complete disclosure in the Income-tax return and offered the surrendered amount for the purposes of tax.” Respectfully following the observation of the Hon’ble court, we have no 9. hesitation in deleting the penalty imposed in the instant case in absence of any difference in between the income returned and ultimately assessed (except a minor variation on estimate).
As such we direct the penalty to be deleted.
In the result the appeal of the assessee is allowed.