2025 (7) TMI 1366 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - additional income disclosed in the returns filed u/s 148 - allegation of furnishing inaccurate particulars of income - as argued assessee voluntarily disclosed additional income during the course of the assessment proceedings and before completion of assessment merely to cover any unverifiable expenses and to avoid prolonged litigation HELD THAT - We note that the additional income was offered in the return filed u/s 148. No incriminating documents indicating suppression or bogus transactions were found during the survey. The expenses in question were supported by internal vouchers and recorded in regular books. AO accepted the revised returns without any adverse inference except a minor disallowance in one year. In Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT has held that mere disallowance or surrender of a claim without establishing concealment or inaccuracy in particulars of income does not attract penalty u/s 271(1)(c). Rajasthan High Court in Pushpendra Surana 2013 (8) TMI 969 - RAJASTHAN HIGH COURT has held that where income offered under section 148 is accepted and there is no independent evidence of concealment penalty cannot be sustained. In the present case the offer of income was not based on any incriminating material but made with the intent to avoid prolonged litigation over estimation of unverifiable expenses. Such surrender cannot be equated with furnishing inaccurate particulars. There is also no satisfaction recorded by the AO as to which limb of section 271(1)(c) concealment or furnishing inaccurate particulars was violated. This vitiates the penalty proceedings as held in Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT Thus we are of the considered view that the penalty levied under section 271(1)(c) in all the five assessment years is not sustainable - Assessee appeal allowed.

Summary

ISSUES:

Whether the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 is justified where additional income is voluntarily disclosed in revised returns filed under section 148 before completion of assessment.Whether mere surrender of income to cover unverifiable expenses, without any finding of concealment or furnishing inaccurate particulars, attracts penalty under section 271(1)(c).Whether acceptance of revised returns by the Assessing Officer without adverse inference precludes imposition of penalty under section 271(1)(c).Whether the penalty order must specify the limb of section 271(1)(c)-concealment of income or furnishing inaccurate particulars-relied upon for levying penalty.

RULINGS / HOLDINGS:

The penalty under section 271(1)(c) is not sustainable where additional income is voluntarily disclosed in returns filed under section 148 and accepted by the Assessing Officer without any adverse inference, as the conditions of concealment or furnishing inaccurate particulars are not met.Mere surrender of income to avoid estimation and prolonged litigation, without any evidence of bogus or fictitious expenditure or suppression of income, does not constitute furnishing inaccurate particulars or concealment of income under section 271(1)(c).Acceptance of revised returns without variation or adverse finding negates the basis for penalty under section 271(1)(c).Failure of the penalty order to specify whether penalty is levied for concealment of income or furnishing inaccurate particulars vitiates the penalty proceedings.

RATIONALE:

The Court applied the statutory provisions of section 271(1)(c) of the Income Tax Act, 1961, which imposes penalty for concealment of income or furnishing inaccurate particulars.Judicial precedents relied upon include the Supreme Court decision in Reliance Petroproducts (P) Ltd. and decisions by various High Courts and Tribunals, which hold that mere disallowance or surrender of income without evidence of concealment or inaccuracy does not attract penalty.The Court emphasized that the Assessing Officer's acceptance of the revised returns without adverse inference and absence of incriminating material or rejection of books of account is determinative.The Court noted the absence of a recorded satisfaction by the Assessing Officer specifying which limb of section 271(1)(c) was violated, referring to the principle established in Manjunatha Cotton & Ginning Factory.This judgment reaffirms the principle that voluntary disclosure and acceptance thereof precludes penalty under section 271(1)(c), representing no doctrinal shift but consistent application of settled law.