2010 (5) TMI 576 - HC - Income Tax

Penalty u/s 271(1)(c) - Scrutiny - Undisclosed income - While moving application for voluntary disclosure the assessee must disclose the correct facts instead of making a ground on false pretext - There has been no trans- action of share of Sri Niwas Leasing and Finance Ltd. in the Delhi Stock Exchange during the period in question. There has been no sale and pur- chase of shares by M/s. S. J. Capital Ltd. between May 15 2003 and May 21 2003. Thus the assessee had not approached the Assessing Officer with the clean hand - The manner in which the assessee has tried to prolong the case before the Assessing Officer by not providing information immediately and narrating incorrect facts in the letter dated December 6 2006 shows that the assessee has deliberately concealed the income and disclosure was not voluntary but under compulsion being cornered by the Assessing Officer - Held that disclosure by the assessee does not seem to be voluntary and bonafide but under compulsion. The assessee has not furnished correct information while moving the letter dated December 6 2006 with unclean hand - Decided against the assessee

ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether the Income-tax Appellate Tribunal erred in law by canceling the penalty of Rs. 18,35,000 levied under section 271(1)(c) of the Income-tax Act, 1961, by holding that the surrender of income, even though made after the initiation of inquiries by the Assessing Officer, was nevertheless voluntary.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework revolves around section 271(1)(c) of the Income-tax Act, which pertains to the imposition of penalties for concealment of income or furnishing inaccurate particulars of income. The court referred to various precedents, including CIT v. Aggarwal Pipe Co., CIT v. M. M. Gujamgadi, and CIT v. Mohinder Singh, to determine the applicability of penalties based on the voluntary nature of income disclosure.

Court's Interpretation and Reasoning

The court scrutinized whether the disclosure made by the assessee was indeed voluntary. It noted that the assessee disclosed the income only after being cornered by the Revenue and that the disclosure was not made with clean hands. The court emphasized that voluntary disclosure must be made without compulsion or coercion, and it should be bona fide. The court found that the assessee's actions were not in line with these principles, as the disclosure was made under pressure from the Assessing Officer.

Key Evidence and Findings

The court highlighted several pieces of evidence, including the lack of cooperation from the share broker S. J. Capital Ltd. and the communication from the Delhi Stock Exchange, which indicated no transactions of the shares in question. The court also noted the assessee's failure to provide necessary information promptly and the incorrect statements made in the letter dated December 6, 2006.

Application of Law to Facts

The court applied the legal principles regarding voluntary disclosure and concluded that the assessee's disclosure was not voluntary. It was made under compulsion, as the assessee was cornered by the Revenue's inquiries. The court emphasized that voluntary disclosure should be made out of free will and without any external pressure.

Treatment of Competing Arguments

The court considered the arguments presented by the assessee, including reliance on precedents where bona fide surrender of income did not entail penalties. However, the court distinguished these cases by emphasizing the lack of bona fide in the assessee's disclosure. The court also referred to various judgments that supported the imposition of penalties when disclosures were not voluntary.

Conclusions

The court concluded that the Income-tax Appellate Tribunal erred in canceling the penalty. It held that the disclosure made by the assessee was not voluntary, as it was made under compulsion and without bona fide intentions. The penalty imposed by the Assessing Officer was justified.

SIGNIFICANT HOLDINGS

The court held that the Tribunal erred in law by canceling the penalty of Rs. 18,35,000 levied under section 271(1)(c) of the Income-tax Act. It emphasized that the disclosure was not voluntary, as it was made under compulsion from the Revenue's inquiries.

Core Principles Established

The judgment reinforced the principle that voluntary disclosure must be made without coercion or compulsion and must be bona fide. It also highlighted that the burden of proof for concealment lies with the Revenue, but once established, the assessee must provide a bona fide explanation to avoid penalties.

Final Determinations on Each Issue

The court determined that the Tribunal's decision to cancel the penalty was incorrect, and it upheld the penalty imposed by the Assessing Officer. The appeal was allowed in favor of the Revenue, and the question was answered affirmatively, indicating that the Tribunal erred in its judgment.

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