TMI Blog2009 (5) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... the conduct of the assessee was not bonafide when the returns were filed without in any manner disclosing the factum of the gifts even after search and seizure operation. The decision in the case of K.C. Builders [ 2004 (1) TMI 7 - SUPREME COURT] is thus not applicable to the facts of the case. Therefore, we are of the view that the assessee furnished inaccurate particulars of the income in the returns, making himself liable for the penalties. In the result, appeals filed by the Revenue are allowed. Order JM - Merely because an assessee had agreed to the assessment that cannot bring in automatic levy of penalty. If the assessee offers an explanation as in the present case, revenue authorities are expected to consider the acceptability of explanation and thereupon to judicially arrive at the conclusion of concealment of facts and figures. In the penalty proceedings if the explanation is found acceptable, notwithstanding addition was made by treating the amount as income from undisclosed source but penalty may not be levied. Contrary to this if the explanation is vague or futile or remained unsupported then certainly it is open for the revenue to impose the penalty however, oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id the tax thereon by adding the same in the returned income, it has to be taken as a voluntary offer to tax. On the face of the evidence in the shape of confirmation letters, bank accounts, passport etc. in the hands of the assessee, it might be valid gift that would have convinced a reasonably minded person, specially a person exercising a judicial function. The accepted position of law is that merely because an assessee had agreed to the assessment that cannot bring in automatic levy of penalty. The facts and circumstances and the merits of the case and the cogent evidences placed on record are such as to exonerate the assessee from concealment penalty. The CIT(A) in my opinion is right in deleting the penalty, his order is affirmed and the appeals of the Revenue are dismissed. - R.P. GARG, SR. VICE PRESIDENT (THIRD MEMBER), MUKUL K. SHRAWAT, JUDICIAL MEMBER AND K.G. BANSAL, ACCOUNTANT MEMBER ORDER K.G. BANSAL, A.M. 1. These two appeals of the Revenue involve a common ground. Therefore, the appeals were argued in consolidated manner by the Ld. DR and ld. Counsel for the assessee. In view thereof, we find it convenient to pass a consolidated order. 2. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by the assessee after receipt of the questionnaire in which information regarding bank statements, cash flow statement, loans, gifts etc. had been requisitioned. In view of this questionnaire, the assessee was liable to adduce evidence regarding the genuineness of the gifts. However, in stead to doing so, the assessee offered the aforesaid amounts for taxation in two years. The Assessing Officer referred to the provisions contained in Section 271(1)(c) and Explanation 1 thereto. Clause (b) of the Explanation 1 casts burden on the assessee to offer an explanation and the explanation is to be substantiated by him and also prove that the Explanation was bonafide and all facts relating to the same and material to the computation of the total income had been disclosed by him. In absence of doing so, the statute provided that the income shall be deemed to be the income in respect of which particulars have been concealed. He referred to the decision of Hon'ble Supreme Court in the case of K.P. Madhusudhanan v. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC), in which it was held that the Explanation to Section 271(1)(c) was a part of Section 271. Therefore, when the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding various additions. In view thereof, it was held that the Hon'ble High Court was in error insofar as it held that the Tribunal had acted incorrectly. The Assessing Officer pointed out that insofar as the consideration of criminality in levy of penalty under Section 271(1)(c) is concerned, the contents of the Explanation get over the same and the aforesaid decision does not apply to the instant assessment year to that extent. As the assessee had not shown the gifts in the returns of income, he came to the conclusion that inaccurate particulars of the income were furnished in both the years, making the assessee liable for penalty under Section 271(1)(c), particularly in absence of the proof that the explanation was not substantiated. Thus, penalties of Rs. 4,29,300/- and Rs. 37,70,276/- were levied in respect of assessment years 2003-04 04-05 respectively. 3. Aggrieved by these orders, the assessee moved appeals before the Ld. CIT(A)-III, New Delhi, who disposed them off by a consolidated order passed on 28.02.2007. Before him, the assessee referred to question Nos. 4, 9 10 which required the assessee to furnish bank statements, cash flow statements and details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings was whether, the assessee had taken or given any loan or gift in the period of consideration? If yes, the details were required. This questionnaire was received by the assessee on 02.02.2006. On 06.02.2006, the assessee furnished the details of the gifts from NRI persons, furnished copies of gift deed and also mentioned that the gifts are surrendered for taxation to buy peace and to avoid dispute in the matter. The surrender was made subject to the condition that penalty proceedings shall not be initiated. The course of event narrated above showed that the Assessing Officer did not have any information that the gifts were not genuine or that they formed part of the total income of the assessee. Reference was made to the decision of Hon'ble Supreme Court in the case of K.C. Builders and Anr. v. ACIT (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC). The issue before the Hon'ble Court was whether, the criminal prosecution gets quashed automatically when the Income Tax Appellate Tribunal comes to the conclusion that there is no concealment of income? It was held that it is a well-established principle that the matter which has been adjudicated and settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support the contention that the Assessing Officer was right in levying the penalty, he relied on the decision of Hon'ble Madras High Court in the case of M. Sahul Hameed Batcha v. ITO (2007) 292 ITR 585. One of the questions before Hon'ble Court was whether the ratio in the judgements of the Hon'ble Supreme Court reported in Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) and CIT v. Suresh Chandra Mittal (2001) 170 CTR (SC) 182 : (2001) 251 ITR 9 (SC) would apply to this case which is before the amendment/introduction of Explanation 1 Clause (B) to Section 271(1)(c)? The Hon'ble Court pointed out that the assessee filed the revised return only after search was conducted in his premises. The Tribunal found as a matter of fact that the omission or wrong statement by the assessee in the original return was not due to any bonafide or inadvertence or mistake on his part, but the revised return was filed only after the search action. Though it is the case of the assessee that with a view to purchase peace he offered the nontaxable sums as income, the Tribunal held that there was no material to show that the mistake had cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. Counsel for the assessee was that the revised return was accepted and, therefore, the penalty could not have been levied. The Hon'ble Court pointed out that the authority came to the conclusion that furnishing of the revised return was not a voluntary act. Some papers were found in search and inquiry was in progress. The assessee filed another return disclosing the additional income. The Ld. CIT(A) held that disclosing the peak credit of the bank deposits for taxation showed that the assessee had concealed income. The Tribunal deleted the penalty by stating inter-alia that there was no evidence regarding mens rea for infraction of the law. The Hon'ble Court pointed out that tax delinquency was different from penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. The reason being that it was a civil obligation, being remedial and coercive in nature. It was further pointed out that the revised return was not filed during the assessment year or even before search and seizure operation was conducted. Therefore, the assessee did not act voluntarily and bonafidely in filing the revised return. In view thereof, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation with the stipulation that the penalty may not be levied. 6. In the rejoinder, ld. DR referred to the questionnaires of the Assessing Officer. It was also mentioned that the issues have to be decided as per law and there was no scope for bargaining in the course of assessment proceedings. 7. We have considered the facts of the case and rival submissions. [The facts of the case are that the assessee had filed return declaring total income of Rs. 1,22,820/- in due course for assessment year 2003-04. A search and seizure operation was conducted on 31.05.2003, but the assessment order does not show whether any discriminating material was found or not. Consequent upon the search, a notice under Section 153A was served on the assessee. Instead of filing a fresh return under this section, it was stated that the original return may be taken to be the return under the aforesaid provision. Thereafter, a questionnaire was issued requiring the assessee to inter-alia file the details of loans and gifts given or taken in this year. Within four days of the receipt of this notice, the assessee offered an amount of Rs. 14,31,000/- for taxation by way of a letter and not by way of any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the face of the surrender made by the assessee by way of letters. Such letters do not obliterate the original returns and suppression of incomes therein. We also agree with Ld. DR. that the assessments cannot be made by bargaining and the Assessing Officer was within his right to consider the whole issue as per law for initiation and levy of the penalty. Thus, the penalty was properly initiated in this case. After initiation of the penalty, the initial onus was on the assessee to furnish his explanation. 7.1 The only explanation furnished by the assessee in the penalty proceedings is that the surrender was made to avoid harassment to himself and the donors and that the onus was on the Assessing Officer to prove the concealment, which he failed to do as no inquiry was made into the gift deeds. We have considered this matter also. In the case of M. Sahul Hameed Batcha (Supra), it was pointed out that the decision in the case of Sir Shadilal Sugar and General Mills Ltd. (Supra) was no longer a good law as held by the Apex Court in the case of K.P. Madhusudhanan (Supra). In view of this decision, decision in the case of Amalendu Paul (Supra) is also no longer a good law. The issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not filed, it will be difficult to believe that such huge amounts were offered for taxation merely to avoid harassment to the assessee and the donors. In any case, donors were non-resident persons beyond the jurisdiction of the Assessing Officer, who could not be harassed in any manner by him. We are also of the view that the theory of gift is not probable in this case for the reason that, - (i) no one has stood up to own up the making the gift, (ii) the beneficiary, being the assessee, disowned the theory by sudden surrender of the amounts for taxation. Therefore, we are of the view that the conduct of the assessee was not bonafide when the returns were filed without in any manner disclosing the factum of the gifts even after search and seizure operation. The decision in the case of K.C. Builders (Supra) is thus not applicable to the facts of the case. Therefore, we are of the view that the assessee furnished inaccurate particulars of the income in the returns, making himself liable for the penalties. 8. In the result, appeals filed by the Revenue are allowed. The order pronounced in the open court on MUKUL K. SHRAWAT, J.M. : 28-08-2008 9. The propose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.03.2006 respectively at Rs. 15,53,820/- and Rs. 1,16,48,608/-. It may not be out of place to mention that those were a brief orders; practically one paragraph order i.e. para 2 reproduced below for A.Y. 2003-04. 2. Since a search was initiated Under Section 132 of the Act after the 31st day of May, 2003, a notice Under Section 153A was issued on 05.01.2006 wherein the assessee was required to file a return in the prescribed form for the Assessment Year 2003-04 within 16 days of service of this notice. In response thereto, the assessee filed a letter dt. 20.01.2006 requesting to consider and take the Income tax return filed for the aforesaid assessment year filed with the Income Tax Department as return for the purposes of proceedings Under Section 153A of the Income Tax Act, 1961. Perusal of the return already filed reveals that the assessee has declared taxable income of Rs. 1,22,820/-. A detailed questionnaire along with notices Under Section 143(2) 142(1) of the Income Tax Act, 1961 were issued on 31.01.2006. Shri S.C. Verma, C.A./A.R. of the assessee appeared before the undersigned from time to time and filed details in response to above questionnaire. He has further o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce establishing non-genuineness of the gifts To our surprise there was not an iota of mention or even a whisper about the existence of the gifts; least to say non genuine gift. If it was so then no one can deny that it was a wrong allegation on this assessee that gifts were detected consequent upon the search operation and so is the uncontroverted fact. 19. Thereafter search proceedings; next were the assessment proceedings and we have to see whether the A.O. has raised some specific question based upon an information in the possession of the Revenue Department. Even it was not so. It was unsafe to base a conviction if it was not proved up to the hilt specially when pitted against a person who has made an offer on his own. In the questionnaire itself lies the answer because unmistakably it was general in nature without specifying the names of the donor or any other such details on the basis which it could be presumed that the A.O. had an intention to call for a specific information about the gift made by those specific persons. The question itself reflects that the Revenue Department was not sure enough whether gift was taken or not. That is why the question was that Had you ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated to avoid protracted litigation and to get the mental peace. Apart from this reason, this precedent is also worth reference since the terms concealment of income and furnishing of inaccurate particulars are duly considered and quoted that both of them referred to deliberate acts on the part of the assessee. The Hon'ble Court has expressed that a mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Nevertheless, there is no dispute about this law as well a duty on the assessee to make a correct disclosure of income but in the present case it has got due importance because as per revenue the offer was not at the time of the filing of the return but at the time of the assessment proceeding. However, the overall circumstances of the case plays an important role to rightly assess the intention of the tax payer. On one hand the admitted position is that the impugned amounts of the gifts were not part of the return income but juxtapose this fact could also not to be ignored that it has never been specifically questioned by the revenue department. In such a situation whether the act of the assessee could be said to be a volu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principle for levy of concealment penalty expresses from the very fact of the conduct of a tax payer. Though this assessee has disclosed the impugned gift-amount during the course of assessment proceeding but the established factual position is that the said offer was without any provocation from the side of the revenue pinpointing the alleged gift in question. In the absence of the said specific provocation or an apprehension of detection could not be said to be malafide. There was no such imminent fear from the side of the revenue. This assessee has come forward and paid the tax thereon by adding the same in the returned income. Concealment must not be on some guess work as it happened in the present appeal that the amount so offered would not have been substantiated by this assessee. Justifiably; it was merely an apprehension because the revenue has not given any opportunity to establish the genuineness of the gift and in the absence of the said opportunity the revenue has taken the recourse of presumption to disbelieve those gifts. Though without going deep into the merits of those gifts, on the face of the evidence placed on record; the factual position was that the gifted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the action of the assessee was not deliberate. Rather it was nothing but a deliberate attempt to comply with the revenue department to avoid litigation and mental disturbance. The term false is a contrary term because as against the truth if an event is placed which do not tally with the truth is false but if there is nothing to compare that, then against the vacuum the falsehood cannot be established. 25. The next is the question that why at all the assessee has not added the impugned gifted amount in the return himself. The explanation is that there was a reasonable ground for non inclusion of the gift since in assessee's opinion those were duly supported by convincing evidences. Indeed it is yet to be seen whether the said belief was a bonafide belief and whether the explanation forthcoming thereafter was a reasonable explanation and to answer these two basic questions the primary consideration is the surrounding circumstances and thereafter the conduct of the assessee. If this exercise has not been done by the Revenue then conviction cannot be said to be on sound footing. 26. The mere fact of the agreed addition cannot automatically lead to an adverse inference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was thus claimed that no penalty was leviable on the assessee. 3. The Assessing Officer held the offer as neither voluntary nor made before any detection by the Assessing Officer and that it was made after receipt of the questionnaire seeking information regarding bank statements, cash flow statement, loans, gifts etc. in pursuance to which the assessee was liable to adduce evidence regarding the genuineness of the gifts; The Assessing Officer referred to the Explanation 1 to Section 271(1)(c) and the decision of the Supreme Court in the case of K.P. Madhusudhanan v. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC), wherein the Explanation to Section 271(1)(c) is held to be a part of Section 271. he observed that when a notice was issued, the assessee was put to notice that if he did not prove the circumstances stated in the Explanation, that is, that the failure to file correct return of income was not due to any fraud or neglect etc., he would be deemed to have concealed particulars of his income or furnished inaccurate particulars of income; that insofar as the consideration of criminality in levy of penalty under Section 271(1)(c) is concerned, the contents of the Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. In view thereof, the appeals for both the years were allowed. 5. The Revenue came up in the second appeal before the Tribunal and there struck a difference of opinion. The Accountant Member held it to be a clear case of furnishing inaccurate particulars of income by the assessee; that the surrender was after a questionnaire was issued requiring the assessee to inter-alia file the details of loans and gifts given or taken in these years; that within four days of the receipt of this notice, the assessee offered an amount of gifts for taxation by way of a letter and not by way of any revised return; that the amount of income surrendered for taxation was about 12/84 times the total income declared in the original returns; that the acceptance of the offer without demur does not lead to a conclusion that the assessee had not furnished inaccurate particulars of income in the returns filed by him; that the impugned gifts were in no manner mentioned in the returns or shown by way of addition to capital annexed with the returns; that the position regarding genuineness or otherwise of the gifts remained the same at the time of filing the return and after receipt of the questionnaires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on detection of the concealment; that nothing of the sort was anywhere mentioned in any of the orders, specially the assessment order which is the fountain-head of the consequential proceedings; that in the assessment proceedings the A.O. has raised some specific question not based upon information in the possession of the Revenue; that even otherwise it was unsafe to base a conviction if it was not proved up to the hilt specially when pitted against a person who has made an offer on his own; that in the questionnaire itself lies the answer because unmistakably it was general in nature without specifying the names of the donor or any other such details on the basis which it could be presumed that the A.O. had an intention to call for a specific information about the gift made by those specific persons; that the question Had you taken/given any loan/gift during the financial year under consideration? itself reflects that the Revenue was not sure enough whether gift was taken or not. Mere asking of a question or simply raising of an enquiry does not tantamount to detection of concealment; that there was no alleged detection, nor any information in possession of the Revenue Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenged the correctness of the said offer, if they had information in their hands but utmost surprise even after the extreme steps of search and seizure there was no such evidence or information in the possession of the revenue department about the gift transaction. 9. The mere fact of the agreed addition cannot automatically lead to an adverse inference. Revenue was expected to take one step further, so that to place on record the inability to prove the source of the gift or alternatively the impugned gifted amounts were the income of the assessee. If the assessee offers an explanation as in the present case, revenue authorities are expected to consider the acceptability of explanation and thereupon to judicially arrive at the conclusion of concealment of facts and figures. In the penalty proceedings if the explanation is found acceptable, notwithstanding addition was made by treating the amount as income from undisclosed source but penalty may not be levied. Contrary to this, if the explanation is vague or futile or remained unsupported then certainly it is open for the revenue to impose the penalty, however, otherwise not. 10. Under the totality of the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of penalty. On the other hand, the Tribunal found that the reasons assigned by the Assessing Officer to hold that the assessee had concealed the income were genuine and, therefore, the penalty was confirmed. It was pointed out that the view in the case of Sir Shadilal Sugar and General Mills Ltd. (Supra) was held no more a good law in the decision of K.P. Madhusudhanan (Supra), taking note of the present Explanation to Section 271 of the Act. On the basis of this judgement, the case of Ld. DR is that the provision contained in Explanation 1 was applicable and the assessee has failed to substantiate his explanation. He relied on the decision of Gujarat High Court in the case of Deepak Construction Co. (2007) 208 CTR (Guj) 444 : (2007) 293 ITR 285 (Guj), wherein the Court pointed out that the Assessing Officer had already held, even before issuing the notice that the return was not reflecting the income correctly and there was concealment. The notices were issued only to hear the assessee on the issue of genuineness of the entries. In such a circumstance, acceptance of the revised return without much ado would not mean that the Department had not detected the concealment. He als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by the Assessing Officer; that the detection of something is to be distinguished from mere possibility or suspicion, which may lead to further inquiry which inquiry may affirm or disaffirm the suspicion; that the question whether the assessee has concealed the particulars of income or furnished inaccurate particulars of income is a question of fact; that even after insertion of the Explanation in the section, penalty proceedings continued to be penal proceedings; that the effect of the Explanation is that initial burden is cast on the assessee to furnish the explanation; that this burden is in the nature of shifting burden and therefore if the explanation were offered, the burden would then shift to the Revenue; that in this case, the gift deeds had been filed along with copies of passport of the donors, the gifts had been received through banking channels and there was nothing to doubt the gifts; that the Revenue made no effort to inquire into the genuineness of the gifts and therefore, there is no circumstance to lead to a reasonable or positive inference that the gift was bogus, the facts on record being consistent with the proposition that the gift is genuine; and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return and after receipt of the questionnaires. By offer made by the assessee, one may infer that at all times the assessee was aware that something was amiss with regard to gifts. But in view of the affidavits and the gift deeds filed it might not be concluded that it was sure case of ingenuineness of the gifts. It cannot be said that he would not be able to discharge the initial burden cast on him under Section 68 of the Act. In any case the assessee could be said to have substantiated its explanation as regards to Explanation to Section 271(1)(c) of the Act. The gifts are surrendered to be taxed in order to buy peace and to avoid litigation in the matter. It was made subject to the condition that penalty proceedings be not initiated. Therefore, the decision in the case of K.P. Madhusudhanan (Supra) was not applicable, on the contrary CIT v. Suresh Chandra Mittal would be squarely applicable. 16. It is true that letter of surrender does not obliterate the original return and suppression of income therein but when the surrender was made before detection or without any material on record suggesting income withheld, it would be a case of voluntary offer and would in that case be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation in his possession, if the assessee makes up the deficiency and offers the income or furnishes accurate particulars he, in our opinion, cannot be held guilty of concealment of income or furnishing of inaccurate particulars of his income. Any action rectified relates back to original act and to the date and time of filing the return. When the AO starts scrutiny of the return and initiate assessment proceedings there is nothing concealed and the inaccuracy, if any, disappeared. Therefore the assessee cannot be held guilty of concealment. Section 271(1)(c) fixes the charge of concealment and it states: 271. (1) If the Assessing Officer or the Commissioner (Appeals)or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-- (a) * * * (b) * * * (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or.... he may direct that such person shall pay by way of penalty,--.... (iii) in the cases referred to in Clause (c) ...in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had not revised returns or that the offer was by letter to avoid harassment to the assessee and the donors who were non-resident persons, it cannot convert an offer to tax as concealment of income. Therefore, in my opinion the assessee has not furnished inaccurate particulars of the income in the returns before detection by the Revenue. 22. Therefore, mere omission of the surrendered income from the return of an item of receipt does neither amount to concealment nor furnishing of inaccurate particulars of income unless and until there is some evidence to show exist or some circumstances found from which it can be gathered that the omission was attributable to an intention or a desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. Apart from the surrender there was nothing more on record to hold the assessee guilty of offering the said amount on detection of the concealment. Even in assessment order there is nothing of that sort. In the assessment proceedings the A.O. has raised some specific question not based upon information in the possession of the Revenue. These are: Sr. No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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