2011 (4) TMI 1406 - AT - Income Tax

Tribunal cancels penalty under section 271(1)(c) of I.T. Act citing assessed income & judicial precedents.

The Tribunal affirmed the CIT(Appeals) decision to delete a penalty of Rs. 2,48,060/- imposed under section 271(1)(c) of the I.T.Act. The penalty was ... - 1. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be imposed where additional income is disclosed in a return filed under section 153A after a search under section 132, when ultimately total tax liability is determined and discharged on the basis of book profits under section 115JB (or its similarly worded provision), rather than on normal provisions? 2. Whether the disclosure of additional income made in return under section 153A after a search is to be treated as voluntary for the purpose of section 271(1)(c), when the income assessed under normal provisions is lower than the deemed income under the book-profit regime and the final assessment rests on the latter? 3. Whether deletions or disallowances made in the course of regular assessment computations (quantum) that are later rendered immaterial by assessment under the book-profit provision can sustain a penalty for concealment under section 271(1)(c)? 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability to penalty under section 271(1)(c) where final assessment and tax are determined on book profits (section 115JB) Legal framework: Section 271(1)(c) penalises concealment of particulars of income or furnishing inaccurate particulars. Section 115JB (book-profit provision) deems the greater of tax on normal total income and tax on prescribed percentage of book profits as the tax base; tax is charged on the higher figure so determined. Precedent treatment: The Tribunal applied the principle that where total income is finally assessed and tax paid on the deemed/book-profit amount under the special provision, concealment in respect of additions under the normal provisions cannot constitute tax evasion warranting penalty. Prior judicial authorities following this approach were relied upon by the Appellant (as accepted by the first appellate authority and affirmed on appeal). Interpretation and reasoning: The Court reasoned that when the legal scheme requires computation under normal provisions and comparison with book profits, but the higher (deemed) amount governs tax liability, any additions made under normal provisions do not affect the actual tax payable if they are lower than the book-profit basis. Therefore, concealment alleged by reference to those additions cannot be said to have led to tax evasion or loss of revenue, which is the malum probandum underlying section 271(1)(c). The Tribunal noted that the assessee had disclosed and paid tax on book profits in the return under section 153A and that on giving effect to appellate orders the final assessed income stood at nil (after adjustments), confirming tax determination on book profits rather than on the contested additions. Ratio vs. Obiter: Ratio - where final assessment rests on book profits and tax is paid accordingly, additions under normal provisions that do not change the tax payable cannot sustain a penalty under section 271(1)(c). Obiter - ancillary observations about general voluntariness of post-search disclosures where different fact patterns might produce different outcomes. Conclusion: Penalty under section 271(1)(c) cannot be sustained in such circumstances; the Tribunal upheld deletion of the penalty. Issue 2: Voluntariness of disclosure made under section 153A after search and its effect on penalty Legal framework: Voluntariness of disclosure is relevant to culpability under section 271(1)(c); disclosures compelled or prompted by search/seizure may be non-voluntary. Section 153A governs assessment of undisclosed income found as a result of search; returns filed under that section follow a search. Precedent treatment: The revenue relied on case law holding that post-search disclosures are not voluntary and can support penalty. Opposing authorities and the Tribunal relied on authorities holding that even if a disclosure arises after search, if the ultimate tax outcome is governed by book profits, concealment is not linked to tax evasion and penalty is not sustainable. Interpretation and reasoning: The Tribunal acknowledged that a return filed consequent to search may not be voluntary per se, but emphasized that voluntariness alone is not dispositive; the critical question is whether concealment caused evasion of tax. Since the assessed tax was governed by book profits and tax was paid accordingly, any non-voluntary character of the disclosure did not translate into evasion or loss of revenue. The Tribunal therefore treated the statutory scheme and tax outcome as determinative, rather than labeling the disclosure solely by timing relative to the search. Ratio vs. Obiter: Ratio - voluntariness is relevant but not decisive where ultimate tax liability is fixed by book profits; non-voluntary post-search disclosures do not automatically justify penalty if no tax evasion resulted. Obiter - general statements about the factual sensitivity of voluntariness findings in other contexts. Conclusion: Even if the disclosure under section 153A is characterized as non-voluntary due to search, penalty under section 271(1)(c) is not justified where the tax charged and paid is on book profits and concealment did not affect tax liability. Issue 3: Impact of appellate deletions/quantum adjustments on sustainment of penalty for concealment Legal framework: Penalty u/s 271(1)(c) presupposes concealment that affects tax; subsequent deletions in assessment proceedings may remove the basis for a penalty if they eliminate the substantive concealment or its revenue consequence. Precedent treatment: The Tribunal applied precedent holding that when appellate orders reduce or eliminate additions and the assessed income is finally determined on a basis that makes contested additions irrelevant to tax liability (e.g., book profits), penalty cannot survive. Interpretation and reasoning: The Tribunal considered the fact that quantum relief granted by appellate authority produced a revised assessment where taxable income was nil and previously disclosed book profits had been taxed - demonstrating that the addition on which penalty was levied no longer had revenue consequence. The Court treated the appellate fact-finding and resultant tax position as directly material to the question of whether concealment had caused evasion of tax. Ratio vs. Obiter: Ratio - appellate deletions or adjustments that result in tax being fixed on book profits and eliminate taxable consequence of the alleged concealed income remove the foundation for penalty under section 271(1)(c). Obiter - observations concerning the effect of different patterns of appellate relief in other factual matrices. Conclusion: Where appellate relief nullifies the revenue consequence of challenged additions and the final assessment is on book profits (with tax paid accordingly), imposition of penalty for concealment cannot be sustained. Cross-references and Final Conclusion All three issues are inter-linked: voluntariness and concealment questions must be assessed against the practical effect on tax liability. The Tribunal concluded that because tax was ultimately determined and paid on the book-profit basis, and appellate adjustments eliminated the taxable consequence of the additions, the statutory requirement for levy of penalty under section 271(1)(c) (i.e., concealment leading to tax evasion) was not satisfied. The penalty was therefore deleted and the Revenue's appeal dismissed.