2013 (7) TMI 1251 - AT - Income Tax

Penalty under s.271(1)(c) unsustainable where surrendered stock and disclosed income arose from valuation dispute, not concealment

ACIT 2 (1), Bhopal Versus Ritesh Agrawal and (Vice-Versa)

ITAT held penalty under s.271(1)(c) unsustainable where excess stock declared during survey was surrendered, income accepted by the department and ... Penalty u/s 271(1)(c) - unexplained investment in the excess stock found which was not disclosed in the return of income - income surrendered - HELD THAT:- Addition was only on account of difference of opinion regarding the valuation by the registered Valuer vis-a-vis valuation of the assessee. With regard to income surrendered and accepted by the department the CIT(A) deleted the penalty by following the decision of Delhi High Court in the case of SAS Pharmaceuticals ............. The facts of the instant case are in para material with the decision relied on by the CIT(A) wherein also excess stock declared during the course of survey was surrendered and income declared in the return was accepted by the department. Accordingly, we do not find any infirmity in the order of the CIT(A) in deleting the penalty with reference to the income surrendered which was duly disclosed in the return filed by the assessee u/s 139. Addition based on attributable to impurities found in the gold which was ranging from 82% to 87% - There was no difference in the weight of gold found and the valuation difference was only difference of opinion of registered Valuer vis-a-vis the valuation arrived at by the assessee’, which cannot be subject matter of penalty u/s 271(1)(c) of the Act unless cogent material is brought on record to establish concealmernt of income by the assessee.. There is no dispute to the well settled legal proposition that the assessment proceedings and penalty proceedings are separate and the assessee has all rights to bring on record reasons for addition and the contention that such additions are not liable for penalty on account of concealment of income. Considering the entire material placed on record, we do not find any merit in imposing the penalty with reference to the difference in value estimated by the registered Valuer vis-a-vis the assessee, when the quantity of gold remained the same. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) is leviable in respect of income surrendered during a survey under section 133A and thereafter disclosed in the return of income. 2. Whether penalty under section 271(1)(c) can be imposed in respect of an addition arising from a valuation difference (disagreement between registered valuer's valuation at survey and assessee's valuation) when quantity (weight) of stock is not in dispute. 3. Whether Explanation 5 to section 271(1)(c) (as relied upon) applies to survey proceedings under section 133A for the purpose of imposing penalty. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Levy of penalty on income surrendered during survey but disclosed in return Legal framework: Clause (c) of section 271(1) empowers imposition of penalty when the Assessing Officer is satisfied that the assessee has either concealed particulars of income or furnished inaccurate particulars of income; the statutory requirement of satisfaction is to be properly borne out in the record and relates to concealment or inaccuracy 'in the course of any proceeding under this Act'. Precedent treatment: The reasoning of the lower appellate authority followed a High Court decision addressing identical facts where an assessee surrendered amounts on detection at survey and subsequently disclosed the same in the return; the High Court held that penalty under section 271(1)(c) cannot be imposed where particulars were duly furnished in the return and the satisfaction required by section 271(1)(c) was not made out in relation to the return. Interpretation and reasoning: The Court accepted that where an amount is surrendered during survey but is fully disclosed in the income-tax return and accepted in assessment, the statutory condition for imposing penalty-i.e. concealment or furnishing of inaccurate particulars in the return or proceedings under the Act-does not stand satisfied. Mere fact that surrender occurred because of survey exposure does not, without more, establish fraudulent concealment or inaccurate particulars in the return. The satisfaction required for penalty must refer to concealment in the return or in proceedings under the Act; a survey by itself does not create that statutory satisfaction unless documented and linked to concealment in the return. Ratio vs. Obiter: Ratio - penalty cannot be levied under section 271(1)(c) on amounts that are properly disclosed in the return and accepted in assessment merely because the sum was surrendered on detection during survey; the statutory satisfaction for penalty was absent. Obiter - observations on the conduct or motivation of surrender (e.g., that but for survey the amount might not have been disclosed) are not sufficient to sustain penalty. Conclusion: Penalty under section 271(1)(c) is not leviable in respect of the amount of Rs.21,00,000 which was surrendered during survey and thereafter disclosed in the return and accepted by the assessing officer; the impugned penalty in respect of that amount is deleted. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Levy of penalty on addition due to valuation difference where quantity is undisputed Legal framework: For imposition of penalty under section 271(1)(c) there must be concealment of particulars of income or furnishing of inaccurate particulars; assessment additions resulting from valuation differences are subject to scrutiny as to whether they constitute concealment for penalty purposes. Assessment proceedings and penalty proceedings are distinct; findings in one do not automatically justify penalty without material establishing concealment. Precedent treatment: The authorities below treated valuation by a registered valuer at survey as prima facie acceptable for assessment purposes; however, imposition of penalty requires cogent evidence of deliberate concealment, not merely a difference of opinion on valuation. Interpretation and reasoning: The Tribunal examined the factual matrix: the excess stock's weight was not disputed; the valuation difference arose from differing views on purity/valuation (registered valuer's estimate vis-à-vis the assessee's valuation), and impurities varied across items. The Court emphasized that a mere difference of opinion on valuation, when the underlying quantity/weight of stock is the same and no unimpeachable evidence of deliberate suppression is shown, cannot be equated with concealment of particulars of income. The assessee had given explanations (accumulation over time, varying purity) and had offered post-dated cheques and declared the major portion; the remaining addition was attributable to valuation dispute rather than proven concealment. Ratio vs. Obiter: Ratio - penalty under section 271(1)(c) cannot be imposed on assessment additions that arise solely from valuation differences where weight/quantity is undisputed and no cogent material demonstrates deliberate concealment; such differences of opinion are not by themselves evidence of concealment or furnishing of inaccurate particulars. Obiter - comments that the ITAT is final fact-finding authority and that absence of unimpeachable contrary evidence supports acceptance of assessee's stance in valuation disputes. Conclusion: Penalty under section 271(1)(c) is not leviable in respect of the valuation difference of Rs.3,93,465 insofar as that difference stems from a bona fide valuation dispute (purity/valuation) with no evidence of deliberate concealment; consequently, penalty on that portion is not sustainible. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Applicability of Explanation 5 to section 271(1)(c) in case of survey under section 133A Legal framework: Explanation 5 (as invoked) and the statutory language must be read in context; whether an explanation applies to survey proceedings depends on its text and statutory scheme. Precedent treatment: The CIT(A) observed that Explanation 5 is not attracted in case of survey under section 133A; the Tribunal accepted that position in the facts of the case. Interpretation and reasoning: The Court noted that statutory provisions dealing with penalty require strict construction and the conditions precedent to invoking Explanation 5 must be satisfied expressly. In the present facts, the surrender was made during survey and the amount was later disclosed in the return; Explanation 5 does not automatically render such surrender punishable by penalty where the return contains full particulars and the department accepts them. Therefore, Explanation 5 could not be used to sustain penalty on the surrendered and disclosed amount. Ratio vs. Obiter: Ratio - Explanation 5 does not apply so as to validate penalty under section 271(1)(c) in cases where amounts surrendered at survey are subsequently disclosed in the return and accepted; the statutory conditions for penalty must be strictly met. Obiter - none material beyond the above statutory interpretation. Conclusion: Explanation 5 is not attracted to sustain penalty on the amount disclosed in the return following survey under section 133A; penalty on the surrendered sum cannot be maintained on that basis. OVERALL CONCLUSION The Court dismissed the revenue's appeal and allowed the assessee's appeal: penalty under section 271(1)(c) is deleted insofar as it related to the amount surrendered during survey and disclosed in the return; no penalty is sustainable for the valuation difference arising from disagreement over purity/valuation where quantity was undisputed and no cogent evidence of concealment existed. Assessment and penalty proceedings are distinct; imposition of penalty requires strict satisfaction of statutory conditions which were not present on the facts.