2025 (3) TMI 455 - AT - Income Tax

Penalty under section 271(1)(c) cannot be imposed when assessee voluntarily discloses additional income during survey proceedings

Raghuram Hume Pipes Private Limited Versus Assistant Commissioner of Income Tax, Circle-2 (1), Guntur.

ITAT Visakhapatnam held that penalty under section 271(1)(c) cannot be imposed when assessee voluntarily disclosed additional income during survey ... Penalty u/s. 271(1)(c) - income admitted by the assessee during the survey proceedings - HELD THAT:- Assessee has declared the additional income which was accepted by the AO and brought to tax. AO cannot impose penalty u/s. 271(1)(c) of the Act based on the voluntary disclosure by the assessee. AO has also not brought on record any corroborative evidence but has purely proceeded to levy the penalty based on assumptions that the assessee has concealed the income or furnished the inaccurate particulars of income while filing the original return of income wherein if the survey was not conducted on the assessee, this income would not have been admitted by the assessee. There cannot be any penalty based on surmises, conjectures and possibilities. While invoking the penalty provisions of section 271(1)(c) of the Act it has to be construed strictly. Unless it is found that there is an actual concealment or non-disclosure of the particulars of income, penalty cannot be imposed. In the instant case, there is no such concealment or non-disclosure as the assessee has made a complete disclosure in the return of income offered, surrendered the amount for the purpose of tax. The Explanation-5 and 5A to section 271(1) of the Act are also an exception to the Rule that the income is ultimately brought to tax is declared in a return of income, there can be no question of treating the assessee as having concealed particulars of income or furnished inaccurate particulars of income. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be levied where an assessee, confronted during a survey under section 133A, admits additional income and thereafter files a return disclosing and offering that income to tax. 2. Whether a belated return filed in response to a notice under section 148 (after more than the prescribed 30 days) but within two years of survey/notice precludes treating the disclosure as voluntary for the purposes of section 271(1)(c), having regard to Explanation 3 to section 271(1)(c). 3. Whether penalty proceedings under section 271(1)(c) can be sustained solely on the basis of survey admissions without corroborative evidence or when the assessing officer does not specify the particular limb of section 271(1)(c) being invoked in the initiating notice. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Levy of penalty under section 271(1)(c) where additional income is admitted during survey and subsequently disclosed in return Legal framework: Section 271(1)(c) penalises concealment of income or furnishing of inaccurate particulars; penal provisions are to be strictly construed. Explanations 5 and 5A operate as exceptions where income is ultimately brought to tax by declaration in the return. Precedent Treatment: Coordinate-bench and High Court authorities (e.g., decisions relied upon by the assessee) have held that complete disclosure in the return of income and offering surrendered amount to tax negates imposition of penalty under section 271(1)(c) where there is actual disclosure; the Supreme Court authority considered the sufficiency/particularity of notice under section 274 when invoking penalty proceedings. Interpretation and reasoning: The Tribunal examined whether the mere fact that the additional income was admitted during survey permits imposition of penalty after that income has been declared and accepted in the return. The Court emphasised that penalty cannot rest on surmise or conjecture; actual concealment or furnishing of inaccurate particulars must be established. Where the assessee made complete disclosure in the return and the assessing officer accepted and brought the amount to tax, the foundational element of concealment for section 271(1)(c) is absent. The assessing officer's reliance purely on the survey admission without independent corroborative evidence was held insufficient to establish willful concealment. Ratio vs. Obiter: Ratio - Where surrendered income discovered in survey is subsequently declared in the return and assessed, penalty under section 271(1)(c) cannot be imposed absent evidence establishing actual concealment or inaccurate particulars beyond the survey admission. Obiter - Observations on motives such as 'to buy peace' or avoid litigation were noted but not treated as decisive of the legal test. Conclusion: Penalty under section 271(1)(c) cannot be levied merely because additional income was admitted during survey if the amount is fully disclosed in the return and assessed; absence of corroborative evidence of concealment defeats the penalty. Issue 2 - Effect of delayed filing in response to section 148 and applicability of Explanation 3 to section 271(1)(c) Legal framework: Explanation 3 to section 271(1)(c) draws in disclosures made in response to notices under sections 142(1) or 148 issued within two years; if an assessee files a return within two years in response to section 148, Explanation 3 may apply to treat the disclosure as non-voluntary for penalty purposes. Precedent Treatment: Authorities have differentiated cases where disclosure followed survey without impounded documents from those where documentation seized during survey establishes non-voluntariness; Supreme Court authority (Mak Data) recognises that voluntary disclosure does not automatically absolve penalty but depends on surrounding facts. Interpretation and reasoning: The Tribunal analysed the timing of the belated return (filed more than the immediate 30-day window but after issuance of section 148 notice) and the statutory text of Explanation 3. It noted Explanation 3's operation where a notice under section 142(1) or 148 is issued within two years and the return is filed within two years in response; however, in the present facts the assessing officer did not produce impounded documents or other material to demonstrate that the surrender was not voluntary. The mere fact of delay in filing was insufficient, in the absence of other evidence, to convert a disclosure into concealment for penal purposes. Ratio vs. Obiter: Ratio - Where a return filed in response to section 148 (even belatedly) discloses the surrendered income and there is no corroborative material showing non-voluntariness or concealment, Explanation 3 and timing alone are insufficient to sustain penalty. Obiter - Distinctions drawn with cases in which impounded documents during survey evidenced non-voluntary surrender. Conclusion: Delay in filing the return in response to section 148 does not by itself justify penalty under section 271(1)(c) where the surrendered income is declared and assessed and no further corroborative evidence of concealment is placed on record; Explanation 3's application depends on factual matrix and supporting evidence. Issue 3 - Sufficiency of initiating notice and requirement to specify limb of section 271(1)(c) and reliance on survey admissions without corroboration Legal framework: Procedural safeguards require that notices initiating penalty proceedings adequately state the basis and limb of the penal provision invoked; penalties must be founded on clear material establishing statutory ingredients rather than conjecture. Precedent Treatment: The Supreme Court has held that notices under section 274 must specify the limb of section 271(1)(c) relied upon; cases have invalidated or criticised penalty triggers that lack specificity. Tribunal decisions distinguish facts where notices were defective versus where substantive evidence established concealment. Interpretation and reasoning: The Tribunal considered whether the assessing officer specified the precise ground under section 271(1)(c) in the initiating notice and whether reliance solely on survey admissions sufficed. It observed that in the present case the assessing officer proceeded on the basis of survey admission without producing impounded documents or other corroboration. The Court reiterated that penalty cannot be founded on assumptions; the absence of independent evidence and reliance on conjecture undermines the imposition of penalty. While the decision noted earlier authorities invalidating non-specific notices, the Tribunal found the primary failing in the lack of corroborative material rather than formal notice defect in this record. Ratio vs. Obiter: Ratio - Initiation and imposition of penalty cannot rest solely on survey admission absent corroborative evidence and specification of the basis for penalty; factual insufficiency to prove concealment defeats penalty even if procedural notices were issued. Obiter - Discussion of legislative and judicial emphasis on strict construction of penal provisions and notice particularity. Conclusion: Penalty proceedings predicated only on survey admissions without corroborative evidence of concealment and without clear specification of the limb of section 271(1)(c) are unsustainable; in the present facts the imposition of penalty cannot be sustained. Overall Disposition The Court concluded that the surrendered/additional income admitted during survey was declared in the return and assessed; the assessing officer did not bring corroborative evidence to establish actual concealment or inaccurate particulars; principles of strict construction of penal provisions and the factual matrix established that penalty under section 271(1)(c) could not be sustained. The appeal against imposition of penalty was allowed.