TaxTMI 
TaxTMI 
TaxTMI 
2009 (5) TMI 130
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....sessee had declared total income of Rs. 1,22,820/-. In regard to assessment year 2004-05, the assessee filed a return on 29.10.2004 declaring total income of Rs. 1,36,860/-. Assessment proceedings were set afoot by issue of notices under Section 143(2) on 31.01.2006. Detailed questionnaires were also issued for these two years requiring the assessee to inter-alia furnish the details of loans or gifts taken or given during the relevant years. In response thereto, it was pointed out that the assessee received gifts of Rs. 14.31 lac and Rs. 1,15,11,748/- in the previous years relevant to assessment years 2003-04 & 2004-05 respectively. These gifts were also surrendered for taxation. In view thereof the total income for assessment year 2003-04 was assessed at Rs. 15,53,820/- and for assessment year 2004-05 at Rs. 1,16,48,608/-. The Assessing Officer was of the view that the assessee furnished inaccurate particulars of income and concealed the particulars of income in both the years. Therefore, penalty proceedings under Section 271(1)(c) were initiated. It was explained that the assessee had filed copies of gift deed and other related papers and also offered additional incomes for taxat....
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....e to be penalized under Section 271(1)(c). It was further held that it was not necessary for the Assessing Officer to expressly state in the notice that the Explanation to Section 271(1)(c) is being invoked. On the basis of this decision, it was pointed out that assessee was put to notice about the contents of the Explanation when notice under Section 271 was issued to him. He also referred to the decision of Hon'ble Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC), relied upon by the assessee. One of the questions before the Hon'ble Court was whether, there was any material to warrant the finding that the assessee company had concealed the particulars of its income or deliberately furnished inaccurate particulars thereof within the meaning of Section 271(2) of the Income-tax Act, 1961? The Assessing Officer had made three additions of Rs. 48,500/-, Rs. 67,500/- and Rs. 21,700/- in respect of the cost of cane, shortage of cane and salary of outstation staff respectively. The assessee accepted these additions. In penalty proceedings, the case of the assessee was that the additions were accepted bec....
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....enalty could be levied where the additional income has been offered prior to its detection by the Assessing Officer. The detection of something was distinguished from mere holding of suspicion, which may lead to further inquiry. Such inquiry may affirm or disaffirm the suspicion. Coming to the decision in the case of K.P. Madhusudhanan (Supra), relied upon by the Assessing Officer, it was pointed that even after insertion of the Explanation in the section, penalty proceedings continued to be penal proceedings. The question whether the assessee has concealed the particulars of income or furnished inaccurate particulars of income is a question of fact. The effect of the Explanation is that initial burden is cast on the assessee to furnish the explanation. However, this burden is in the nature of shifting burden. Therefore, if the explanation is offered the burden would shift to the Revenue. 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. The amount was offered for taxation to avoid litigation and unnecessary harassment to the donors and the assessee. The Revenue made no effort to inquire in....
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....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. On the basis of this and other cases considered by him, the Ld. CIT(A) came to the conclusion that since affidavits were filed regarding genuineness of the gifts, the assessee had substantiated its explanation. Therefore, the decision in the case of K.P. Madhusudhanan (Supra) was not applicable but the decision in the case of Shri K.C. Builders (Supra) was applicable. In view thereof, the appeals for both the years were allowed. 4. Before us, ld. DR referred to the findings of the Assessing Officer to the effect that the gifts were not shown in the return of income and they were offered for taxation only after detailed questionnaires had been issued to the assessee for the two years. After the issuance of the questionnaires, the assessee was in no position to withhold the information about the gifts and, thus, was in no-win position insofar as their taxation is concerned. It was only for this reason that he offered the gifts for the taxation. The assessee had already committed the default of furnishing inaccurate par....
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....lso pointed out that the Tribunal had rendered a finding of fact that the Revenue had established the reasons for additions and proved that the addition was on account of concealed income and, we do not find any reason to interfere with the findings of the Appellate Tribunal. On the basis of this judgement, the case of Ld. DR was that the provision contained in Explanation 1 was applicable and the assessee has failed to substantiate his explanation. Further, he relied on the decision of Hon'ble Gujarat High Court in the case of Deepak Construction Co. v. CIT (2007) 208 CTR (Guj) 444 : (2007) 293 ITR 285 (Guj). The question before the Court was whether on the facts and in the circumstances of the case, the Tribunal was right in confirming the penalty of Rs. 67,002/- under Section 271(1)(c)? The case of the Ld. Counsel for the assessee was that nothing was detected and the revised return was acted upon by the Assessing Officer. Therefore, the penalty could not be initiated. The Hon'ble 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 ....
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....ced on the order of the Chandigarh Bench of Tribunal in the case reported in (2005) 93 ITD 1. In that case of Tej Ram v. ITO, the land of the assessee was acquired by the State Government about 15 years ago. In the relevant year, the assessee received enhanced compensation along with interest. The Assessing Officer noticed that while interest was shown at Rs. 13,05,588/-, the total income was declared at Rs. 34,392/- only. The assessee had made out that no tax was payable for assessment years 1987-88 to 1991-92 as more than 10 years had elapsed. However, the Assessing Officer held that the assessee was liable to pay tax in all the years in which the income had been earned. The Tribunal held that the plea taken by the assessee that neither he was liable to show tax payable beyond a period of 10 years nor the same could be deducted by the ITO beyond a period of 10 years, had no merit and the same was rejected. We find that this case has nothing to do with the issue at hand. He had also relied on the decision of Hon'ble Calcutta High Court in the case of CIT v. Amalendu Paul (1983) 34 CTR (Cal) 174 : (1984) 145 ITR 439 (Cal), in which it was held that the burden to prove concealme....
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....me declared in the return. The Assessing Officer completed the assessment on the basis of the returns and the surrender made by the assessee.] Insofar as assessments are concerned, 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. It has not been mentioned by the Ld. Counsel that the impugned gifts were in any manner mentioned in the returns or shown by way of addition to capital annexed with the returns. In the absence thereof, it is held that there was no narration of gifts in any form whatsoever in the returns of income. Thus, 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. Therefore, sudden offer made by the assessee of staggering amounts for taxation, quite disproportionate to his income declared, leads to an inference that at all times he was aware that something was amiss insofar as the gifts are concerned. His action of surrender of the gifts shows that he was aware that he will not be able to discharge even the initial burden cast on him under Section 68 o....
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.... other hand, the case of K.P. Madhusudhanan (Supra) clearly holds that the initial onus to furnish explanation is on the assessee. In this case the assessee had offered the explanation that the surrender was voluntary and without detection. Upon giving this explanation, the Assessing Officer had to see whether the explanation has been substantiated or whether the assessee failed to prove that the explanation was bonafide and all facts relating to the same and material to computation of his total income had been disclosed. The explanation in this case is that the theory of gifts is probable. If this explanation is to be admitted as substantiated, there would have been no need to surrender the gifts for taxation, especially when the amounts of gift were of huge amounts entailing substantial liabilities. It would be out of place to hold that this was done only with a view to avoid harassment as a legitimate inquiry cannot be said to be harassment. The conduct of the assessee in this regard clearly shows that he wanted to hide the gifts even in the return filed after search and seizure operation. In such a situation the surrender of the amount after receipt of the questionnaire cannot ....
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....ance of the said notice. These are the dates and the amounts for A.Y. 2003-04. 11. Likewise for A.Y. 2004-05; a return was filed by the assessee on 29.10.2004 declaring an income of Rs. 1,36,860/-; however when the notice Under Section 153A was served, the assessee had in the like manner pleaded the A.O. to treat the said return to be a return under the applicable provisions of Chapter XIV of IT. Act. 12. Thereafter the assessment proceedings took place and a questionnaire along with notice Under Section 143(2) and 142(1) was issued on 31.01.2006, relevant portion is worth reproduction, as it appeared in the impugned order of CIT(A): That during the Assessment proceedings, the appellant received a Notice dated 31.01.2006 in which the following information were required by the Ld. A.O. Sr. No. 4 Bank Statement of all bank accounts maintained by you individually or jointly with any other person during the financial year along with narration of each debit/credit entry. Sr. No. 9 Cash Flow statement for the financial year under consideration. Sr. No. 10 Had you taken/given any loan/gift during the financial year under consideration? If yes, please furnish details. 13. This is....
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....indiscriminating material was found or not. This factual aspect has been duly recorded by my Learned Brother in para 7 ante. 17. To start with my reasoning of dissent; it is to be noted that apart from the above material fact there was nothing more on record so far as to decide the issue in hand that whether the concealment penalty was rightly imposed under the given circumstances of the case. Rather the precise question is that whether under the facts and circumstances of the case the assessee can be held to be guilty of offering the said amount only on detection of the concealment. Further to be more precise; the vital question is that under given facts can it be held that the concealment of gift was detected at the time of search which was later-on offered during the course of assessment proceedings. Though these questions are allied to each other but as far as Revenue's ground is concerned the question posed to us is simple and precise that whether the CIT(A) has erred in deleting the imposed penalty Under Section 271 (1)(c) of the Act. 18. To proceed with to answer these question; first we have to examine that was there any mention in the challenged orders about detectio....
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.... ingredients are available rather all are missing. So under such a situation can a conclusion be drawn that on detection of the default the said offer was made; naturally the answer is in negative. 20. Based upon the above findings on facts, let us now examine the legal aspect of the problem. 21. The first and the foremost question is the question of mens rea. Though it was diluted in the past however, considering it the fundamental question for alleging a tax payer of criminal mind for imposition of concealment penalty, the Hon'ble Apex Court has recently dealt it at length in the case of Dilip N. Shroff v. JCIT (2007) 210 CTR (SC) 228 : (2007) 291 ITR 519 (SC). Admittedly, it has not been cited by either side before us but since this is a decision of the Hon'ble Supreme Court which has been decided on 18.05.2007 and thereafter cited before us quite often in dl number of appeals hence, it cannot be overlooked. One more reason for which this citation can be said to be helpful to arrive at a right conclusion is because of the existence of an important fact that therein as well the tax payer has accepted the view of the revenue department by not filing the appeal and in thi....
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....whereof the burden of proof shifts from the Department to the assessee. Legal fiction, however, as is well known, must be given full effect when the conditions precedent thereof are satisfied and not otherwise." Unquote. The Hon'ble Court has also defined the word "inaccurate" signifies a deliberate act or omission on the part of the assessee and such deliberate act must be either for the purpose of concealment of income or furnishing inaccurate particulars. Further elaborating the issue; the Court has observed that the A.O. is required to arrive at a finding that the explanation offered by the assessee, in the event he offers one, was false. The assessee must be found to have failed to prove that such explanation is not only bonafide but all the facts relating to the same and material to the income were not disclosed by him. To our understanding; the explanation of the assessee must be succeeded by a finding of the Revenue as to how and in what manner he failed to furnish the particulars of his income. This is an important feature which is missing in the present appeal. These observations of the Hon'ble Court cannot be ignored, rather one must not ignore, that burden of pr....
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.... to examine those basic criteria before arriving at the conclusion of the fixation of concealment liability; rather ought to be a direct evidence unearthed or discovered claimed to be in revenue's possession to conclusively establish the existence of falsehood. The standard of proof naturally defers from case to case however, in the present appeal no standard of proof at all is placed on record. This is quite amazing that there was not a whisper in the assessment proceeding about the malafides of the assessee so as to lead to imposition of concealment penalty. 24. Even for the sake of argument we presume that the said offer was not voluntary but the basic question is that whether the assessee has supplied wrong particulars or wrong information. The answer is in negative because whatever facts and figures were offered has been assessed as such in the hands of the assessee without the slightest difference. Revenue could have challenged the correctness of the said offer if they had an 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....
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....ay 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. 27. Under the totality of the facts and circumstances of the case and in view of the reasons assigned hereinabove it is harsh and unjustifiable to ascribe this assessee to the default of concealment. Rather the merits of the case and the cogent evidences placed on record compel us to exonerate from concealment penalty. Resultantly the findings of Learned CIT(A) are hereby affirmed and the grounds of the Revenue are dismissed. 28. Both the appeals of the Revenue are hereby dismissed. ORDER R.P. GARG, SR. VICE PRESIDENT (THIRD MEMBER) 1. The President Income tax Appellate Tribunal, on a difference of opinion between the two members referred the following points of differences for my opinion as third member: 2. The facts are that the assessee received gifts of Rs. 14.31 lac and Rs. 1,15,11,748/- in the previous years relevant to assessment years 2003-04 & 2004-05 respectively. These gifts were surrendered for taxation. The Assessing Officer entertaining the view that the assessee furnished inaccur....
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....n or gift in the period of consideration and to give details thereof, if it had taken the loan or gift; that 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; that the surrender was made subject to the condition that penalty proceedings would not be initiated; and that the course of events narrated above showed that the Assessing Officer did not have any information to hold that the gifts were not genuine or that they formed part of the total income of the assessee. He referred to the decision of the Supreme Court in the case of K.C. Builders and Anr. (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC) observations at page 569 to the effect that the word "concealment' carried within it the element of mens rea and therefore, mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention ....
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.... the Assessing Officer did not make any inquiry in the assessment proceedings about the genuineness or otherwise of the gifts, but that was not necessary in the face of the surrender made by the assessee by way of letters; that such letters do not obliterate the original returns and suppression of incomes therein; 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; that where even revised returns were not filed, it was difficult to believe that such huge amounts were offered for taxation merely to avoid harassment to the assessee and the donors who were in any case, were non-resident persons beyond the jurisdiction of the Assessing Officer, who could not have been harassed in any manner by him; 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 and therefore, the conduct of the assessee was not bonafide when the returns were filed without in any manner disclosing the factum....
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....rovided by the legislature itself. 7. 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 it 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. 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 amounts were from non-residents came in the hands of the assessee through a prescribed banking channels. So there was an explanation available with the assessee and that explanation was not proved false from the side of the revenue. 8. The situation in the present appeal is that the desirable evidence in the shape of confirmation letters, bank accounts, passport etc. was in the hands of the assessee that would have convinced a reasonably minded person, specially a person ....
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....is concerned. It was only for this reason that he offered the gifts for the taxation. The assessee had already committed the default of furnishing inaccurate particulars of income when the returns for these years were filed. Subsequent offer for taxation did not wash off the defaults. It was argued that the CIT(A) grossly erred in not judging the factual position that large amounts of incomes were not shown in the returns, but were surrendered for taxation only after the receipt of the questionnaires for these years. 12. In order to support the contention that the Assessing Officer was right in levying the penalty, he relied on the decision of the Madras High Court in the case of M. Sahul Hameed Batcha v. ITO (2007) 292 ITR 585 where the ratio in the judgements of the Supreme Court 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) was considered and the Court pointed out that the assessee filed the revised return only after search was conducted in his premises, the omission or wrong statement by the assessee in the original return was found not due to....
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....ding mens rea for infraction of the law. The 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, it was held that penalty was rightly initiated and levied. 13. Learned Counsel of the assessee Shri R.S. Singhvi on the other hand submitted it is a pure and simple case offering certain gifts as income in order to buy peace and avoid further litigation even though gifts were genuine and not income of the assessee by any yardstick; that there was nothing incriminating found in the course of search and seizure operation; that question Nos. 4, 9 & 10 which required the assessee to furnish bank statements, cash flow statements and details of loans or gifts, if any, given or taken in these years which were only to the effect of mer....
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....erial was found therein. It seems that consequent upon the search in response to a notice under Section 153A the assessee opted that the original return be taken as a 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. The assessee furnished the details of the gifts from NRI persons, furnished copies of gift deed. The receipt of gifts is through banking channel. The course of event narrated above showed that the Assessing Officer did not have any information to come to the conclusion that the gifts were not genuine so as to treat them as undisclosed income of the assessee. Until this stage there was nothing on record about the gifts and within four days of the receipt of this notice, the assessee offered the amounts of gifts for taxation by way of a letter. The assessments were completed on the basis of the returns and the surrender made by the assessee without further going into any details of the gifts. This fact, by itself, it is true, may not lead to a conclusion that the assessee had not furnished inaccurate particulars of income in the returns filed b....
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....to be established and it is only a civil liability and therefore K.C. Builders decision of the Supreme Court holding that the word "concealment" inherently involves the mental condition of the assessee with regard to the default may not be a good law. However, that does not mean that the provision contained in Explanation 1 are given a complete go bye and are not applicable. The surrender of the amount after receipt of the questionnaire cannot lead to an inference that it was not voluntary in absence of any material on record suggesting it to be bogus or untrue or the income the assessee before such surrender. 19. The fact, whether there is concealment of income or whether inaccurate particulars thereof have been furnished is essentially a question of fact. To find out that or to decide which, all the attending circumstances have to be taken into account. The question is at what point of time this material fact is to be found out. Generally it is with reference to the return of income and at that time it is to be seen whether there was concealment of income from or furnishing of inaccurate particulars thereof in the return of income chargeable to tax. But there may be cases, where....
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...., be deemed to represent the income in respect of which particulars have been concealed. 20. A perusal of this provision clearly show that it is in the course of any proceedings under the Act, assessment proceedings in this case, that the AO is to be satisfied that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. It is thus to judged at this stage and if at this stage he has declared the correct income and/or furnished accurate particulars of his income then there is no scope, in our opinion, to arrive at the satisfaction by the AO because at that stage there in no such concealment. It disappeared by an action of the AO. In this case the assessee has no doubt did not show the amounts received as alleged gifts as his income, but no details of loans are given in the return nor any other particulars thereof given by the assessee at that stage, not to speak of inaccurate one. When the assessment was taken up and a general enquiry was made by the AO requiring him to furnish details of any loans/gifts, if any, the assessee offered the amounts received as alleged gifts as his income and before it could be detection by the AO. Th....