[2010] 3 taxmann.com 39 (Mum. - ITAT)

In absence of a clear finding as to concealment of income furnishing inaccurate particulars, initiation of penalty proceedings will be without jurisdiction

Even in a case where proceedings for detection of concealment is going on during the assessment proceedings, the assessee surrenders some income and AO drops the proceedings of detection of concealment by accepting assessee's surrender without making further examination or investigation regarding detection of concealment, it can be held that it is not a case of concealment of particulars of income or furnishing of inaccurate particulars of income; because in that situation, the AO does not record satisfaction as required u/s 271(l)

ITAT, MUMBAI BENCH ‘D’, MUMBAI

Rajesh C. Gandhi

v.

ITO

ITA No. 3158/M/2009

March 9, 2010

RELEVANT EXTRACTS:

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8. We have heard the learned representatives of the parties and perused the record as well as gone through the decisions cited. The crux of the matter to be examined in this case is whether surrender of additional income during the course of assessment proceedings amounts to concealment of income or furnishing of inaccurate particulars of income. In case of penalty u/s 271(l)(c), the revenue is heavily relied upon the judgment of the Apex court in the case of Dharmendra Textiles cited supra.

8.1 Income tax is collected from tax payers, who are having taxable income for the welfare of the State. The citizens are bound to pay such income tax as it is a part of their duty to the Nation. The income tax is payable yearly on the annual taxable income, that means, this duty towards the nation is yearly duty of the taxpayers. Under the circumstances some time taxpayers agree to certain additions during assessment proceedings not always because they are convinced that such addition is warranted or otherwise justified, but with a view to bring finality to the whole matter to purchase peace and avoid litigation. The general view has always been that mere admission by itself need not offer immunity to the taxpayer, where the admission has been extorted from him after concealment had been brought home. But there are a number of cases where there is hardly any material to justify the addition at the time when addition is conceded. It is true that in some cases the addition may be agreed with a view to forestall enquiry. Even in such cases it would appear that penalty may not be levy able in absence of any material on record against the taxpayer. It is because a mere attempt to conceal income! has not been specifically made liable for penalty .Even in a case where proceedings for detection of concealment is going on during the assessment proceedings, the assessee surrenders some income and AO drops the proceedings of detection of concealment by accepting , assessee's surrender without making further examination or investigation regarding detection of concealment, held that it is not a case of concealment of particulars of income or furnishing of inaccurate particulars of income; because in that situation, the AO does not record satisfaction as required u/s 271(1). In this regard, the legal position is well settled in view of the Supreme Court decisions in Commissioner of Income Tax, Madras and Anr. Vs. S.V. Angidi Chettiar 44 ITR 739 (SC) and D.M. Manasvi V. Commissioner of Income Tax, Gujarat II, Ahmedabad 86 ITR 557 (SC) that power to impose penalty under section 271(1) of the Act depends upon the satisfaction of the Income Tax Officer in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified in clauses (b), (c) and (d) of section 271(1) of the Act. before the proceedings are concluded. It is true that mere absence of the words 'I am satisfied' may not be fatal but such a satisfaction must be spelt out from the order of the Assessing Authority as to the concealment particulars of income or furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income furnishing inaccurate particulars, the initiation of penalty proceedings will be without jurisdiction.

8.2 The above view is also supported by the provisions of Explanation 1(B) of section 271 of the Act. According to us as per the provisions of Explanation 1(B) of S. 271 of the Act the burden is on the assessee to substantiate the matters stated in the Explanation, that it is settled position in law that there cannot be an estoppels against a statute. It is for the Department to consider the explanation offered by the assessee in respect of an amount which was offered as tax. It is not automatic that whenever an amount was offered by the assessee, penalty is to be levied. Therefore, in the penal proceedings which conceptually differ from assessment proceedings, the assessee can file an explanation justifying its action in not including a particular item of income in its return, though it may have offered the amount to be taxed subsequently, that if such an explanation is offered, the Department has to examine its acceptability and record a finding as to whether the explanation is acceptable or not. Only if the explanation is not found acceptable, the question of penalty will arise. In other words, the explanation of the assessee has to be considered on the merits. During assessment proceedings, if the AO accept the surrender amount, in other words, it can be said that whatever explanation submitted by the assessee in respect of surrender of amount, have been accepted by the AO unless finding is given by the AO that explanation furnished by the assessee was false explanation.

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