Supreme Court declares involuntary surrender of income does not save one from penalty proceedings

The Apex Court in a recent judgment declared that voluntary disclosure cannot help an assessee to escape from penalty proceedings.

Supreme Court declares involuntary surrender of incomeSupreme Court declares involuntary surrender of income

The law does not allow an assessee to be released from penalty by means of a voluntary disclosure of the income which was earlier concealed by him.

The Supreme Court in Civil Appeal No. 9772 OF 2013 (Arising out of Special Leave Petition (Civil) No.18389 of 2013), MAK Data P. Ltd. – Vs. – the Commissioner of Income Tax, held that the law shall not allow an assessee to escape from penal proceedings merely on the ground that he has disclosed his black money voluntarily.

Brief facts of the case:

The appellant being an assessee filed his return for the assessment year 2004-05 on 27.10. 2004 stating his income to be Rs.16, 17,040/- with a Tax Audit Report. The case was picked up for scrutiny.

Notice was sent as per Sections 143(2) and 142(1) of the Act. During the assessment proceedings, the Assessing Officer (AO) found certain documents such as share application forms, bank statements, copies of Income Tax Returns, share transfer deeds, etc. during a survey dated 16.12.2003 conducted under Section 133A in the sister concern of the assessee. The AO asked for information regarding such documents from the assessee. Thereafter a show-cause notice dated 26.10.2006 was issued by the AO.

The assessee replied to the said show-cause notice on 22.11.2006 wherein the assessee expressed his intention to surrender an amount of Rs.40.74 lakhs to avoid litigation for the purpose of making an amicable settlement with the department.

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The assessee contended that his proposal of surrender was voluntary disclosure without admitting any concealment and subject to non-initiation of penalty proceedings.

The AO verified all the details and an amount of Rs.40, 74,000/- was brought under the head “income from other sources” and the total income of the assessee was considered to be Rs.57, 56,700/-.

The department started penalty proceedings for concealment of income as per Section 271(1) (c) of the Act against the assessee. During the hearing, the assessee argued that penalty proceedings were not applicable as the AO did not record his satisfaction for concealment of income by the assessee and that the surrender of income was a voluntary one.

The AO did not accept the logic and imposed a penalty amounting to Rs.14, 61,547/- as per Section 217(1) (c) of the Act.

The assessee preferred an Appeal being which was dismissed on 17.2.2010. The assessee filed an appeal before the Income Tax Appellate Tribunal which allowed the same and set aside the penalty order.

The Revenue filed an appeal before the High Court which set aside the judgment of the Tribunal and allowed the appeal.

The judgment of the Apex Court:

Justice K.S. Radhakrishnan confirmed the order of the High Court. It was held that the principle laid down by law has been correctly followed by the Revenue since the surrender was not voluntary and it was as a result of the survey proceedings; as such there is no illegality in initiating penalty proceedings against the assessee. It was held that the appeal lacked merit and it was dismissed.

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