Very recently, the Supreme Court in the case of MAK Data Pvt. Ltd. vs. CIT (C.A.No.9772 of 2003 ) passed the judgment in connection with section 271(1)(c). It has again raised the issue of imposing penalty under section 271(1) (c) of the Income Tax Act.
The Apex court has stated that even if income surrendered is to purchase peace, penalty should be imposed upon the assessee by the Assessing officer.
Brief facts of the case:
In the said case the assessee filed a return of income for the Assessment year 2004-05 declaring his total income amounting to Rs.16, 17, 040. During the assessment proceedings, the Assessing officer found that some documents consisting of share application forms, bank statements, etc. were impounded in a survey conducted on the sister concern of the assessee under section 133A of the Act.
On 26.10.2006, a show cause notice was sent to the assessee asking information in connection with share applications and transfer deeds executed by the applicants. In reply to the said show cause notice, the assessee offered Rs. 40.74 lakhs as income in the form of a voluntary disclosure without admitting any concealment subject to waiver of penalty proceedings and/or prosecution.
The Assessing officer upon verification of the details of share application accepted the surrender made by the assessee and completed the assessment under section 143(3). He also initiated penalty proceedings against the assessee for concealing income and failure to furnish correct particulars of income. The Assessing officer also imposed penalty amounting to Rs. 14.61 lakhs.
In an appeal filed by the assessee, CIT (A) confirmed the order passed by the Assessing officer. The assessee preferred further appeal where the ITAT allowed the same on the ground that there has not been any concealment of income and the amount was voluntarily surrendered by assessee.
Dissatisfied with the order of ITAT, the Revenue preferred an appeal before the Hon’ble High court where the judgment was pronounced against the assessee and the order of the AO was confirmed.
The judgment Of the Supreme Court:
In cases where there are differences between the returned income and assessed income, assessees have to prove their claim by justifiable and reliable evidence. When onus as per Section 271(1) (c) is discharged by the assessee, then the burden of proving the ground of imposing penalty shifts upon the Revenue.
Reasons cited by the Supreme Court:
The reasons cited by the Apex Court was that pleas like “purchasing peace”, etc. are not recognized by the income tax law in Explanation-1. Moreover it is well settled that voluntary disclosure by an assessee does not release him from the penal proceedings. If the assessee had the intention to declare his true income, he would have filed correct return of income to that effect.