Penalty u/s 271(1)(c) can be initiated automatically on each cases where "concealment of income or furnished inaccurate particulars of such income"?

Uttam Value Steels Limited vs. ACIT (ITAT Mumbai)- 23 Sep 2017

Question of law discussed: 

Penalty u/d 271(1) (c)  can be imposed where voluntary disclosure of income has been made by the assess and department did not find anything to establish the same?

Important areas of discussion of the case for easy reference:

1- A survey action u/s 133A was taken by the Investigation Wing against the assessee on 19/12/2012. The survey took place at the office premises as well as at the factory premises where  the manufacturing activity is carried on. Not a single piece of paper is found either from the office premises or from the factory premises which could prove or indicate or suggest that the assessee has earned unaccounted income,

2- The assessee on its own voluntarily filed a letter dated 27/12/2012 on 07/01/2013 with the Investigation Wing offering the income of Rs.557.50 crores for A.V. 2007-08 to 2010-11. As no incrementing material/document was found, the assessee was left with no choice but to state that the said income was generated on account of difference in yield, when in fact and in substance there was no defect or error in the yield which is disclosed by the assessee in the regular books of accounts,

3- Without prejudice to the above, the learned CfT (A) failed to appreciate that the Appellant is a loss-making company and has brought forward losses which were entitled to be set off against income, if any, of the current year. This shows that the Appellant never had the intention to conceal its income or furnish inaccurate particulars thereof. 

4- Without prejudice to the above, the learned Cl'T (A) failed to appreciate that the Appellant had suo motu included the income offered during survey in the return which was filed before issuance of notice under sec. 148 which was duly accepted by the AO. Since the returned income was accepted, there is no question of levying penalty on the same,

5-  in the notice issued under section 274 r.w.s. 271, the AO has not satisfied himself and has not struck off the particular charge, that is, penalty sought to be imposed is whether on concealment of income or for furnishing of inaccurate particulars of income,

6- In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty,

7- It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground,

8- The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. 

9- The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind,

10- The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee

11- This, according to the Hon'ble Supreme Court, deprives the assessee of a fair opportunity to explain its stand, thereby, violates the principles of natural justice.

12- It is important to note that penalty proceedings are separate and distinct from the assessment proceedings. The addition of income in the assessment proceedings cannot by itself be the basis for levy of penalty u/s. 271(1)(c) of the Act, more particularly when the assessee has challenged the existence of the income itself.

13- It is a well-settled proposition in law that levy of penalty u/s. 271(1)(c) of the Act is permitted only on those counts on which the same was initiated and satisfaction was recorded. In other words, penalty cannot be levied on a ground which is not specified in the assessment order while

initiating the penalty and for which satisfaction has not been recorded,,

14- The Calcutta High Court in the case of Commissioner of Income Tax v. Suresh Chand Bansal, (2010) 329 ITR 330 (Cal) held that where there was an offer of additional income in the revised return filed by the assessee and such offer is in consequence of a search action, then if the assessment order accepts the offer of the assessee, levy of penalty on such offer is not justified without detailed

discussion of the documents and their explanation which compelled the offer of additional income

15 - Reference of Allahabad High Court in case of Bhairav Lal Verma vs. Union of India 

"As a principle of law it cannot be held that the disclosure of 

the concealed income 'after the raid or search cannot be 

voluntary. It is a question which has to be decided by the 

Department in each case on the basis of the material available 

on the record. The criteria for deciding this question is to find 

out as to whether the Department has any incriminating 

material with regard to the disclosed income. If the answer is 

in the affirmative, the disclosure cannot be said to be 

voluntary. But if the Department has no incriminating material 

with regard to the income disclosed, the disclosure is liable to 

be treated as voluntary even if it was made after raid/ search."

For reading full text of the case please refer link - http://itatonline.org/archives/uttam-value-steels-limited-vs-acit-itat-mumbai-s-2711c-entire-law-on-levy-of-penalty-discussed-in-the-context-of-declaration-made-during-survey-bogus-purchases-bogus-share-capital-accommodati/uttam-value-steels-penalty-271-1-c/