Penalty Provision for concealment of income
Penalty Provision for concealment of income or furnishing of inaccurate particulars.
In the Income Tax Act, 1961 section 271(1) (c) is very peculiar and is applied by all the income tax authorities every now and then. We narrate the actual provision in the Act as enumerate and reproduced here under-
271.(1) If the 23[Assessing] Officer or the 24[***] 25[Commissioner (Appeals)] 26[or the Commissioner] in the course of any proceedings under this Act, is satisfied that any personó>
(c) has concealed the particulars of his income or 31[* * *] furnished inaccurate particulars of 32[such income, or]33
iii) in the cases referred to in clause (c) 40[or clause (d)], 41[in addition to tax, if any, payable] by him, a sum which shall not be less than, but which shall not exceed 42[three times], the amount of tax sought to be evaded by reason of the concealment of particulars of his income 43[or fringe benefits] or the furnishing of inaccurate particulars of such income 43[or fringe benefits].
(a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or
(b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, 59[unless
(1) such income is, or the transactions resulting in such income are recorded,ó
(i) in a case falling under clause (a), before the date of the search ; and
(ii) in a case falling under clause (b), on or before such date,
in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the 60[Chief Commissioner or Commissioner] before the said date ; or
(2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in 61[* * *] sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.]
62[Explanation 5A. ó Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of
(i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or
(ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year,
which has ended before the date of search and,ó
(a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or
(b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.
63[Explanation 6.óWhere any adjustment is made in the income or loss declared in the return under the proviso to clause (a) of sub-section (1) of section 143 and additional tax charged under that section, the provisions of this sub-section shall not apply in relation to the adjustment so made.
64[Explanation 7.óWhere in the case of an assessee who has entered into an international transaction 64a[or specified domestic transaction] defined in section 92B, any amount is added or disallowed in computing the total income under sub-section (4) of section 92C, then, the amount so added or disallowed shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, unless the assessee proves to the satisfaction of the Assessing Officer or the Commissioner (Appeals) 65[or the Commissioner] that the price charged or paid in such transaction was computed in accordance with the provisions contained in section 92C and in the manner prescribed under that section, in good faith and with due diligence.
66[(1A) Where any penalty is imposable by virtue of Explanation 2 to sub-section (1), proceedings for the imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the course of which such penalty proceedings could have been initiated under sub-section (1) have been completed.
67[(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c).
(2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183 68, then notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.
(3) 69[Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.]
(4) If the 70[Assessing] Officer or the 71[***] 72[Commissioner (Appeals)] in the course of any proceedings under this Act, is satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the shares of the partners as shown in the instrument of partnership on the basis of which the firm has been registered under this Act, and that any partner has thereby returned his income below its real amount, he may direct that such partner shall, in addition to the tax, if any, payable by him, pay by way of penalty a sum not exceeding one and a half times the amount of tax which has been avoided, or would have been avoided if the income returned by such partner had been accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by reason of such direction.
(4A) and (4B) [Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. Original sub-sections (4A) and (4B) were inserted by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3-1965. Later on sub-section (4A) was substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.]
(5) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989 shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.
(6) Any reference in this section to the income shall be construed as a reference to the income or fringe benefits, as the case may be, and the provisions of this section shall, as far as may be, apply in relation to any assessment in respect of fringe benefits also.
In general sense, if an assessee conceals his particulars of income or if he furnishes inaccurate particulars about his income to the department any time, he could be penalized with 100% or up to 300% of the tax amount so calculated on this undisclosed income or about furnishing the inaccurate details of his income.
In the history of Income Tax Act almost each and every proceedings are coupled with the penalty proceeding of this kind. At each and every stage the judicial authorities have pronounced different views about this type of penalty matters, depending up on the facts of the case and circumstances produced before the judicial authorities.
The term income includes losses, which is negative income.
The term concealment is adopted as per dictionary meaning, is to hide, or to keep secret, or withdraw from observation or to cover or keep from sight or to prevent the discovery of or to withhold knowledge of. The offence of concealment is thus a direct attempt to hide an item of income or a portion thereof from the knowledge of income tax authorities.
The meaning of the word concealment as found in shorter oxford dictionary third edition volume 1 is as follows-
The law, intentional suppression of truth or fact known to the injury on prejudice of anotheríí.
Whereas, the furnishing of inaccurate particulars connotates that, the assessee furnishes the details which directly affect the taxation of correct income. The expression furnished inaccurate particulars of such income was originally prefixed by the adverb ëídeliberatelyíí which was omitted by the Finance Act, 1964, so that w.e.f. 1st April 1964 the element of Menís Rea was sought to be excluded. However, the furnishing of inaccurate particulars has also to be conscious and hence a deliberate act which is innate in the expression concealment.
However, it is no longer necessary to establish that the assessee had deliberately concealed particulars of his income or furnished inaccurate particulars of the income in view of the amendment of the Finance Act 1964.
The expression ëíhas concealed the particulars of his incomeíí or ëíhas furnished inaccurate particulars of such income though have not been defined in the Income Tax Act, are not identical in details although they may lead to the same effect, namely, keeping off a certain portion of income.
The offence of concealment is a direct attempt to hide an item of income or a portion thereof from the knowledge of the income tax authorities. In furnishing its return of income, as assessee is required to furnish particulars and accounts on which such returned income has been arrived at. These may be the particulars as per its books of accounts, if it has so maintained, or any other basis upon which it has arrived at the returned figure of income. Any inaccuracy made in such books of accounts or otherwise which resulted in keeping off or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income.
Thousands of judicial decisions have been pronounced in the court of law throughout India and at Supreme Court. Decisions have been given on either side on the merits of the case. We narrate certain land mark decisions which will be helpful to plead the proceedings in the department or in court of law at any stage. However, it is sincerely advised that, proper citations may please be referred with the advice of our counsel depending up on the facts and circumstances of the case.
Price water House cooper Pvt. Ltd. v/s. VCIT: (2012) 25 Taxmann.com 400(SC):
The calibre and expertise of assessee has nothing to do with inadvertent error. Absence of due care such as in the instant case does not mean that assessee is guilty of furnishing inaccurate particulars or attempting to conceal its income.
Deputy commissioner of Income Tax v/s. Nalwa Investments Ltd. : ITA No. 3805 (Del)/2010 on 29th October 2010, New Delhi:-
On careful consideration of various cases relied upon by the assessee, it is found that three major propositions arise there from-(a) penalty proceedings are quasi criminal in nature and therefore, it is for the revenue to establish contumacious conduct on the part of the assessee. (b) if all facts in respect of a claim have been furnished fully and correctly and no falsity is found, therein, then, the claim made on his basis of such does not lead to inference of concealment of income and (c) the penalty is not leviable when there is honest difference of opinion between the assessee and the authorities in respect of admissibility of a claim.
CIT v/s. Nalwa Sons Investment Ltd (SPL No. 18564/2011 (SC) decided on 04/05/2012:-
The Supreme Court dismissed the appeal of department and up held the order of Delhi high court to delete the penalty on account of claim of deduction disallowed u/s. 115JB.
Commissioner of Income Tax v/s. Reliance Petro products (P) Ltd. : (2010) 230 CTR (SC) 320:-
A glance of provision of section 271(1) (c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be held guilty of furnishing inaccurate particulars.
Union of India v/s. Dharamendra Textile Processesor : (2008) 209 CTR (SC) 217
In this landmark judgement of penalty the penalty issue in the content of Mens Rea (Guilty Conscious) was elaborately discussed and principles were laid to levy the penalty.
Hindustan Steel Ltd. v/s. State of Orissa : (1972) 83 ITR 26 (SC)
This is a universally accepted case about the penalty proceeding and being honoured every time on the issue of penalty. The High Court had laid down the principles of penalty proceeding which are as follows- An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party oblige the party oblige other acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted conscious disregard of its obligation. Penalty will not be imposed for failure to perform a statutory obligation in a matter of discretion the authority to be exercised judicially and on a consideration of all the relevant circumstances.
Kanbay Software India Pvt. Ltd. v/s. DCIT : ITA No. 300/PN/07 decided on 28/04/2009 and 31 SOT 153 (Pune)
In this case also the matter was of revised return, however the bonafide intention of the assessee was justified and penalty was dropped.
Union of India v/s. Rajasthan Spinning & Weaving Mills (2009) 180 Taxman 609 (SC)
In this case the penalty under central excise act was made deleted for the short levy or non-levy of duty in certain cases.
CIT v/s. Atul Mohan Bindal (2009) 183 Taxman 444 (SC)
In this case also the penalty was dropped in spite of the assessing officer made certain additions to income declared by assessee.
Commissioner of Income Tax v/s. Suresh Chandra Mittal (2001) 170 CTR (SC) 182
Revised return filed showing higher income- Assessee surrendered the income after persistent queries by A.A-However; revised returns have been regularized revenue. Penalty rightly cancelled.
In the case of Commissioner of Income Tax, West Bengal II v/s. Durga Prasad More (1971) 82 ITR 540 (SC) : Their lordships laying down the significance of him an probabilities held as under-
That though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self -serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surroundings circumstances to find out the reality of such recitalsíí.
In Sunil Siddharthbhai v/s. CIT (1985) 156 ITR 509 (SC)
The Hon. Supreme Court held that it is the right of the Income Tax Authorities to consider genuineness of the transactions and to penetrate the veil and ascertain the truth. It is within their power to consider whether a particular transaction was to evade tax