When The Assessee Has Suo Moto Declared Income During The Survey, There Is No Penalty Under Section 271(1)(C).

Facts and Issue of the case

This appeal by the Revenue is directed against the order passed by the CIT(A)-3, Pune on 03-12-2019 deleting the penalty of Rs.52,95,454/- imposed by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter also called `the Act’) in relation to the assessment year 2014-15.

The assesse filed its return on 06-11-2015 declaring total income of Rs.1,55,79,450/-. The total income included a sum of Rs.1.50 crore declared by the assessee as additional income during the course of survey u/s.133A of the Act conducted on 24-02-2015. The Assessing Officer (AO) completed the assessment at the returned income and thereafter imposed the penalty u/s.271(1)(c) of the Act on the income of Rs.1.50 crore. The reason given by the AO was that the assessee would not have offered its income if the survey had not taken place. The penalty came to be deleted in the first appeal.

Observation of the court

Having heard the rival submissions and gone through the relevant material on record, it is observed that the assessee was subjected to survey on 24.02.2015. During the course of survey proceedings, the assessee surrendered income of Rs.1.50 crore which was promptly included in the return of income filed afterwards. It is pertinent to mention that the assessee had not filed any return of income u/s 139(1) of the Act. The return filed on 06.11.2015 was the only return filed by it for the year under consideration for the first time u/s 139(4) of the Act. There is no denial of the fact that the belated return was otherwise within the stipulated time frame. The AO accepted the returned income and did not make any addition. After that, he imposed penalty on the amount offered by the assessee in the return of income pursuant to survey. Under these circumstances, a question arises as to whether the assessee can be visited with penalty u/s.271(1)(c) on such income?

The judgment of the Hon’ble Supreme Court in MAK Data Pvt. Ltd. Vs. CIT (2013) 358 ITR 593 (SC) does not come to the rescue of the Revenue. The assessee in that case filed his return on 27-10-2004 declaring income of Rs.16.17 lakh. Prior to that, a survey action was taken against the assessee on 16-12-2003. No income was offered during the course of survey and as such nothing was included in the return filed after the date of survey on that count. It was during the course of assessment proceedings and in reply to show cause notice filed on 22-11- 2006 that the assessee made an offer of surrendering a sum of Rs.40.74 lakh. The AO accordingly completed the assessment by making this addition and thereafter imposed penalty. It was in this backdrop of the facts that the Hon’ble Supreme Court held that the penalty u/s.271(1)(c) was rightly imposed because the disclosure of the assessee was immaterial. The Hon’ble Supreme Court observed that “Explanation to section 271(1) raises a presumption of concealment, when difference is noted by the AO, between reported and assessed income”. It was in this factual scenario where the income reported by the assessee in the return of income was lower than the income finally assessed by the AO, that the Hon’ble Supreme Court held that the penalty was rightly leviable.

Turning to the facts of the extant case, it is found that the reported income and the assessed income of the assessee remain the same. The AO has imposed penalty only with reference to the amount of Rs.1.50 crore which was suo motu declared by the assessee in the return. In that view of the matter, the ratio laid down in MAK data Pvt. Ltd. (supra) has no application to the facts of the extant case as the income under consideration, forming the foundation for the penalty, is not the one which was added by the AO beyond the income returned. In view of the fact that the assessee voluntarily offered the income, declared in the survey, in the return of income and the assessment was made without making any addition on that score, court held that such an income cannot constitute the bedrock for the imposition of penalty u/s.271(1)(c) of the Act.