By TIOL News Service

CHENNAI, JUNE 07, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether consequtive revised returns filed by an assessee after intervals, offering the additional income unearthed during search, should not be claimed by assessee as unconsious application of mind, for escaping the penal consequences. YES IS THE VERDICT.

Facts of the case:

During the relevant year, a survey was conducted in the premises of assessee, which led to the passing of assessment order, wherein the differences in the balances of four major suppliers of the assessee were worked out. In response, the assessee explained that reconciliation of closing balance had not been effected and arose on account of the running balance maintained by assessee in respect of the transactions with four suppliers, which excluded credit notes. It was further submitted that since the assessee wanted to purchase peace with the Department, additional income totalling Rs.168,45,190/- was offered vide two revised returns. Even though, the assessee was penalised u/s 271(1)(c). The assessee questioned this action of Department by filing both appeals as well as revision petition u/s 264 by contending that the AO had not granted any opportunity to the assessee to reconcile the closing balance and had arbitrarily foisted allegations of irregularities and deficiencies in the assessee's account that were factually and legally untenable and incorrect. The Commissioner however proceeded on the basis that it was only on account of the penalty proceedings, that the revision applications were filed and the main contention raised by the assessee that additional income offered, did not represent the reconciled correct figures, after taking into account the credit note in respect of four major suppliers, were not considered. Accordingly, the Commissioner rejecting the revision petition terming it as erroneous. This order of the Commissioner was challenged before the Tribunal, but in vain. The Tribunal did not consider the justification for levy of penalty, when the assessee had agreed to certain additions on the specific contention that the penalty would not be levied by the Department. Hence, the assessee company had preferred present appeal challenging the Tribunal's order in observing that the validity of the assessment proceedings could not be challenged in a penalty proceedings.

High Court held that,

++ it is an admitted fact that after the survey operations, the assessee filed revised returns. Therefore, the Tribunal was justified in rejecting the case of assessee stating that because the Revenue assured that the penalty proceedings will not be initiated, if addition is admitted, therefore, revised return were filed. The Supreme Court in Mak Data (P) Ltd. case, pointed out that the AO shall not be carried away by the plea of assessee like "voluntary disclosure", "buy peace", "avoid litigation", "amicable settlement" etc., to explain away its conduct. It was further pointed out that the question is whether the assessee has offered any explanation for concealment of particular income of furnishing inaccurate particulars of income. It was pointed out that explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the AO between the reported and assessed income. That burden is then on the assessee to show, otherwise, by cogent and reliable evidence, when the initial onus placed by the explanation, has been discharged by the assessee, the ownership's is on the Revenue to show that the amount in question constituted the income and not otherwise. Therefore, the irresistible conclusion to be arrived, is that the revised returns filed by the assessee, cannot be termed to be voluntary, as it was done by the assessee after the Revenue deducted non-disclosure inflation of purchases and concealment of income during the search proceedings;

++ the Tribunal while approving the view taken by the CIT(A), held that there was specific evidence in respect of inflation of stock, inflation of purchase, inflation of sundry creditors, etc, which constitute valid evidence for holding that the assessee has concealed its income. Further, it was pointed out that the assessee WHEN confronted with these materials, had accepted the inflation and offered income for taxation and the assessee had no suitable explanation against the evidences found during survey. On a perusal of the order passed by the CIT(A), it is seen that during the course of survey, incriminating evidences regarding the purchase were found and the statement of the assessee was recorded. The stock statement showed a negative figure of Rs.13,71,146/- and there was a difference in closing balances in case of four sundry creditors and the total difference worked out to Rs.1,68,45,192/ and the assessee accordingly filed revised return admitting additional income. Thus, during the search, there was specific evidence on account of stock, on account of purchases, sundry creditors and closing balances of the stock. The assessee was given an opportunity to explain and no where rebutted the evidences, which were recovered during the course of survey. Thus, in the absence of any explanation, the assessee has come forward by filing revised return. Thus, the stand taken by the counsel for assessee that the contentions advanced by it were not considered by the CIT(A) or for that matter the Tribunal, deserves rejection. It was argued that merely by filing a revised return and offering additional income will not by itself be a ground to levy penalty. This is a broad legal principle, but has to be applied by taking note of the facts of each case. The assessee has to satisfy the test that he has a satisfactory explanation regarding such income offered in the revised return. The explanation as to why there was an omission or wrong statement in the original return must be due to bona fide inadvertence or bona fide mistake on the part of assessee. In the instant case on facts, it was found that there was no such assurance;

++ a reading of the order passed by CIT(A) as confirmed by the Tribunal would clearly show that the materials, which were recovered during the search proceedings reveal concealment of income and the assessee agreed for the additions and it would be too late for the assessee to now state that the authorities are not justified in levying penalty, especially when the assessee had no satisfactory explanation as to why he had offered income in the revised return. It is a settled legal position that the burden is on the assessee to prove non-concealment against additional income disclosure in the revised return.The challenge in the Writ Petitions is to the order passed by the CIT, rejecting the petition filed u/s 264. For the A.Y 2001-02, the stand taken by the assessee was that the addition made in respect of credit balances appearing in the names of two parties, was not proper in as much as the said balances are correct, though the parties are not traceable. The assessee further stated that the difference in closing balance was added as 'income' without proper investigation or verification of the correctness of the figures. It was further submitted that the difference was treated as purchase inflation and therefore, closing stock should have been correspondingly adjusted, which was not done. Further, the amount of Rs.3,19,021/- was offered to tax to purchase peace with the Department and on assurance that they would be no liability, interest and penalty. The Commissioner considered the said factual submission and rejected the same as being erroneous, by taking note of the record of proceedings that addition was made after the same was offered for taxation by the assessee. Further, the Commissioner has noted that as per the assessee's own version, the trade creditors were not traceable. Thus, there are no extraneous circumstances warranting interference on the factual findings recorded by the Commissioner affirming the findings recorded by the AO for the year 2001-02;

++ with regard to the A.Y 2002-03, the sum and substance of the contention of assessee is that the disclosure of additional income of Rs.1,68,45,194/- does not represent the correct figure, since final reconciliation was not done. After taking note of the contentions raised by assessee, the Commissioner took note of the declaration given by the senior partner of the assessee firm at the time of survey, which was based upon the documents discovered during the course of survey and then rejected the contention of assessee that the declaration of additional income was made in a hurry without proper appreciation of account. It was pointed out that the additional income of Rs.1.40 crores, was declared during the course of survey which was further enhanced to Rs.1.68 crores and these figures have been shown in two revised returns filed by the assessee. In this regard, the letter given by the senior partner of the assessee firm, was taken note of. Thus, factually the Commissioner concluded that the contention of assessee that additional income was offered without application of mind, was rejected. In the said order also, the Commissioner has noted that the order imposing penalty, has been confirmed by the Tribunal. Be it noted that the assessee had filed two revised returns. In the first revised return, the assessee offered additional income of Rs.1.40 crores. At that point of time, the assessee did not take a stand that there was insufficient time or the same does not represent correct figures etc. Assuming, it was so, then the assessee had other remedies upon filing a revised return accepting additional income of Rs.1.40crores. The assessee did not avail any such remedy, but on the contrary filed a second revised return admitting additional income of Rs.1.68 crores. Thus, the Commissioner on facts rightly held that the contention of assessee that additional income was offered without due application of mind, is to be rejected and the offer made by the assessee was a conscious one.

(See 2018-TIOL-1080-HC-MAD-IT)