Penalty cannot be levied on the basis of voluntary surrender

It has been recently held by the ITAT Mumbai in the case of Heranba Industries Ltd. (PAN/GIR No.- AAACH3787Q) vs. DCIT 9(2), ITA No.2292/Mum/2013, Mumbai, that penalty cannot be levied merely on the basis of an assessee’s surrender that is voluntary.
The Double bench comprising of R. C. Sharma (AM), J. Sanjay Garg (JM) passed the aforesaid judgment in the open court on 08.4.2015.

Facts and circumstances of the case:

This was an appeal preferred by the assessee against the order of CIT(Appeals), dated 18.01.2013,in connection with the assessment year 2009-10 relating to the levy of penalty under section 271(1)(c)of the Income Tax Act.
The appeal was heard on 11.02.2015.The Assessee was represented by Shri Rashmikant C. Modi and the Revenue was represented by Shri Jeetendra Kumar.
The assessee was engaged in manufacturing of insecticides, herbicides, etc. During the relevant assessment year, the assessee filed a return declaring total income of Rs.1.49 crores. During the scrutiny assessment proceedings, the Assessing Officer observed that the assessee received share application money of Rs.89.50,000/- during the relevant assessment year.
The assessee was asked to furnish the particulars of income and necessary evidence along with supporting documents. In accordance with the same, the assessee through a letter dated 01.11.2011 stated that they were not in a position to provide necessary evidence. However they offered to treat the share application money of Rs.89, 50,000/- that was received during the year, as income for the assessment year 2009-10.
The Assessing Officer was not satisfied by the aforesaid explanation and added Rs.89.50 lakhs in the income of the assessee under section 69A and also levied penalty under section 271(1)(c) of the Act.
Being dissatisfied with the impugned order, the assessee preferred an appeal before the CIT (Appeals). The CIT (Appeals) confirmed the order of the Assessing Officer.
The assessee preferred a further appeal against the order of CIT (Appeals) relating to levy of penalty before the ITAT, Mumbai.

The judgment:

The Bench considered the contentions of both sides and carefully went through the orders of the lower authorities and also perused the precedents referred by the lower authorities in the orders pronounced by them and also the citations of both the learned counsels during the hearing.
From the record it was observed at the very beginning that share application money was surrendered by the assessee with a request not to start any penalty proceedings. The Assessing Officer passed the impugned order under section 143(3) of the Act adding surrendered amount under section 69A of the Act on the ground that the assessee has surrendered the said amount after issue of notice against them.
It is admitted by the department that the sum which was added under section 69A of the Act was one that was surrendered by the assessee itself. There was no detection on behalf of the department. The department also did not possess any information except the amount surrendered by the assessee. In such circumstances it cannot be said that there was any concealment of income on behalf of the assessee.
In case of CIT vs. Suresh Chandra Mittal, 251 ITR 9 (SC), the Hon’ble Apex Court observed that if the assessee offers the excess income to buy peace and to avoid levy of penalty under section 271(1) (c) of the Act, penalty cannot be levied.
In the instant case, it cannot be said that there was any malafide intention of the assessee and the Assessing Officer had not brought any evidence to establish that there was any concealment of income on the part of the assessee. During the surrender, there was contention of not initiating any penalty proceedings. No additional issues were discovered by the department to substantiate that there was concealment of income. The Assessing Officer has included the amount of share capital in the total income of the assessee only on the basis of the surrender of the assessee. The Assessing Officer did not refer any proof to show that share capital received by the assessee was fake.
Further it was also not the case of the revenue that any material was found at the premises of the assessee to indicate that the share application money received by the assessee was a concocted affair to accommodate the black money of the assessee.
Thus there was no observation on the part of the Assessing Officer that the share capital was not genuine. The surrender of share capital after issue of the notice under section 143(2) failed to prove that it was not voluntary.
It was found that the assessee has offered the amount of share capital for income tax voluntarily and it was not the case of revenue that the surrender was done after the amount was detected by the department.
It was also evident from the record that Assessing Officer did not point out that the share capital money was not genuine and that the assessee had offered the amount without any particular reason, the furnishing of incorrect details was merely a mistake and not a willful attempt on the part of the assessee to evade income tax.
The Hon’ble Apex Court in the case of CIT vs. Suresh Chandra Mittal 251 ITR 9 (SC) observed that if an assessee surrenders his income after inquiries by the Assessing Officer and where the revised return has already been regularized by the Revenue, any explanation by the assessee that he has declared the extra income to buy peach and to come out of penalty proceedings could be considered as bonafide, as such levy of penalty under section 271(1) (c) was held to unjustified.
In the above circumstances, the levy of penalty under section 271(1)(c) of the Act was deleted by the ITAT, Mumbai and accordingly the appeal of the assessee was allowed.