MAK DATA P. LTD.versusCOMMISSIONER OF INCOME TAX-II

                       [2013) 10 S.C.R. 570


A                      MAK DATA P. LTD.
                                V.
               COMMISSIONER OF INCOME TAX-II
                 (Civil Appeal No. 9772 of 2013)
                       OCTOBER 30, 2013
B
         [K.S. RADHAKRISHNAN AND A.K. SIKRI, JJ.]

        Income Tax Act, 1961 - s.271 rlw s.274 - Explanation 1
    to s.271(1)(c) - Scope of - Concealment of income - Penal
C proceedings against appellant - Challenge to - Held:
  Explanation to s.271(1) raises a presumption of concealment,
  when a difference is noticed by the AO, between reported and
  assessed income - Burden is then on the assessee to show
  otherwise, by cogent and reliable evidence - When the initial
D onus placed by the Explanation, is discharged by him, the
  onus shifts on the Revenue to show that the amount in
  question constituted the income and not otherwise - The law
  does not provide that when an assessee makes a voluntary
  disclosure of his concealed income, he had to be absolved
E from penalty - On facts, the surrender of income by appellant-
  assesse was not voluntary in the sense that the offer of
  surrender was made in view of detection made by the AO in
  the search conducted in the sister concern of the assessee -
  Had it been the intention of the assessee to make full and
F true disclosure of its income, it would have filed the retum
  declaring an income inclusive of the amount which was
  surrendered later during the course of the assessment
  proceedings - Clearly the assessee had no intention to
  declare its true income - The AO had recorded a categorical
G finding that he was satisfied that the assessee had concealed
  true particulars of income and was liable for penalty
  proceedings under s.271 r/w s.274 - No illegality found in the
  department initiating penalty proceedings against the
  appel/ant-assessee.

H                               570
MAK DATA P. LTD. v. COMMISSIONER OF INCOME 571
                     TAX-II
    The Appellant-assessee filed its return of income. A
The case was selected for scrutiny and notices were
Issued under Sections 143(2) and 142(1) of the Income
Tax Act. The Assessing Officer (AO) issued show-cause
notice seeking specific information regarding certain
documents pertaining to share applications found In the B
course of survey proceedings under Section 133A
conducted in the case of a sister concern of the
assessee. In reply to _.the show-cause notice, the
assessee made offer to surrender a sum of Rs.40.74 lakhs
with a view to avoid litigation and buy peace and to make c
an amicable · settlement of the dispute. The AO after
verifying the details and calculations of the share
application money accepted by the appellant-Company
completed the assessment, and a sum of Rs.40,74,000/-
was brought to tax, as "income from other sources" and D
the total income was assessed at Rs.57,56,700/-. The
department thereafter initiated penalty proceedings for
concealment of income and not furnishing true
particulars of its income under Section 271(1)(c) of the
Income Tax Act. The AO imposed a penalty of
Rs.14,~1,547/- under Section 217(1)(c) of the Act. The E
Tribunal set aside the penalty order, holding that the
am~t of Rs.40,74,000/- was surrendered to settle the
diSpute with the department and since the assessee, for
one reason or the other, agreed or surrendered certain
amounts for assessment, imposition of penalty solely on F
the basis of assessee's surrender could not be sustained.
The High Court set aside the judgment of Tribunal holding
that there was absolutely no explanation by the assessee
for the concealed income of Rs.40,74,000/-; and in
absence of any explanation in respect of the surrendered G
income, the first part of clause (A) of Explanation 1 to
Section 271(1)(c) of the Act was attracted.
    Dismissing the appeal, the Court
                                                         H
    572    SUPREME COURT REPORTS            [2013} 10 S.C.R.


A       HELD: 1.1. The Tribunal has not properly understood \.,
   or appreciated the scope of Explanation 1 to Section ·
   271 (1 )(c) of the Income Tax Act. The AO should not be
   carried away by the plea of the assessee like "voluntary
   disclosure", "buy peace", "avoid litigation", "amicable
B settlement", etc. to explain away its conduct. Explanation
   to Section 271 (1) raises a presumption of concealment,
   when a difference is noticed by the AO, between reported
   and assessed income. The burden is then on the
   assessee to show otherwise, by cogent and reliable
c evidence. When the initial onus placed by the
 · Explanation, has been discharged by him, the onus shifts
   on the Revenue to show that the amount in question
   constituted the income and not otherwise. [Paras 6, 7]
   [576-D; 577-B-D]
D      1.2. In the instant case, the assessee has only stated
  that he had surrendered the additional sum of
  Rs.40,74,000/- with a view to avoid litigation, buy peace
  and to channelize the energy and resources towards
  productive work and to make amicable settlement with
E the income tax department. Statute does not recognize
  those types of defences under the Explanation 1 to
  Section 271 (1 )(c) of the Act. It is trite law that the
  voluntary disclosure does not release the Appellant-
  assessee from the mischief of penal proceedings. The
F law does not provide that when an assessee makes a
  voluntary disclosure of his concealed income, he had to
  be absolved from penalty. [Para 8] [577-D-F]
       1.3. The surrender of income in this case is not
  voluntary in the sense that the offer of surrender was
G made in view of detection made by the AO in the search
  conducted in the sister concern of the assessee. In that
  situation, it cannot be said that the surrender of income
  was voluntary. AO during the course of assessment
  proceedings noticed that certain documents comprising
H of share application forms, bank s!.a tements,
MAK DATA P. LTD. v. COMMISSIONER OF INCOME 573
                         TAX-II
memorandum of association of companies, affidavits,             A
copies of Income Tax Returns and assessment orders
and blank share transfer deeds duly signed, have been
impounded in the course of survey proceedings under
Section 133A conducted in the case of a sister concern
of the assessee. The survey was conducted more than             s
10 months before the assessee filed its return of income.
Had it been the intention of the assessee to make full and
true disclosure of its income, it would have filed the return
declaring an income inclusive of the amount which was
surrendered later during the course of the assessment           c
proceedings. Consequently, it is clear that the assessee
had no intention to declare its true income. It is the
statutory duty of the assessee to record all its
transactions in the books of account, to explain the
source of payments made by it and to declare its true           D
income in the return of income filed by it from year to
year. The AO recorded a categorical finding that he was
satisfied that the assessee had concealed true particulars
of income and is liable for penalty proceedings under
Section 271 read with Section 274 of the Income Tax Act,        E
1961. [Para 9] [577-F-H; 578-A-D]

      1.4. The AO has to satisfy whether the penalty
proceedings be initiated or not during the course of the
assessment proceedings and the AO is not required to
record his satisfaction in a particular manner or reduce        F
it into writing. No illegality is found in the department
initiating penalty proceedings in the instant case. [Paras
10, 11] [578-E, G]

    Union of India vs. Dharmendra Textile Processors (2008)     G
13 SCC 369: 2008 (14) SCR 13 and CIT vs. Atul Mohan
Bindal (2009) 9 sec 589: 2009 (13) SCR 464 - relied on.

                    Case Law Reference:
                          \

    2008 (14) SCR 13          relied on           Para 10       H
    574      SUPREME COURT REPORTS              [2013] 10 S.C.R. .


A         2009 (13) SCR 464        relied on            Para 10
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    9772 of 2013.

      From the Judgment and Order dated 22.01.2013 of the
B High Court of Delhi at New Delhi in ITA 415 of 2012.

          S. Krishan, Rani Chhabra for the Appellant.

      V. Shekhar, Purnima Bhat, Reshmi Malhotra, Piyush Jain,,
C Vishal Saxena, Ashly Cherian, S. Rama, Anil Katiyar for the
  Respondent.

          The Judgment of the Court was delivered by

          K.S. RADHAKRISHNAN, J. 1. Leave granted.
D
       2. The Appellant-assessee filed his return of income for
  the assessment year 2004-05 on 27th October, 2004, declaring
  an income of Rs.16, 17,040/- along with Tax Audit Report. The
  case was selected for scrutiny and notices were issued under
  Sections 143(2) and 142(1) of the Income Tax Act. During the
E course of the assessment proceedings, it was noticed by the
  Assessing Officer (AO) that certain documents comprising of
  share application forms, bank statements, memorandum of
  association of companies, affidavits, copies of Income Tax
  Returns and assessment orders and blank share transfer
F deeds duly signed had been impounded. These documents
  had been found in the course of survey proceedings under
  Section 133A conducted on 16.12.2003 in the case of M/s
  Marketing Services (a sister concern of the assessee). The AO
  then proceeded to seek information from the assessee and
G issued a show-cause notice dated 26.10.2006. By the show-
  cause notice, the AO sought specific information regarding the
  documents pertaining to share applications found in the course
  of survey, particularly, bank transfer deeds signed by persons,
  who had applied for the shares. Reply to show-cause notice
H was filed on 22.11 .2006, in which the assessee made an offer
 MAK DATA P. LTD. v. COMMISSIONER OF INCOME 575
        TAX-II [K.S. RADHAKRISHNAN, J.]
to surrender a sum of Rs.40.74 lakhs with a view to avoid A
litigation and buy peace and to make an amicable settlement
of the dispute. Following are the words used by the assessee:-

      "The offer of surrender is by way of voluntary disclosure
     .of without admitting any concealment whatsoever or with
                                                                8
      any intention to conceal and subject to non-initiation of
      penalty proceedings and prosecution."

      3. The AO after verifying the details and calculations of the
 share application money accepted by the Company completed
 the assessment on 29.12.2006 and a sum of Rs.40,74,0001- C
 was brought to tax, as "income from other sources" and the total
 income was assessed at Rs.57,56,700/-.

       4. The department initiated penalty proceedings for
  concealment of income and not furnishing true particulars of its D
  income under Section 271 (1 )(c) of the Income Tax Act. During
  the course of the hearing, the assessee contended that penalty
  proceedings are not maintainable on the ground that the AO
  had not recorded his satisfaction to the effect that there has
  been concealment of income/furnishing of inaccurate
. particulars of income by the assessee and that the surrender E
  of incor:ne was a conditional surrender before any investigation
  in the matter. The AO did not accept those contentions and
  imposed a penalty of Rs.14,61,5471- under Section 217(1)(c)
  of the Act. The assessee challenged that order before the
  Commissioner of Income Tax (Appeals) by filing Appeal No.2/ F
  07-08, which was dismissed vide order dated 17.2.2010. The
  assessee filed an aRpeal being ITA No.18961Dell1 O before the
  Income Tax Appellate Tribunal, Delhi. The Tribunal recorded the
  following findings :-
                                                                 G
     "The assessee's letter dated 22.11.2006 clearly mentions
     that "the offer of the surrender is without admitting any
     concealmenfwhatsoever or any intention to conceal."

     The Tribuna) took the view that the amount of
                                                                  H
    576          SUPREME COURT REPORTS              (2013) 10 S.C.R.


A Rs.40,74,000/- was surrendered to settle the dispute with the
  department and since the assessee, for one reason or the
  other, agreed or surrendered certain amounts for assessment,
  the imposition of penalty solely on the basis of assessee's
  surrender could not be sustained. The Tribunal, therefore,
B allowed the appeal and set aside the penalty order.

        5. The Revenue took up the matter in appeal before the
    High Court by filing ITA No.415 of 2012. The High Court
    accepted the plea of the Revenue that there was absolutely no
c   explanation by the assessee for the concealed income of
    Rs.40,74,000/-. The High Court took the view that in the
    absence of any explanation in respect of the surrendered
    income, the first part of clause (A) of Explanation 1 is attracted.
    Holding so, the judgment of the Tribunal was set aside and the
    appeal filed by the Revenue was allowed.
0
         6. We have heard counsel on either side. We fully concur
    with the view of the High Court that the Tribunal has not properly
    understood or appreciated the scope of Explanation 1 to
    Section 271(1)(c) of the Act, which reads as follows:-
E
          Explanation 1 - Where in respect of any facts material to
          the computation of the total income of any person under
          this Act, -

           (A)    Such person fails to offer an explanation or offers
F                 an explanation which is found by the Assessing
                  Officer or the Commissioner (Appeals) or the
                  Commissioner to be false, or

           (B)    Such person offers an explanation which he is not
G                 able to substantiate and fails to prove that such
                  explanation is bona fide and that all the facts
                  relating to the same and material to the computation
                  of his total income have been disclosed by him,
                  then the amount added or disallowed in computing
H                 the total income of such person as a result thereof
MAK DATA P. LfD. v. COMMISSIONER OF INCOME 577
       TAX-II [K.S. ·RADHAKRISHNAN, J.]
            shall, for the purposes of clause (c) of this sub-        A
            section, be deemed to represent the income in
            respect of which particulars have been concealed."

     7. The AO, in our view, shall not be carried away by the
plea of the assessee like "voluntary disclosure", "buy peace",
                                                                      8
"avoid litigation", "amicable settlement", etc. to explain away
its conduct. The question is whether the assessee has offered
any explanation for concealment of particulars of income or
furnishing inaccurate particulars of income. E'xplanation to
Section 271(1) raises a presumption of concealment, when a
difference is noticed by the AO, between reported and                 C
assessed income. The 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 him,
the onus shifts on the Revenue to show that the amount in
question constituted the income and not otherwise.                    D

     8. Assessee has only stated that he had surrendered the
additional sum of Rs.40,74,000/- with a view to avoid litigation,
buy peace and to channelize the energy and resources towards
productive work and to make amicable settlement with the              E
income tax department. Statute does not recognize those types
of defences under the explanation 1 to Section 271 (1)(c) of the
Act. It is trite law that the voluntary disclosure does not release
the Appellant-assessee from the mischief of penal
proceedings. The law does not provide that when an assessee           F
makes a voluntary disclosure of his concealed income, he had
to be absolved from penalty.

     9. We are of the view that the surrender of income in this
case is not voluntary in the sense that the offer of surrender was
made in view of detection made by the AO in the search G
conducted in the sister concern of the assessee .. In that
situation, it cannot be said that the surrender of income was
voluntary. AO during the course of assessment proceedings
has noticed that certain documents comprising of share
application forms, bank statements, memorandum of H
    578     SUPREME COURT REPORTS                (2013] 10 S.C.R.


A association of companies, affidavits, copies of Income Tax
  Returns and assessment orders and blank share transfer
  deeds duly signed, have been impounded in the course of
  survey proceedings under Section 133A conducted on
  16.12.2003, in the case of a sister concern of the assessee.
8 The survey was conducted more than 10 months before the
  assessee filed its return of income. Had it been the intention
  of the assessee to make full and true disclosure of its income,
  it would have filed the return declaring an income inclusive of
  the amount which was surrendered later during the course of
C the assessment proceedings. Consequently, it is clear that the
  assessee had no intention to declare its true income. It is the
  statutory duty of the assessee to record all its transactions in
  the books of account, to explain the source of payments made
  by it and to declare its true income in the return of income filed
  by it from year to year. The AO, in our view, has recorded a
D categorical finding that he was satisfied thatthe assessee had
  concealed true particulars of income and is liable for penalty
  proceedings under Section 271 read with Section 274 of the
  Income Tax Act, 1961.

E      10. The AO has to satisfy whether the penalty proceedings
  be initiated or not during the course of the asse$sment
  proceedings and the AO is not required to record his
  satisfaction in a particular manner or reduce it into writing. The
  scope of Section 271 (1 )(c) has also been elaborately
F discussed by this Court in Union of India vs. Dharmendra
  Textile Processors (2008) 13 SCC 369 and CIT vs. Atu/
  Mohan Bindal (2009) 9 SCC 589.
       11. The principle laid down by this Court, in our view, has
  been correctly followed by the Revenue and we find no illegality
G in the department initiating penalty proceedings in the instant
  case. We, therefore, fully agree with the view of the High Court.
  Hence, the appeal lacks merit and is dismissed. There shall
  be no order as to costs.

H B.B.B.                                       Appeal dismissed.,