IMPORTANT POINT
Scope and ambit of section 271(1)(c) of IT Act discussed.

JUDGMENT

K.S. Radhakrishnan, J.

1. Leave granted.

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 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 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 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 was filed on 22.11.2006, in which the assessee made an offer to surrender a sum of Rs.40.74 lakhs with a view to avoid 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 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.40,74,000/- 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 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 of income was a conditional surrender before any investigation in the matter. The AO did not accept those contentions and imposed a penalty of Rs.14,61,547/- under Section 217(1)(c) of the Act. The assessee challenged that order before the Commissioner of Income Tax (Appeals) by filing Appeal No.2/07-08, which was dismissed vide order dated 17.2.2010. The assessee filed an appeal being ITA No.1896/Del/10 before the Income Tax Appellate Tribunal, Delhi. The Tribunal recorded the following findings :-

“The assessee’s letter dated 22.11.2006 clearly mentions that “the offer of the surrender is without admitting any concealment whatsoever or any intention to conceal.”

The Tribunal took the view that the amount 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, the imposition of penalty solely on the basis of assessee’s surrender could not be sustained. The Tribunal, therefore, 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 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 th