1. Cancellation of certificate by Commissioner in respect of voluntary disclosure upheld

Tanna And Modi vs. Commissioner of Income-tax & Others [2007] 292 ITR 209 (SC)

1. The Commissioner of Income-tax cancelled the certificate issued under section 68(2) of the Voluntary Disclosure of Income Scheme, 1997 observing as under :
   
   "Subsequent to the filing of declaration and issue of certificate under section 68(2) of the Voluntary Disclosure of Income Scheme, 1997, it has been brought out that search and seizure action was carried out in respect of the assessee on April 18, 1997, relating to the assets declared by the assessee in the Voluntary Disclosure of Income Scheme application filed on December 30, 1997, and this fact was not disclosed by the assessee while filing the Voluntary Disclosure of Income Scheme declaration on December 30, 1997. As the assets declared by the assessee under the Voluntary Disclosure of Income Scheme, 1997, had been discovered earlier by the Income-tax Department during the course of search and seizure action, the Voluntary Disclosure of Income Scheme, 1997 certificate issued under section 68(2) of the Voluntary Disclosure of Income Scheme, 1997 and as such, the certificate under section 68(2) of the Voluntary Disclosure of Income Scheme, 1997 dated March 10, 1998, issued by the Commissioner of Income-tax (Central) –II is held to be null and void."
    

2. The assessee filed a writ petition in the High Court challenging the cancellation of the certificate so issued by the Commissioner. The High Court rejected the writ petition. On appeal to the Supreme Court, the judgment of the High Court was confirmed. The Supreme Court held as under:

   "For the purpose of the application of the provisions of the Income-tax Act, 1961, and the Voluntary Disclosure of Income Scheme, 1997, a firm and its partners may have to be treated differently as a partner of a firm may have income other than his share of profits from the firm."

   " ….. A firm is the conglomeration of its partners, and is not a juristic person. In the instant case, the purported disclosure made by the firm relates to the same amount which has been disclosed by the partners. Even the source of income was found to be the same. As the income of a firm vis-à-vis its partners have a direct co-relation, in our opinion, while construing a statute granting immunity, it should not be construed in such a manner so as to frustrate its object. Keeping in view the purport and object which the 1997 Scheme seeks to achieve, we are of the opinion that in the place of literal interpretation, the rule of purposive construction should be applied."
   
   "Applying the aforementioned principles, and particularly having regard to the nature of fraud practised upon the statutory authorities, we are of the opinion that no case has been made out for invoking our jurisdiction under article 136 of the Constitution of India. The appeal is dismissed."

2. No penalty can be imposed for concealment of income unless there is a deliberate omission on the part of the assessee

T. Ashok Pai vs. Commissioner of Income-tax [2007] 292 TR 11 (SC)

1. The assessee, an individual, was an engineering graduate, who had income by way of salary and income from proprietary business as well as shares in the profits of a number of firms. He gave a power of attorney in favour of his banker. Under an arrangement which had continued for a number of years the shares of the companies which the assessee owned were lodged with and in the custody of the banker. Under his instructions the banker used to purchase shares in various companies and keep them in its physical possession. It also sold the shares of the assessee and delivered the same to the brokers or the parties and also paid or received the sale proceeds and deposited the same in his bank account. For the assessment year 1985-86 the assessee filed his return of income on February 13, 1989. Not being satisfied with the return the Assessing Officer called for better particulars of his investments and the assessee filed a revised return on January 12, 1990, furnishing all the requisite particulars. He also filed an application before the Settlement Commission for settlement of the taxes due but the application was rejected on September 26, 1990. Thereafter the assessee filed a second revised return which was accepted by the Assessing Officer and assessment was made.
    

2. Proceedings for imposition of penalty under section 271(1)(c) were initiated and in the cause shown the assessee contended that he acted bona fide as the tax affairs were being looked after by the professional group working with the banker; but that contention was not accepted and penalty was imposed.
    

3. The Income-tax Appellate Tribunal, however, considered the entire materials brought on record and inter alia opined :

1. When on discovery, some omission or some wrong statement in the original return is found, a penalty proceeding for concealment of any particulars of income or furnishing inaccurate particulars of such income as contemplated under section 271(1)(c) of the Income-tax Act may not be attracted.
    

2. The revised return having been accepted by the Department and the penalty having not been imposed with reference to the original return filed by the assessee, he cannot be considered to be guilty of concealment of income.
    

3. The fault, if any, was with his tax counsel and even the said tax counsel, viz., the Syndicate Bank, cannot be said to have acted in a mala fide manner in preparing the return of income of the assessee wrongly. The bona fides of the assessee are proved by the facts and circumstances of the case."

4. The High Court restored the penalty which was deleted by the Tribunal. On appeal to the Supreme Court the decision of the High Court was reversed. The Supreme Court held as under:
    

"It is, therefore, trite that if an explanation given by the assessee with regard to the mistake committed by him has been treated to be bona fide and it has been found as of fact that he had acted on the basis of wrong legal advice, the question of his failure to discharge his burden in terms of the Explanation appended to section 271(1)(c) of the Income-tax Act would not arise."
 

"The explanation having regard to the decisions of this court, must be preceded by a finding as to how and in what manner he furnished the particulars of his income. It is beyond any doubt or dispute that for the said purpose the Income-tax Officer must arrive at his satisfaction in this behalf. (See CIT vs. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi) and Diwan Enterprises vs. CIT [2000] 246 ITR 571 (Delhi).

"The order imposing penalty is quasi-criminal in nature and, thus, the burden lies on the Department to establish that the assessee had concealed his income. Since the burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitutes good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle."

"Concealment of income" and "furnishing of inaccurate particulars" carry different connotations. Concealment refers to a deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi."

"The word ‘concealment’ inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under section 271(1)(iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income."

"For the reasons aforementioned the impugned judgment cannot be sustained which is set aside accordingly."