Additional Income Can't Be Treated As Concealed Income: Kerala High Court

The Kerala High Court has held that additional income cannot be treated as concealed income for the purposes of Section 271(1)(c) of the Income Tax Act.

The bench of Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M. has observed that a satisfactory explanation has been offered by the assessee, well before the issuance of a notice to him under Section 148 of the Income Tax Act, and the admission of additional income made by the assessee has been accepted by the department that completed the assessment under Section 143 read with Section 147 of the Income Tax Act. On that basis, the explanation offered by the assessee with regard to the differential income has to be seen as accepted by the Revenue for the purposes of the explanation under Section 271 of the Income Tax Act.

The respondent or assessee had filed a return for the assessment year 2011–12, declaring a total income. In the return, he had also computed a capital gain. The return was processed under Section 143(1). Subsequently, it came to the notice of the department that there might have been a suppression of the capital gain declared by the assessee in the return that was filed on July 30, 2011. A summons was therefore issued under Section 131 of the Income Tax Act to the respondent or assessee on May 19, 2014, calling for certain details with a view to ascertaining whether there was any suppression of income. While the respondent/assessee sought some time for furnishing the details and the Department granted the assessee the said time by issuing a fresh summons for furnishing the details, the details were eventually furnished by the assessee.

Through another summons, the department called for further details, and those details were also furnished by the assessee. The respondent/assessee informed the Commissioner of Income Tax as well as his Assessing Authority that, on a review of the return that was originally filed by him, he came to understand that he had inadvertently taken into account the cost of bonus shares under capital gains on the sale of equity shares of a company in which he was a shareholder and that the mistake occurred while working the capital gain tax based on the indexed value of equity shares. In the letter, he clearly indicated that he was convinced that the mistake in computation of capital gain had been occasioned at his instance, and therefore he was ready to pay differential tax on the differential amount of Rs. 15,82,63,937 that was computed under the head of capital gain.

The department then proceeded to issue a reassessment notice for re-assessing the tax by including the escaped income.On receipt of the notice, the assessee proceeded to file a fresh return, including the differential amount of capital gain computed by him and intimated by him to the department. The total tax liability of Rs. 3,42,63,389/-, together with the interest liability of Rs. 1,39,81,676/-, was thereafter paid by the assessee along with the return filed pursuant to the notice under Section 148. In total, the respondent or assessee paid an amount towards tax and interest liability for the assessment year 2011–12.

The department proceeded to complete the assessment for the assessment year 2011–12 under Section 143(3), read with Section 147. In the assessment order so passed, there was no addition to the income of the assessee, save to the extent already admitted by him through a letter dated June 23, 2014.

Section 271 of the Income Tax Act states that it is a specific provision providing for the imposition of penalties and is a complete code in itself, regulating the procedure for the imposition of penalties prescribed. The proceedings are therefore to be conducted in accordance therewith, subject always to the rules of natural justice. The provisions for the assessment and levy of tax will not apply as such for the imposition of penalties, and when there is a specific provision, it is true that it alone will govern the imposition of penalties.

In terms of Section 271(1)(c) of the Income Tax Act, the penal provision is attracted only when the conditions therein are fulfilled, namely, when there is a concealment of the particulars of an assessee's income or when the assessee has furnished inaccurate particulars of such income.

The court held that the honesty of an assessee cannot attract the penal provisions under the Income Tax Act, and the essential pre-conditions for the invocation of the provisions of Section 271(1)(c) of the Income Tax Act against the assessee were not established.

Counsel For Petitioner: Jose Joseph

Counsel For Respondent: Ambady Krishna Menon

Citation: 2024 LiveLaw Ker 304

Case Title: The Principal Commissioner Of Income Tax Versus Shri. Ambady Krishna Menon

Case No.: I.T.A.NO.75 Of 2020

Click Here To Read The Order