THE issues before the Bench are - Whether penalty proceedings are warranted, when the revised return disclosing the capital gains arising out of transaction in shares was filed, only when the assessee was confronted with adverse evidence, during the process of investigation and enquiry; Whether further, the fact that the assessee had filed revised returns and the same was accepted by himself, can efface the fact of non-disclosure of the income arising under the head of "capital gains" in the original return; Whether such conduct of assessee can be viewed as contumacious and mala-fide and Whether the application of penal provisions are not automatic and the levy itself depends upon the facts and circumstances of each case. And the verdict goes against the assessee.
Facts of the case
Assessee is an individual and had filed return of income on 29.07.2002, admitting salary income. On 11.03.2005, there was an enquiry in the assessee's wife's case as regards certain mutual fund transaction made by her. The wife was called upon to show the source of huge funding for investment in mutual funds. This led to further investigation. In the course of this enquiry and recording of statements, the assessee did not admit that the transactions in shares and the source of acquisition of shares, but later on the assessee admitted the same that he had filed revised return for the year 2002-03, wherein, he offered an amount of Rs.79,08,118 under the head of 'capital gains'. On 14.12.2005, a notice u/s 148 was issued, requesting revised return and on the assessee filing the revised returns, the assessment was completed, thereby assessing long-term capital gains. After completion of assessment, penalty proceedings were initiated on the incorrect particulars of income disclosed in the original returns.
The assessee objected and contended that the assessee had filed the details of the share transactions in its returns for the AY 2004-05 filed on 16.02.2005 and that even before the receipt of notice, he had paid the tax thereon in addition to the TDS. He submitted that there was no addition to the income to the revised returns for 2002-2003 filed by him on 09.05.2005 and hence, no concealment of income could be held to have been detected by the Authority. He pointed out that he had committed an error in the methodology of computing gains pertaining to transaction of shares, which should have been FIFO method. Based on this method corrected income was disclosed and since the original shares were acquired at very low rates, the revised calculation yielded large profits. The assessee also submitted that there was no concealment of income and the filing of revised returns was made voluntary to set right the error that had crept in the original returns.
However, the AO rejected the contention and observed that it was only when investigation was going on against assesse's wife, on the source of huge funding for investment in mutual funds, the assessee was confronted with the situation, where the Department had evidence against the assessee as regards the earning of income on the transaction in shares. It was observed that only then the assessee was forced to admit the same by filing revised returns. Thus, the AO concluded that there was no voluntary filing of revised return by the asseessee, and the penalty proceeding was rightly warranted.
On appeal, the CIT(A) agreed with the assessee that there was no justification for levy of penalty. Aggrieved, the Revenue had filed an appeal before the Tribunal.
The Tribunal, however, agreed with the contentions of the Revenue and pointed out that considering the fact that the second return itself came to be filed only after detection, the contumacious conduct of the assessee in not disclosing the gains earned in the share transaction certainly warranted levy of penalty. The Tribunal observed that mere filing of the revised return would not be sufficient to exonerate the conduct of the assessee in not originally disclosing the amount earned on capital gains on the sale of the shares. The Tribunal also observed that even if the Department had not come across any tangible evidence as regards concealment, yet, when admittedly the original return failed to disclose the assessable income and it was only after investigation, the revised income return was filed.
Aggrieved with this order of the Tribunal, the assessee has filed this present tax appeal before the High Court.
The counsel for the assessee contended that there was no allegation of concealment in the assessment order on the assessment made u/s 143(3) read with section 147. He further pointed out that there was a difference in the methodology of calculation of capital gains and hence, the correction was made out in the revised return. He further argued that the investigation referred to by the Revenue was only against the assessee's wife and there was no concealment of income by the assessee.
Having heard the parties, the High Court held that,
++ we do not find any justifiable ground to set aside the order of the Tribunal, upholding the levy of penalty under Section 271(1)(c) of the Income Tax Act. We may immediately point out herein that the above decision of this Court referred to by the assessee, does not, in any manner, advance the cause of the assessee, since, on facts, this Court accepted the reasoning of the Tribunal and cancelled the levy of penalty. The addition in that case itself arose on account of the assessee agreeing on the addition of income on the percentage of profit. Thus, when the assessment itself was completed as per the direction of the appellate authority adopting 1% of profit, which is not based on any material but based on an offer to purchase peace, this Court held that penalty could not be levied. Contrary to the assertion of the assessee, the facts herein clearly point out to the contumacious conduct of the assessee that but for the investigation and the enquiry made by the Revenue, the revised returns would not have come as regards the income relating to the capital gains, arising on the sale of shares;
++ it is seen from the facts that the enquiry herein made by the DDI was initiated under letter dated 11.03.2005 and a statement was recorded on 11.04.2005. Based on the enquiry, the revised return was filed by the assessee on 09.05.2005, offering an income of Rs.79,08,118/- under the head of capital gains. The original return filed made no reference to the sale of shares at all and it merely indicated the salary income received by the assessee. It may be of relevance to point out herein that leaving aside the valuation on shares, there is hardly any indication as regards the transaction in shares, which, even accepting the assessee's case, had not been a loss. Thus, when confronted with the question on the source of funds on the investment made in mutual fund by the assessee's wife, the assessee took his opportunity first to file the revised returns to set his assessment in order. The fact that the assessee had filed revised returns and the same was accepted, by itself, however, does not efface the fact of non-disclosure of the income arising under the head of "capital gains" in the original return. In the background of this conduct, we do not find any acceptable ground to set aside the order of the Tribunal as held by the Apex Court in a series of decisions;
++ it is not that every case of addition warrants levy of penalty. The application of penal provisions are not automatic and the levy itself depends upon the facts and circumstances of each case. On the incorrectness of the returns originally filed, not disclosing the transaction in shares, the proceedings subsequent to the statement filed certainly indicates the conduct of the assessee. Thus in view of the decision of of the Apex Court in Union of India Vs. Rajasthan Spinning & Weaving Mills on the law propounded on penalty, we reject this Tax Case Appeal and thereby confirm the order of the Tribunal.
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