THE issue before the Bench is - Whether any addition can be made solely on basis of declaration made by assessee before the Settlement Commission. NO is the verdict.
Facts of the case
The assessee an individual, at the relevant point of time, was working as Manager in JB Education Society. A search and seizure operation u/s 132 was conducted in case of JB Group of Institutions as well as their trustees. Simultaneously, a search and seizure operation was also conducted in case of assessee. In pursuance to search and seizure operation, notices u/s 153A were issued to assessee calling upon him to furnish his return for A.Ys 2005-06 to 2009-10. In response, the assessee filed his return declaring total income of Rs. 1,14,840/- which was also his income declared in the original return. During assessment, the AO on the basis of information available with him found that assessee had moved an application before Settlement Commission wherein it had been stated that while working as Manager with JB Group of Institutions, he acted as consultant in getting students for being admitted and in the process he had collected excess fee over the prescribed amount without the knowledge of management. Therefore, he offered to disclose the excess fees collected by him as his income and paid taxes thereon. In the said application, the assessee not only computed undisclosed income of Rs. 8,18,63,700/- for A.Ys 2005-06 to 2009-10 but also paid taxes thereon amounting to Rs. 4,39,59,547/-. On the basis of the income declared by assessee before the Settlement Commission, the AO completed the assessment u/s 143(3) r/w/s 153A by determining the total income at Rs. 45,50,840/- including additional income offered before the Settlement Commission. Pursuant to the assessment order passed, AO issued a notice directing assessee to show cause as to why penalty u/s 271(1)(c) shall not be imposed for furnishing inaccurate particulars of income/concealment of income. The AO after going through the explanation of assessee, observed that though assessee before the Settlement Commission offered additional income, but, he did not offer the income so disclosed in the returns filed, and so he was liable to be visited with penalty u/s 271(1)(c). Accordingly, the AO proceeded to pass impugned order u/s 271(1)(c) imposing penalty of Rs. 14,90,314/- being 100% of tax component of the alleged undisclosed income.
On appeal, the CIT(A) after considering the submissions of assessee, noted that though assessee in the application made before the Settlement Commission had offered additional income of Rs. 8,18,63,700/- for the AYs 2005-06 to 2009-10 and also paid taxes on them, however, the Settlement Commission rejected application on the ground that unaccounted income disclosed in the application filed by assessee was not true and did not pertain to him. She further noted that in case of M/s JB Educational Society and M/s Joginapally BR Educational Society appeals were filed before ITAT challenging similar additions made. In course of hearing before ITAT, a sworn affidavit of Shri R. Kondal Rao, present assessee, was filed wherein he stated that the excess fees/capitation fees collected by him is his own income, which he collected without approval of the management and without revealing it to the management. She further noted that on the basis of the affidavit filed, the Tribunal held that since the excess fees/capitation fees has been admitted as undisclosed income by Shri R. Kondal Rao, no addition of the said amount can be made at the hands of the institution/society. On the basis of the observation made by ITAT in case of Educational Institutions, the CIT(A) held that penalty imposed u/s 271(1)(c) was valid.
Having heard the parties, the Tribunal held that,
++ as can be seen from the materials on record, during the search and seizure operation, it was found that excess fees has been collected from admission of students without accounting for in the books of account of educational institutions. However, the present assessee, who was working as Manager of the Educational Institutions run by society filed an application before DDIT(Inv.) wherein he admitted of having collected excess fee along with two others without the knowledge of the management, but, the amount so collected was not utilized for their personal benefits but utilized in charitable activity of providing medical facility in 500 beded hospital run by society free of cost. It is also a fact on record that in application filed before the Settlement Commission assessee not only reiterated these facts but also offered excess fees collected amounting to Rs. 8,18,63,700 as additional income in different assessment years and also paid taxes due thereon. However, the Settlement Commission rejected the application of assessee by observing that the disclosure made by the assessee was not true. On perusal of the assessment order, it is patent and obvious that AO solely on the basis of the declaration made by assessee before the Settlement Commission has computed the income of assessee and he has not referred to any other incriminating material to indicate earning of additional income by assessee. Penalty u/s 271(1)(c) has also been imposed by AO solely on the reason that though assessee offered additional income in the application filed before the Settlement Commission, but, he failed to disclose it in the return of income filed. The CIT(A) has also confirmed the imposition of penalty by observing that there is collusion between assessee and the management of the society to mislead the department. However, the Settlement Commission has made categorical observations that there being no material which could indicate that assessee embezzled funds of society, claim of assessee that unaccounted income belong to him cannot be accepted. That being the observation of the Settlement Commission, the CIT(A) could not have observed that management should have taken action against assessee for embezzling funds of society;
++ moreover, it is a fact on record that additional income offered by assessee representing excess fees/capitation fees received from students were also added at the hands of educational institutions. From these facts, it is clear that departmental authorities themselves were not sure as to at whose hands income is to be assessed or whether the income actually belongs to assessee. Further even though, assessee offered additional income before the Settlement Commission, but, the Settlement Commission on appreciation of evidences available before it refused to accept assessees claim that additional income is pertaining to assessee. Therefore, when the departmental authorities are themselves not sure about the real owner of income and in fact when there is conflict of opinion between the Settlement Commission and A.O. on the ownership of income, assessee cannot be proceeded for imposition of penalty u/s 271(1)(c) only because he has come forward to offer such income or it has been assessed in his hands for whatever may be the reason. Though, it may be a fact that in course of hearing of appeal in case of educational institutions before ITAT, an affidavit was filed by the assessee wherein it is stated that excess/capitation fees collected was not handed over to the management and it is his income but on scrutiny of the said affidavit, as has been extracted in the order passed by Tribunal, it is very much clear that statements made in the affidavits are almost identical to the facts mentioned in the application filed before the Settlement Commission by assessee. Neither at the stage of assessment nor at the time of penalty proceeding, AO has brought any material on record to show that additional income really belongs to assessee. Only because assessee offered additional income at his hand that will not automatically lead to the conclusion that assessee has concealed his income or furnished inaccurate particulars of income. For imposing penalty u/s 271(1)(c), AO has to prove the fact of concealment by virtue of willful negligence or deliberate act by assessee. From the aforesaid facts, it is clear that the departmental authorities are not sure as to which limb of the penalty provision is attracted. Therefore, considering the totality of facts and circumstances and keeping in view, the observations made by Settlement Commission, this Tribunal is of the opinion that since no conclusive finding or material has been brought on record to prove either concealment of income or furnishing of inaccurate particulars of income, imposition of penalty in the facts and circumstances of the present case is not justified. Accordingly, we delete the same.