Additional Income of Assessee cannot be treated as Concealed Income under Income Tax Act: Kerala HC [Read Order]

The Kerala High Court has held that additional income of assessee cannot be treated as concealed income for the purposes of Section 271(1)(c) of the Income Tax Act, 1961. It was 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.

Shri. Ambady Krishna Menon, 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 issued under Section 131 of the Income Tax Act to the respondent or assessee on May 19, 2014, calling for certain details to ascertain 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.

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.

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.

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 division 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.

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.

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