Disclosure of Additional Income in S. 153C Proceedings Does Not Automatically Prove Guilty of Concealment of Income: ITAT [Read Order]
The disclosure of additional income under Section 153C, by itself, cannot establish concealment of income unless the Revenue proves a clear nexus between seized materials and the assessee’s undisclosed income.
Concealment - income - Taxscan
Concealment - income - Taxscan
The Cochin Bench of the Income Tax Appellate Tribunal ( ITAT ) has ruled that disclosure of additional income in response to a notice issued under Section 153C of the Income Tax Act, 1961, cannot automatically lead to the conclusion that the assessee is guilty of concealing particulars of income.
Puthan Purayil Abdurahiman, filed an appeal against the penalty orders under Section 271(1)(c) imposed on him. The Assessing Officer (AO) had levied penalty on the ground that the assessee’s agreement to additional income disclosed in proceedings under Section 153C amounted to concealment.
The assessee had originally filed a return declaring income of ₹3,66,650 for AY 2013-14. During search and seizure proceedings in the case of the Malabar Group of Companies, certain materials were stated to relate to the assessee. Based on this, notice under Section 153C was issued.
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The assessee subsequently declared an income of ₹13,78,550, which was accepted by the AO. Thereafter, penalty proceedings were initiated. The assessee contended that the disclosure was voluntary and not linked to any incriminating material, and therefore no concealment could be alleged.
The counsel for the assessee relied on the Supreme Court decision in Sir Shadilal Sugar & General Mills Ltd. v. CIT, which held that mere acceptance of income does not automatically imply concealment.
The AO, however, rejected this explanation by stating MAK Data Pvt. Ltd. v. CIT and imposed a penalty of ₹2,21,692. The CIT(A) also upheld the penalty.
On second appeal, the appellate tribunal found that both the AO and the CIT(A) had failed to demonstrate how the seized material from the Malabar Group was connected with the assessee’s alleged undisclosed income.
The bench noted that disclosure of additional income under Section 153C, by itself, cannot establish concealment of income unless the Revenue proves a clear nexus between seized materials and the assessee’s undisclosed income.
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According to the bench of Inturi Rama Rao and Prakash Chand Yadav observed that “Merely because the appellant has disclosed additional income in response to notice u/s.153C of the Act, it cannot lead to the conclusion that the appellant is guilty of concealing the particular of income or guilty of concealment of income. It is the case of assessment made u/s.153C of the Act, pursuant to the initiation of search and seizure in the case of a third person.”
It was pointed out by the ITAT that the penalty under Section 271(1)(c) is not automatic and requires substantive evidence of concealment or furnishing of inaccurate particulars.
Since this analysis was missing in the orders of the lower authorities, the tribunal remitted the matter back to the CIT(A) for fresh consideration, directing that the assessee be given a reasonable opportunity of hearing.
Accordingly, the appeals were allowed for statistical purposes, with the penalty issue sent back to the CIT(A) for de novo adjudication
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