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1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 9772 OF 2013 (Arising out of Special Leave Petition (Civil) No.18389 of  

2013)

MAK Data P. Ltd. … Appellant

Versus

Commissioner of Income Tax-II          … Respondent

J U D G M E N T  

K.S. Radhakrishnan, J.

1. Leave granted.  

2. The Appellant-assessee filed his return of income for the  

assessment year 2004-05 on 27th October, 2004, declaring an  

income of Rs.16,17,040/- along with Tax Audit Report.   The  

case was selected for scrutiny and notices were issued under  

Sections 143(2) and 142(1) of the Income Tax Act.   During  

the course of the assessment proceedings, it was noticed by

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2 the Assessing Officer (AO) that certain documents comprising  

of share application forms, bank statements,  memorandum  

of association of companies, affidavits, copies of Income Tax  

Returns  and  assessment  orders  and  blank  share  transfer  

deeds duly signed had been impounded.  These documents  

had been found in the course of survey proceedings under  

Section 133A conducted on 16.12.2003 in the case of  M/s  

Marketing Services (a sister concern of the assessee).  The  

AO then proceeded to seek information from the assessee  

and issued a show-cause notice dated 26.10.2006.  By the  

show-cause  notice,  the  AO  sought  specific  information  

regarding  the  documents  pertaining  to  share  applications  

found  in  the  course  of  survey,  particularly,  bank  transfer  

deeds signed by persons,  who had applied for  the shares.  

Reply to show-cause notice was filed on 22.11.2006, in which  

the assessee made an offer to surrender a sum of Rs.40.74  

lakhs with a view to avoid litigation and buy peace  and to  

make an amicable settlement of the dispute.   Following are  

the words used by the assessee:-

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3 “The  offer  of  surrender  is  by  way  of  voluntary  disclosure of without admitting any concealment  whatsoever or with any intention to conceal and  subject  to  non-initiation  of  penalty  proceedings  and prosecution.”

3. The AO after verifying the details and calculations of the  

share  application  money  accepted  by  the  Company  

completed  the  assessment  on  29.12.2006  and  a  sum  of  

Rs.40,74,000/-  was  brought  to  tax,  as  “income from other  

sources”  and  the  total  income  was  assessed  at  

Rs.57,56,700/-.   

4. The  department  initiated  penalty  proceedings  for  

concealment of income and not furnishing true particulars of  

its  income under Section 271(1)(c)  of the Income Tax Act.  

During the course of  the hearing,  the assessee contended  

that penalty proceedings are not maintainable on the ground  

that the AO had not recorded his satisfaction to the effect  

that  there  has  been  concealment  of  income/furnishing  of  

inaccurate particulars of income by the assessee and that the  

surrender of income was a conditional surrender before any  

investigation in  the matter.   The AO did  not  accept  those

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4 contentions and imposed a penalty of Rs.14,61,547/- under  

Section 217(1)(c) of the Act.  The assessee challenged that  

order before the Commissioner of Income Tax (Appeals) by  

filing  Appeal  No.2/07-08,  which  was  dismissed  vide  order  

dated 17.2.2010.   The assessee filed  an  appeal  being ITA  

No.1896/Del/10  before  the  Income  Tax  Appellate  Tribunal,  

Delhi.   The Tribunal recorded the following findings :-

“The  assessee’s  letter  dated  22.11.2006  clearly  mentions  that  “the  offer  of  the  surrender  is  without admitting any concealment whatsoever or  any intention to conceal.”

The  Tribunal  took  the  view  that  the  amount  of  

Rs.40,74,000/- was surrendered to settle the dispute with the  

department and since the assessee,  for  one reason or the  

other,   agreed  or  surrendered  certain  amounts  for  

assessment, the imposition of penalty solely on the basis of  

assessee’s surrender could not be sustained.  The Tribunal,  

therefore,  allowed  the  appeal  and  set  aside  the  penalty  

order.

5. The Revenue took up the matter in appeal before the  

High Court by filing ITA No.415 of 2012.    The High Court

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5 accepted the plea of the Revenue that there was absolutely  

no explanation by the assessee for the concealed income of  

Rs.40,74,000/-.   The High  Court  took  the  view that  in  the  

absence  of  any  explanation  in  respect  of  the  surrendered  

income,  the  first  part  of  clause  (A)  of  Explanation  1  is  

attracted.  Holding so, the judgment of the Tribunal was set  

aside and the appeal filed by the Revenue was allowed.   

6. We have heard counsel on either side.  We fully concur  

with  the view of  the High Court  that  the Tribunal  has not  

properly understood or appreciated the scope of Explanation  

1 to Section 271(1)(c) of the Act, which reads as follows :-

“Explanation  1  –  Where  in  respect  of  any  facts  material to the computation of the total income of  any person under this Act, --

(A) Such person fails to offer an explanation or  offers  an  explanation  which  is  found  by  the  Assessing  Officer  or  the  Commissioner  (Appeals) or the Commissioner to be false, or  

(B) Such person offers an explanation which he is  not able to substantiate and fails to prove that  such explanation is bona fide and that all  the  facts relating to the same and material to the  computation  of  his  total  income  have  been  disclosed  by  him,  then  the  amount  added  or  disallowed  in  computing  the  total  income  of

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6 such person  as  a  result  thereof  shall,  for  the  purposes  of  clause (c)  of  this  sub-section,  be  deemed to represent the income in respect of  which particulars have been concealed.”

7. The AO, in our view, shall not be carried away by the  

plea of the assessee like “voluntary disclosure”, “buy peace”,  

“avoid  litigation”,  “amicable  settlement”,  etc.  to  explain  

away its conduct.  The question is whether the assessee has  

offered  any  explanation  for  concealment  of  particulars  of  

income  or  furnishing  inaccurate  particulars  of  income.  

Explanation  to  Section  271(1)  raises  a  presumption  of  

concealment,  when  a  difference  is  noticed  by  the  AO,  

between reported and assessed income.  The burden is then  

on the assessee to show otherwise, by cogent and reliable  

evidence.  When the initial onus placed by the explanation,  

has been discharged by him, the onus shifts on the Revenue  

to show that the amount in question constituted the income  

and not otherwise.

8. Assessee has only stated that he had surrendered the  

additional  sum  of  Rs.40,74,000/-  with  a  view  to  avoid

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7 litigation,  buy  peace  and  to  channelize  the  energy  and  

resources  towards  productive  work  and  to  make  amicable  

settlement with the income tax department.   Statute does  

not recognize those types of defences under the explanation  

1  to  Section  271(1)(c)  of  the  Act.   It  is  trite  law that  the  

voluntary disclosure does not release the Appellant-assessee  

from the mischief of penal proceedings.  The law does not  

provide that when an assessee makes a voluntary disclosure  

of his concealed income, he had to be absolved from penalty.  

9. We are of the view that the surrender of income in this  

case is not voluntary in the sense that the offer of surrender  

was made in view of detection made by the AO in the search  

conducted  in  the  sister  concern  of  the  assessee.   In  that  

situation, it cannot be said that the surrender of income was  

voluntary. AO during the course of assessment proceedings  

has  noticed  that  certain  documents  comprising  of  share  

application  forms,  bank  statements,  memorandum  of  

association  of  companies,  affidavits,  copies  of  Income Tax  

Returns  and  assessment  orders  and  blank  share  transfer

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8 deeds duly signed,  have been impounded in the course of  

survey  proceedings  under  Section  133A  conducted  on  

16.12.2003, in the case of a sister concern of the assessee.  

The survey was conducted more than 10 months before the  

assessee filed its return of income.  Had it been the intention  

of the assessee to make full and true disclosure of its income,  

it would have filed the return declaring an income inclusive of  

the amount which was surrendered later during the course of  

the assessment proceedings.  Consequently, it is clear that  

the assessee had no intention to declare its true income.  It is  

the  statutory  duty  of  the  assessee  to  record  all  its  

transactions in the books of account, to explain the source of  

payments made by it and to declare its true income in the  

return of income filed by it from year to year.  The AO, in our  

view, has recorded a categorical finding that he was satisfied  

that the assessee had concealed true particulars of income  

and is liable for penalty proceedings under Section 271 read  

with Section 274 of the Income Tax Act, 1961.  

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9 10. The AO has to satisfy whether the penalty proceedings  

be  initiated  or  not  during  the  course  of  the  assessment  

proceedings  and  the  AO  is  not  required  to  record  his  

satisfaction in a particular manner or reduce it into writing.  

The  scope  of  Section  271(1)(c)  has  also  been  elaborately  

discussed by this Court in Union of India vs. Dharmendra  

Textile Processors  (2008) 13 SCC 369 and  CIT vs. Atul  

Mohan Bindal (2009) 9 SCC 589.   

11. The principle laid down by this Court, in our view, has  

been  correctly  followed  by  the  Revenue  and  we  find  no  

illegality in the department initiating penalty proceedings in  

the instant case.  We, therefore, fully agree with the view of  

the  High  Court.   Hence,  the  appeal  lacks  merit  and  is  

dismissed.  There shall be no order as to costs.   

……..……………………..J. (K.S. Radhakrishnan)

……………………………J. (A.K. Sikri)

New Delhi,

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10 October 30, 2013.