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I-T - Disclosure made after initiation of proceedings u/s 142, is not 'voluntary disclosure' and hence would not absolve assessee from rigours of penalty

By TIOL News Service

MUMBAI, MAR 20, 2017: THE ISSUE IS - Whether the disclosure made by assessee only after the AO initiated proceedings u/s 142, is not a 'voluntary disclosure' and hence would not absolve the assessee from the rigours of penalty. YES is the verdict.

Facts of the case:

The assessee, engaged in shipping business, is assessed to tax under Chapter XIIG of the Act to the extent its income was earned from vessels, satisfying/ qualifying the requirements thereof. So far as the income from other vessels i.e. non-qualifying vessels was concerned, the same was subjected to tax under the head “Profit & Gain from its Business or Profession”. Thus, classifying its income as tonnage business and non-tonnage business. During the subject Assessment Year, the assessee had suffered foreign exchange loss in respect of its tonnage business. However, the above foreign exchange loss of Rs.9.37 lakhs was debited to compute its non-tonnage income while bringing it to tax under Profit & Gain from business or profession. Thereafter, the AO issued a notice u/s 142(1) & 143(2), calling various information regarding details of expenses debited in its Profit & Loss Account and expenses incurred on account of foreign exchange. Thereafter, the assessee responded to the same and the AO determined the assessee's income at Rs.2.58 Crores u/s 143(3). This was after adding the foreign exchange loss of Rs.9.37 lakhs which had been incorrectly debited while computing its non-tonnage income. The order of the AO recorded that this was done after it was found on verification that no foreign exchange loss was incurred in respect of non-tonnage income. Besides, initiating penalty proceedings u/s 271(1)(c). Thereafter, an order was passed imposing a penalty u/s 271(1)(c) of Rs.3.09 lakhs, wherein it specifically recorded the fact that though there were no transaction in foreign currency resulting in foreign exchange loss, in case of non-tonnage income, yet the assessee had debited exchange loss to its non-tonnage business only to reduce its non-tonnage income being offered to tax.

On appeal, the HC held that,

++ it is clear that notice u/s 142(1) and 143(2) were issued to the assessee seeking details of expenses debited to Profit and Loss Account, along with details of foreign exchange expenses. Even according to the assessee, the alleged mistake on its part was pointed out by a letter during assessment proceedings, where it stated that it had committed a mistake in debiting foreign exchange loss to its determine non-tonnage income, when in fact, no foreign exchange loss was involved in respect of its non-tonnage business. Thus, it is clear that so-called mistake as claimed by the assesssee, was only after notices were issued u/s 142 & 143. It was only an attempt to pre-empt the Revenue finding out the the assessee had furnished inaccurate particulars. Therefore, it cannot be said that it was voluntary disclosure. In fact, the Apex Court in MAK Data (P) Ltd., has observed that: "the findings of AO shall not be carried away by the plea of Assessee like 'voluntary disclosure', 'buy peace', 'avoid litigation', 'amicable settlement' etc. to explain its conduct." The Apex Court has also further observed that "It is trite law that the voluntary disclosure does not release 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." In the peculiar fact of the present case, the socalled voluntary disclosure was only after the AO initiated proceedings u/s 142. Thus, it was not a voluntary disclosure. In fact, the Assessment Order u/s 143(3) also records the fact of verification by the AO, leading to a finding that the assessee had debited foreign exchange loss to arrive its non-tonnage income. It is only in penalty proceedings that this issue is raised for the first time. Further, the assessee besides stating it is a mistake, has not offered any explanation. Therefore, the explanation u/s 271(1)(c) of the Act was not found to be satisfactory by the authorities under the Act and penalty imposed and sustained.

(See 2017-TIOL-519-HC-MUM-IT)