By TIOL News Service

AHMEDABAD, MAY 08, 2018: THE issue before the Bench is - Whether when the assessee admits cash deposits in accounts as undisclosed income which becomes NIL after AO allows set off of derivative loss, it is a fit case for imposition of 100% penalty. YES IS THE ANSWER.

Facts of the case

The Assessee, an individual, filed return for the relevant AY. The case of the assessee was selected for scrutiny. During the assessment proceedings, the AO noticed from the Annual Information Return that the assessee had made sizeable cash deposits in his ICICI bank account which was undisclosed. Therefore, the AO called the assessee to supply the details of accounts. Accordingly, the aaseessee declared three bank accounts in ICICI bank, Bank of Baroda and Oriental Bank of Commerce and in all those three bank accounts, the assessee had made sizeable cash deposits and withdrawals. Thereafter, the assessee was called upon to explain the source of such deposits, for which, the assessee offered no explanation nor revealed the source thereof but argued that not the total deposits but the peak credit in the bank accounts which could be considered as unexplained cash credit. Therefore, the AO accepted the assessee's contention and also accepted the assessee's computation of such peak credit and accordingly, added such sum to the income of the assessee. During the course of assessment proceedings, the assessee had also argued that he had suffered a net loss by trading in derivatives and speculative business. However, the AO disallowed the speculative loss but allowed the derivative loss as the assessee's business loss and by that reason, the assessee's assessed tax liability came to be nil as per the order of assessment. Thereafter, the AO proceeded for penalty proceedings u/s 271(1)(c) contending that the assessee had concealed the income and the particulars thereof. The assessee opposed the penalty before the CIT(A), which dismissed the appeal. On further appeal, the Tribunal also upheld the decision of the CIT(A) and dismissed the appeal filed by the assessee.

On appeal, High court held that,

++ in the assessment proceedings, the assessee was confronted with undisclosed bank accounts and sizeable cash deposits in such bank accounts. The assessee did not claim that the cash deposits were through disclosed source of income. The assessee virtually admitted that cash deposits were undisclosed. The assessee only argued that not the entire tally of cash deposited in different accounts during the year but the peak credit thereof could be added under section 68 of the Act. The Assessing Officer accepted such a contention and added a sum of Rs. 19,55,500/to the income of the assessee. It is true that during the assessment proceedings the Assessing Officer also accepted the assessee's contention of derivative loss as business loss. By offsetting such added income against the business loss, assessment did not give rise to any fresh tax demand. Nevertheless, the Assessing Officer initiated penalty proceedings because of concealment of income and particulars thereof. Even in such penalty proceedings, the assessee did not offer any explanation about the cash deposits in his different undisclosed bank accounts. In that view of the matter, the Assessing Officer was justified in imposing penalty which was levied at the minimum 100% of the tax sought to be evaded;

++ there is nothing on record to suggest that the assessee agreed to the addition of such income to cutshort the litigation in view of the fact that in any case, even after making the additions, there would be no tax liability in the hands of the assessee. Even if one were to accept the assessee's contention that such surrender was to avoid protraction of the litigation and which is often times referred to as "to buy peace" as held by the Supreme Court in case of Mak Data P. Ltd, this would not necessarily avoid initiation of penalty proceedings. In the said case, it was held and observed that voluntary disclosure does not release the 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 has to be absolved from penalty. The assessee cannot explain away his conduct by suggesting "voluntary disclosure", " to buy peace", " to avoid litigation" or "for amicable settlement".

(See 2018-TIOL-850-HC-AHM-IT)