You surrendered the amount to buy peace and avoid litigation. Does that stop the penalty?
No. The statute does not recognise 'to avoid litigation' or 'to buy peace' as an explanation at all. A surrender made only after the department confronts you with documents is not voluntary, and the penalty stood.
Decided by the Supreme Court (Supreme Court of India — K.S. Radhakrishnan and A.K. Sikri, JJ. (judgment delivered by Radhakrishnan, J.)) on 2013-10-30, reported as (2013) 358 ITR 593 (SC); [2013] 38 taxmann.com 448 (SC); (2013) 263 CTR 1 (SC); Civil Appeal No. 9772 of 2013. It bears on section 271(1)(c), section 133A, section 274 of the Income Tax Act 1961, in Penalty matters.
The phrase 'to buy peace and avoid litigation' appears in a great many surrender letters. This decision makes clear those exact words are worthless as a defence, and can make things worse by conceding the surrender was not voluntary.
Binding on every court and authority in India.
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For assessment year 2004-05 the assessee company filed its return on 27 October 2004 declaring income of Rs 16,17,040 with a tax audit report. In scrutiny the Assessing Officer found that share application forms, bank statements, memoranda of association, affidavits, copies of returns and assessment orders and blank but signed share transfer deeds had been impounded in a survey under s.133A conducted on 16 December 2003 at M/s Marketing Services, a sister concern. A show cause notice of 26 October 2006 asked specifically about those documents, in particular the signed transfer deeds of the share applicants. By reply of 22 November 2006 the assessee offered to surrender Rs 40.74 lakh, saying in terms that the offer was 'by way of voluntary disclosure without admitting any concealment whatsoever or with any intention to conceal and subject to non-initiation of penalty proceedings and prosecution'. The assessment was completed on 29 December 2006 bringing Rs 40,74,000 to tax as income from other sources and assessing total income at Rs 57,56,700, and a penalty of Rs 14,61,547 was imposed under s.271(1)(c). The Commissioner (Appeals) confirmed it; the Tribunal set it aside on the footing that penalty could not rest solely on a surrender; the Delhi High Court restored it, holding that in the absence of any explanation for the surrendered income the first limb of Explanation 1(A) applied.
The appeal was dismissed and the Delhi High Court affirmed. An Assessing Officer is not to be carried away by pleas of voluntary disclosure, buying peace, avoiding litigation or amicable settlement; the question is whether the assessee has offered any explanation for the concealment. Explanation 1 to s.271(1)(c) raises a presumption of concealment where the Assessing Officer notices a difference between returned and assessed income, and the burden is then on the assessee to displace it by cogent and reliable evidence; only when that initial onus is discharged does the onus shift to the Revenue. Voluntary disclosure does not release an assessee from penal proceedings, and the statute recognises no defence of the kind offered here. On the facts the surrender was not voluntary: it followed detection, and the survey had taken place more than ten months before the return was filed, so had the assessee meant to disclose fully it would have returned the amount in the first place. The Court also held that the Assessing Officer must decide during the assessment proceedings whether to initiate penalty, but is not required to record his satisfaction in any particular manner or reduce it to writing.
The Court held that the Tribunal had not properly appreciated the scope of Explanation 1, which it set out: limb (A) where a person fails to offer an explanation or offers one found to be false, and limb (B) where he offers an explanation he cannot substantiate and fails to prove bona fide and full disclosure. The assessee's letter offered no explanation of the share application money at all; it said only that the surrender was to avoid litigation and buy peace, and expressly disclaimed any admission of concealment while asking that no penalty or prosecution follow. That is not an explanation within Explanation 1, and the condition attached to the offer did not bind the Assessing Officer. It is the statutory duty of an assessee to record all its transactions, explain the source of its payments and declare its true income each year. On the recording of satisfaction the Court relied on Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC) and CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC), and noted that the Assessing Officer had in fact recorded a categorical finding of concealment before proceeding under s.271 read with s.274.
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.
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Handle my notice → Ask a CA on WhatsAppNo. The statute does not recognise 'to avoid litigation' or 'to buy peace' as an explanation at all. A surrender made only after the department confronts you with documents is not voluntary, and the penalty stood. This was decided by the Supreme Court (Supreme Court of India — K.S. Radhakrishnan and A.K. Sikri, JJ. (judgment delivered by Radhakrishnan, J.)) and bears on section 271(1)(c), section 133A, section 274 of the Income Tax Act 1961. It is reported as (2013) 358 ITR 593 (SC); [2013] 38 taxmann.com 448 (SC); (2013) 263 CTR 1 (SC); Civil Appeal No. 9772 of 2013. The phrase 'to buy peace and avoid litigation' appears in a great many surrender letters. This decision makes clear those exact words are worthless as a defence, and can make things worse by conceding the surrender was not voluntary. If it applies to you, the first step is this: Never surrender 'to buy peace' in writing; state the actual source and basis of the amount instead.
For assessment year 2004-05 the assessee company filed its return on 27 October 2004 declaring income of Rs 16,17,040 with a tax audit report. In scrutiny the Assessing Officer found that share application forms, bank statements, memoranda of association, affidavits, copies of returns and assessment orders and blank but signed share transfer deeds had been impounded in a survey under s.133A conducted on 16 December 2003 at M/s Marketing Services, a sister concern. A show cause notice of 26 October 2006 asked specifically about those documents, in particular the signed transfer deeds of the share applicants. By reply of 22 November 2006 the assessee offered to surrender Rs 40.74 lakh, saying in terms that the offer was 'by way of voluntary disclosure without admitting any concealment whatsoever or with any intention to conceal and subject to non-initiation of penalty proceedings and prosecution'. The assessment was completed on 29 December 2006 bringing Rs 40,74,000 to tax as income from other sources and assessing total income at Rs 57,56,700, and a penalty of Rs 14,61,547 was imposed under s.271(1)(c). The Commissioner (Appeals) confirmed it; the Tribunal set it aside on the footing that penalty could not rest solely on a surrender; the Delhi High Court restored it, holding that in the absence of any explanation for the surrendered income the first limb of Explanation 1(A) applied. The matter was decided on 2013-10-30 by the Supreme Court (Supreme Court of India — K.S. Radhakrishnan and A.K. Sikri, JJ. (judgment delivered by Radhakrishnan, J.)). On those facts the Supreme Court held as follows. The appeal was dismissed and the Delhi High Court affirmed. An Assessing Officer is not to be carried away by pleas of voluntary disclosure, buying peace, avoiding litigation or amicable settlement; the question is whether the assessee has offered any explanation for the concealment. Explanation 1 to s.271(1)(c) raises a presumption of concealment where the Assessing Officer notices a difference between returned and assessed income, and the burden is then on the assessee to displace it by cogent and reliable evidence; only when that initial onus is discharged does the onus shift to the Revenue. Voluntary disclosure does not release an assessee from penal proceedings, and the statute recognises no defence of the kind offered here. On the facts the surrender was not voluntary: it followed detection, and the survey had taken place more than ten months before the return was filed, so had the assessee meant to disclose fully it would have returned the amount in the first place. The Court also held that the Assessing Officer must decide during the assessment proceedings whether to initiate penalty, but is not required to record his satisfaction in any particular manner or reduce it to writing.
The Court held that the Tribunal had not properly appreciated the scope of Explanation 1, which it set out: limb (A) where a person fails to offer an explanation or offers one found to be false, and limb (B) where he offers an explanation he cannot substantiate and fails to prove bona fide and full disclosure. The assessee's letter offered no explanation of the share application money at all; it said only that the surrender was to avoid litigation and buy peace, and expressly disclaimed any admission of concealment while asking that no penalty or prosecution follow. That is not an explanation within Explanation 1, and the condition attached to the offer did not bind the Assessing Officer. It is the statutory duty of an assessee to record all its transactions, explain the source of its payments and declare its true income each year. On the recording of satisfaction the Court relied on Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC) and CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC), and noted that the Assessing Officer had in fact recorded a categorical finding of concealment before proceeding under s.271 read with s.274. In the words reproduced by the source cited on this page: "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 decision followed or applied Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC).
It was decided by the Supreme Court on 2013-10-30 and is reported as (2013) 358 ITR 593 (SC); [2013] 38 taxmann.com 448 (SC); (2013) 263 CTR 1 (SC); Civil Appeal No. 9772 of 2013. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271(1)(c), section 133A, section 274, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed and the Delhi High Court affirmed. An Assessing Officer is not to be carried away by pleas of voluntary disclosure, buying peace, avoiding litigation or amicable settlement; the question is whether the assessee has offered any explanation for the concealment. Explanation 1 to s.271(1)(c) raises a presumption of concealment where the Assessing Officer notices a difference between returned and assessed income, and the burden is then on the assessee to displace it by cogent and reliable evidence; only when that initial onus is discharged does the onus shift to the Revenue. Voluntary disclosure does not release an assessee from penal proceedings, and the statute recognises no defence of the kind offered here. On the facts the surrender was not voluntary: it followed detection, and the survey had taken place more than ten months before the return was filed, so had the assessee meant to disclose fully it would have returned the amount in the first place. The Court also held that the Assessing Officer must decide during the assessment proceedings whether to initiate penalty, but is not required to record his satisfaction in any particular manner or reduce it to writing. It arises in Penalty matters, on section 271(1)(c), section 133A, section 274 of the Income Tax Act 1961, and was decided by Supreme Court of India — K.S. Radhakrishnan and A.K. Sikri, JJ. (judgment delivered by Radhakrishnan, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the disclosure is genuine, make it in the return, not after documents are put to you. Where you did disclose in the original return under a bona fide belief, say so — that is how Hiralal Doshi was distinguished.
Still good law. Affirms CIT v. Mak Data Ltd. [2013] 31 taxmann.com 35/352 ITR 1 (Delhi) and follows Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC) and CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC). Followed by the Madras High Court in Ramamurthy Metal Decorating Industries (P.) Ltd. v. ACIT [2023] 146 taxmann.com 290 (Madras), decided 8 February 2022, which reproduced paras 7 and 8 and upheld penalty where income was admitted only after detection and no explanation was offered in answer to the penalty notice. It is not overruled but is frequently distinguished on facts: in CIT v. Hiralal Doshi (Bombay High Court, 9 February 2016) the court held it completely distinguishable, because here the amount had never been disclosed and was surrendered only after detection, whereas Hiralal Doshi had disclosed the receipt in the original return under a bona fide belief that it was exempt. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The assessment year is 2004-05 and the decision is dated 30 October 2013, both settled from the law report. Two features of the case do the work and should be pleaded, because they are what later benches use to distinguish it. The surrender came only after documents impounded in a survey on a sister concern were put to the assessee, and the survey had taken place more than ten months before the return was filed. And no explanation of the receipt was ever offered — the letter disclaimed concealment and asked for immunity but said nothing about the source of the share application money. The judgment also holds, at para 10, that the Assessing Officer need not record his satisfaction in any particular manner or reduce it to writing; that is a separate proposition from the notice-specificity line of cases and is often cited on its own. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed and the Delhi High Court affirmed. An Assessing Officer is not to be carried away by pleas of voluntary disclosure, buying peace, avoiding litigation or amicable settlement; the question is whether the assessee has offered any explanation for the concealment. Explanation 1 to s.271(1)(c) raises a presumption of concealment where the Assessing Officer notices a difference between returned and assessed income, and the burden is then on the assessee to displace it by cogent and reliable evidence; only when that initial onus is discharged does the onus shift to the Revenue. Voluntary disclosure does not release an assessee from penal proceedings, and the statute recognises no defence of the kind offered here. On the facts the surrender was not voluntary: it followed detection, and the survey had taken place more than ten months before the return was filed, so had the assessee meant to disclose fully it would have returned the amount in the first place. The Court also held that the Assessing Officer must decide during the assessment proceedings whether to initiate penalty, but is not required to record his satisfaction in any particular manner or reduce it to writing.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
Is penalty under s.271(1)(c) criminal, quasi-criminal or civil?
The officer disallowed your claim. Does a disallowance automatically bring penalty with it?
They recorded your statement in a survey. Can the addition rest on that alone?