Assessee cannot be absolved from penalty merely because he agreed for addition during proceeding: ITAT

The brief facts of the case is that the assessee is a limited company and claimed to be engaged in the activity of manufacturing of aluminum alloys casting. The assessee has filed return of income declaring total income at Rs.5,12,968.00 only. The assessee in the year under consideration has claimed business loss of Rs. 72,63,457.00 which was set off against the short-term capital gain declared u/s 50 of the Income Tax Act, 1961 (The Act). However the assessee failed to justify the business loss shown by it based on the documentary and other tangible materials. As such the AO during the assessment proceedings found that the assessee has shown nil turnover in the returns filed under the provisions of VAT and excise whereas the assessee has declared turnover in the return at Rs. 7,94,90,851.00 only against which the loss of Rs.72,63,457 was shown in the income tax return.

In the absence of supporting evidences, the AO rejected the books of accounts of the assessee under the provisions of section 145(3) of the Act and denied the business loss of Rs.72,63,457.00 to be set off against the short-term capital gain. The AO further initiated the penalty proceedings against the business loss claimed by the assessee on the charge that the assessee has furnished inaccurate particulars of income by claiming the bogus loss in order to set off against the short-term capital gain under the provisions of section 271(1)(c) of the Act.

On appeal before the learned CIT-A, the assessee contended that there cannot be any penalty in the event books are rejected and the profits is estimated. It was also submitted that the assessee itself has surrendered the income before the AO and therefore there cannot be any penalty on such income. However, the learned CIT-A did not concur with the arguments advanced by the assessee. According to the learned CIT-A, the assessee has furnished inaccurate particulars of income by claiming bogus loss in order to avoid the payment of tax. Thus the learned CIT-A confirmed the order of the AO.

Being aggrieved by the order of the learned CIT-A, the assessee filed an appeal before the tribunal.

ITAT observed that the assessee cannot be absolved from the penalty merely on the reasoning that it has agreed for the addition/disallowance during the quantum proceedings. The Hon’ble Supreme Court in the case of MAK Data Private Ltd versus CIT reported 38 Taxman.com 448 has held as under:

“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.”

In this case, the ld. AR appearing on behalf of the assessee has not brought any material/reliable information suggesting that the assessee has made voluntary disclosure during the assessment proceedings before the detection of bogus loss shown by it by the income tax Department. Accordingly, we are of the view that the assessee cannot escape from the penalty in the given facts and circumstances. Accordingly, the ground of appeal of the assessee is hereby dismissed.

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