Opinion Of Eminent Legal Luminaries On Controversial Issues

When Can S. 271(1)(c) Be Applied?

QUERY: Many times assessee declare income during the course of assessment to buy peace and to avoid litigation. The judgment of the Supreme Court in the case of Sir Shadi Lal Sugar & General Mills v. CIT 168 ITR 705 (SC)] was in favour which said that there can be hundred & one reasons for such disclosure. Recently, the Supreme Court in case of Mak Data Pvt. Ltd. v. CIT 358 ITR 393(SC) has adversely commented on such disclosure to buy peace and avoid litigation etc. and said that a voluntary disclosure does not release the assessee from the mischief of the penalty proceedings u/s. 271(1)(c). What is the exact position in law?
ANSWER: The Supreme Court in Sir Shadi Lal Sugar & General Mills Ltd. v. CIT [168 ITR 705] had held that the assessee agreeing to addition to his income, does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission. This matter was for the assessment year 1958- 59 under the 1922 Act.

Thereafter, Explanation 1 to section 271 of the Income tax Act 1961 has been added which requires the assessee to prove that his failure to return his correct income was not due to fraud or neglect on his part. Therefore, after insertion of Explanation 1 to section 271(1)(c) of the Act, the Supreme Court in K. P. Madhusudharam v. CIT [251 ITR 99] has held that Sir Shadi Lal Sugar and General Mills Ltd. is not good law.

Therefore, the Supreme Court in Mak Data P. Ltd. v. CIT [358 ITR 593] has held that Explanation 1 to section 271(1)(C) of the Act, raises a presumption of concealment, when a difference is noticed by the A.O. between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. Therefore the A.O. should not be carried away by the plea of the assessee such as “voluntary disclosure” “buy peace” “avoid litigation”, amicable settlement” etc.

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