Monday, December 17, 2012

Concealing a receipt in ROI attracts penalty even if taxes due thereon are deposited

Merely by depositing taxes due on concealed income, bona fides of assessee could not be said to be established until such income was included in the ROI filed by the assessee

In the instant case, the assessee was working with a foreign company (“the employer”) and his services were terminated by the said company. But the employer offered him continued employment for a limited tenure and paid him an extraordinary compensation for retention and severance of his services. The assessee had determined and paid the taxes due on his income after including the said sum. However, he attached a note to the computation of income and claimed that the said sum received was non-compete fee, which was not chargeable to tax being a capital receipt. Thus, he filed his ROI by excluding the said receipt and claimed refund of the sum deposited. The AO imposed concealment penalty on the assessee. However, the CIT(A) deleted the penalty holding that there was no concealment of particulars of income or  furnishing of inaccurate particulars thereof on the part of the assessee since the bona fides of the assessee were proved by the disclosure in the return and the payment of taxes.

On appeal, the Tribunal held in favour of revenue as under:

1) The provisions laid down under section 17(3) are very clear that profit in lieu of salary includes the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto. Thus, there was no reason available with the assessee for nurturing a belief that the amount received was a capital receipt not chargeable to tax;

2) Merely by depositing the due tax on the amount received on termination of employment the bona fides of the assessee in not declaring the receipt as income in its return of income were not established;

3) The provisions laid down under section 17(3) were clear to bring the receipt as taxable and there was no scope of debate regarding its taxability, the  explanation of the assessee that he was under a belief that the amount received was a capital receipt and was not chargeable to tax  was not acceptable; and

4) By not declaring the said receipt in his ROI, the assessee had furnished inaccurate particulars of income attracting the penal action provided under section 271(1)(c) - ADIT v. Ravindra Bahl [2012] 28 130 (Delhi - Trib.)

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