1. PENALTY (i) Penalty – wilful violation of taxing statute- Interest – withheld payment – compensatory and not penal (ii) Quasi criminal/infraction of law (iii) Strict construction and not retrospective being a substantive provision – applies only when fairly and squarely within language of statute (iv) Penalty for concealment as per law on the date of default Chunilal Mahajan 120 ITR 1 (SC) Chunilal Mahajan 120 ITR 1 (SC)

2. SECTION 271(1)c If AO or CIT(A) or CIT during the course of any proceeding under the Act Satisfied Assessee has concealed the particulars of income or has furnished inaccurate particulars of that income After introduction of Explanation 1. Every difference between reported and assessed income needs explanation 2. No expla.- penalty may be justified 3. If expln offered –found false- penalty exigible 4.If expln offered – unable to substantiate No penalty if: a. Expln is bonafide b. All facts material to computation disclosed by him

3. Definition - Conceal-To hide/keep secret/ to cover/ keep from sight/ prevent discovery of/ withhold knowledge of - Direct attempt to hide an item of income Inaccurate -Not accurate/ not exact or correct/ not according to truth/ erroneous

4. IS PENALTY MANDATORY / DISCRETIONARY Hindustan Steel, 83 ITR 26 (SC) a. Penalty for failure to perform statutory obligation b. Penalty levy is discretionary – exercise judicially c. Even if min penalty prescribed – AO justified not to impose on the ground that mere technical/venial breach of provisions of the Act. d. Penalty if guilty of dishonest or contumacious conduct

5. DILIP N SHROFF 291 ITR 511(SC) Long term capital gain re computed on basis of DVO report by rejecting report filed by Assessee On Merits the AO should have: a. Given finding that consideration inadequate b. What are the inaccurate particulars of income filed c. What are accepted principles of valuation d. If disclosure is on basis of opinion of expert- mere non acceptance of opinion – No penalty

6. Ashok Pai (292 ITR 11) SC- - Return filed by bank on behalf of assessee - Omission to disclose – capital gain – revised return filed and accepted – penalty - Plea taken that no mens rea as he believed on bank - Department says principal responsible for act of agent - Found that expln offerred not false- also found to be bonafide

7. PRINCIPLES THAT EMERGE 1. Concealment signifies deliberate act or omission Such act should be for the purpose of concealment /furnishing inaccurate particulars of income 1. Concealment signifies deliberate act or omission Such act should be for the purpose of concealment /furnishing inaccurate particulars of income 2. a. AO to give finding that explanation offered was false b. Also the assessee should have been found to have failed to establish that explanation not bonafide and facts material to the determination of income not disclosed b. Also the assessee should have been found to have failed to establish that explanation not bonafide and facts material to the determination of income not disclosed 3. Quasi criminal – burden on AO to establish that assessee has concealed income 4. Finding in assessment order cannot be automatically adopted - Facts to be considered afresh in penalty proceedings 4. Finding in assessment order cannot be automatically adopted - Facts to be considered afresh in penalty proceedings - 5. More punitive the law more strict construction - 5. More punitive the law more strict construction

8. - 6. Omission of word deliberate – not of much significance – penalty increased from 20% to 300% - Strict construction - 7. Deliberateness to be established – Mere omission or negligence is not a deliberate act of suppressio veri or suggestio falso - 8. Satisfaction is primary requirement for initiating penalty 9. Through explanation, burden is sought to be placed on assessee – Burden on initiation of proceedings on AO – There has to be inference of concealment - assessee is subject to condition precedent which is to be satisfied. 9. Through explanation, burden is sought to be placed on assessee – Burden on initiation of proceedings on AO – There has to be inference of concealment - assessee is subject to condition precedent which is to be satisfied.

9. Estimate of income – No penalty (i)Harigopal Singh 258 ITR 85 (P&H) Has to be a positive act of concealment – onus on deptt to prove (ii) CIT v. Rajbans Singh 276 ITR 351 (All) Evidence to show that addition was really the income of assessee Wrong professional advise Wrong advise by Members of legal profession may be accepted without probing into professional competence unless tait of malafide, recklessness or ruse. Concord of India Insurance 118 ITR 507 SC

10. Surrender/disclosure of income (i) Devi Bai H. Parmani 84 ITD 342 (Mum) No penalty in absence of finding that explanation false and bona fides not proved (ii) Hazi Gaffar 169 ITR 33 (Bom) and 217 ITR 326 (Bom) Assessee stated that due to strike etc no proper stock register could be maintained and therefore the discrepancy – Held no penalty on conditional offer of settlement. (iii) Ishwar enterprises 96 TTJ 508 (Del) Surrender on account of unvouched expenses and unexplained creditors during survey to buy peace – no penalty as no material found to establish concealment (iv) Handloom Emporium 282 ITR 431 (All) Loose papers found during search indicating unrecorded transactions – assessee filed revised return – penalty leviable as no explanation why entries not recorded and income not disclosed in original return

11. No concealment unless return filed No concealment unless return filed Bombawala Readymade 91 ITD 225 (Ahd) No penalty in loss case prior to 2003-04 Virtual Soft System Ltd 207 CTR 73SC Amendment made by Finance Act 2002 in Explanation to Section 271(1)c is not retrospective Amendment made by Finance Act 2002 in Explanation to Section 271(1)c is not retrospective Needs reconsideration 217 CTR

12. Disallowance of expenses – No penalty Disallowance of expenses – No penalty (ii) Bacardi Montine 206 CTR 250 (Del) - Disclosure of claim in original return - Difference of opinion on claim – filed revised return – no penalty (iii)PHI Seeds India 208 CTR 320 (Del) Intent to mislead and no two opinion- disclosure in the return of income (iv)International Audio Visual 208 CTR 328 (Del) (iv)International Audio Visual 208 CTR 328 (Del) Deduction u/s 80HHC claimed on sale of dubbing rights to foreign firm – Nothing to suggest he misrepresented the particulare or concealed real income (v) Nath Bros 208 CTR 326 (Del) Claimed dividend income as business income for 80HHC – made complete disclosure – no penalty a -

13. S.271(1)(c) Expln 5A – Effective search initiated after 1 st June 2007 Deemed concealment Assessee found to be owner of: a.Assets & claims that assets acquired by utilizing income of any previous year b.Income based on entry & claims that entry represents income for any previous year Previous year has ended before date of search and due date of filing return has expired and assessee has not filed return

14. Section 271AAA – Penalty -10% of undisclosed income of specified previous year - No penalty if: - a.Statement u/s 132(4) - b.Substantiates the manner of deriving undisclosed income - c.Pays tax together with interest Specified previous year (i)Ended before date of search but due date of filing has not expired and no return filed u/s 139(1) (ii) In which search was conducted Undisclosed income - Income of specified previous year represents assets found during search and not recorded on or before search - Entry representing expenses, recorded in books and found to be false.