ITAT Removes Penalty as Voluntary Deposits Tax Not Be Believed as an Admission of Guilt Until Receive a Notice

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) ruled that making a voluntary tax deposit must not be regarded as an acknowledgement of guilt before being served with a notice under Section 148 of the Income Tax Act, 1961. Consequently, the bench abolished the penalty levied under Section 271(1) of the Income Tax Act, 1961.

Pradip Burman, the assessee, filed an appeal against the decision of the CIT(A) related to the AY 2007-08 concerning funds held in an HSBC account.

Upon learning of information related to his purported deposit in an alleged HSBC Bank account, Pradip Burman initiated his own investigation and offered to pay income tax.

This was in response to the Central Board of Direct Taxes (CBDT) receiving information about the taxpayer’s foreign account and income for the relevant assessment years 2006–07 and 2007–08.

Before receiving the notice under Section 148 of the Act, Pradip Burman voluntarily paid taxes on the income he had offered for taxation, amounting to US$ 40,000 in the assessment year 2006–07 and US$ 32.13 lacs in the assessment year 2007–08. At the time of making this offer, he explicitly stated that this payment should not be construed as an admission of guilt.

Subsequently, the assessment was concluded, and a penalty was imposed under Section 271(1) of the IT Act. The tribunal noted that the taxpayer had deposited the additional tax for the relevant assessment years well before the initiation of proceedings under Section 148 of the Act, indicating that there was no potential revenue loss.

Furthermore, in the context of tax assessment procedures, a taxpayer may retract from the position they voluntarily took in their income return. Therefore, offering money as tax in exchange for peace does not imply an admission of ownership.

Following a thorough examination of the facts and records, the two-member bench comprising Astha Chandra (Judicial Member) and N. K. Billaiya (Accountant Member) ruled that a voluntary tax deposit should not be considered an acknowledgement of guilt before the receipt of a notice under Section 148 at Income Tax Act. M.P. Rastogi represented the taxpayer, while Vivek Vardhan represented the revenue.