2005 (5) TMI 51 - HC - Income Tax

Penalty u/s 271(1)(c) - non-filing of revised return - Whether Tribunal was justified in holding that because of the note left in return regarding cash compensatory support the penalty under section 271(1)(c) is not leviable in the case in spite of an amendment to section 28 of the Income-tax Act by way of insertion of clause (iiib)? Revenue submitted that since the assessee did not file the revised return and hence it must be presumed that a case of penalty is made out. We do not agree. The filing of the revised return has nothing to do so far as the claim in question is concerned. It was a case of disclosure in the return itself by way of note and secondly the legal position being in favour of the assessee there did not arise any occasion for the assessee to file the revised return. In any event when the explanation offered by the assessee was acceptable then their subsequent conduct in not filing the revised return could not be made basis for imposing the penalty.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income-tax Act based on non-disclosure of "cash compensatory support" in the return for the assessment year 1989-90.

Analysis:
The appeal before the High Court pertained to the imposition of a penalty under section 271(1)(c) of the Income-tax Act on an assessee, a limited company, for not disclosing "cash compensatory support" earned from export transactions in their return for the assessment year 1989-90. The Assessing Officer imposed the penalty, considering the non-disclosure as furnishing inaccurate particulars. However, the Commissioner of Income-tax (Appeals) allowed the appeal, and the Tribunal upheld this decision, leading to the appeal by the Commissioner of Income-tax. The central issue revolved around whether the non-disclosure warranted the penalty under the said section.

The High Court analyzed the case and found that the assessee's explanation justified dropping the penalty proceedings. The court noted that the assessee had disclosed the disputed item through a "note" in the return, and there were valid reasons for not including it initially. Firstly, there was a Tribunal decision in favor of the assessee regarding the taxability of the item. Secondly, the law supporting the assessee was enacted retrospectively after the return was filed. Thirdly, the assessee made full disclosure regarding the claim. The court emphasized that the Assessing Officer needed to prove deliberate suppression or furnishing of inaccurate particulars with an oblique motive for imposing a penalty under section 271(1)(c). In this case, the explanation provided by the assessee was considered bona fide and legally justified by the appellate authorities.

The High Court rejected the argument that the non-filing of a revised return implied a penalty case, stating that the disclosure in the original return sufficed, especially considering the legal position and the acceptability of the explanation provided. The court emphasized that the subsequent conduct of not filing a revised return could not be a basis for penalty imposition. Ultimately, the High Court found no merit in the appeal and dismissed it, upholding the decisions of the lower authorities in favor of the assessee.

In conclusion, the High Court's judgment highlighted the importance of full disclosure, legal justifications, and the absence of deliberate suppression or furnishing of inaccurate particulars for imposing penalties under section 271(1)(c) of the Income-tax Act. The court's detailed analysis underscored the significance of valid explanations and adherence to legal provisions in tax matters, ultimately ruling in favor of the assessee in this case.