2009 (5) TMI 948 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the revised returns of income.
2. Basis for levy of penalty u/s. 271(1)(c) of the Income-tax Act.
3. Merits of the penalty for alleged concealment of income or furnishing inaccurate particulars.

Summary:

1. Validity of the revised returns of income:
The assessee filed revised returns on 09.08.2005, claiming that the income from the sale of shares should be treated as "business income" and not "capital gains," invoking the Double Taxation Avoidance Agreement (DTAA) between India and the USA. The assessing officer issued a notice u/s. 139(9) asking the assessee to rectify defects in the revised returns. The assessee responded, explaining that no books of account were maintained specifically for Indian investments. The assessing officer treated the revised returns as invalid, stating that the assessee failed to rectify the defects within the prescribed time limits.

2. Basis for levy of penalty u/s. 271(1)(c) of the Income-tax Act:
The assessing officer completed the assessment u/s. 143(3) based on the original returns and initiated penalty proceedings u/s. 271(1)(c) for alleged concealment of income or furnishing inaccurate particulars. The assessee contended that since the revised returns were treated as invalid, they could not form the basis for levy of penalty. The first appellate authority sustained the levy of penalty, leading the assessee to appeal before the Tribunal.

3. Merits of the penalty for alleged concealment of income or furnishing inaccurate particulars:
The Tribunal noted that the entire penalty order was based on the revised returns, which were treated as invalid by the assessing officer. Therefore, the penalty had no legal basis. Additionally, the Tribunal found that the assessee had provided a bona fide explanation for filing the revised returns, based on judicial decisions in similar cases involving the assessee's sister concerns. The Tribunal concluded that there was no concealment of income or furnishing of inaccurate particulars, making the levy of penalty bad in law.

Conclusion:
The Tribunal allowed both appeals of the assessee, canceling the penalty orders and holding that the revised returns, treated as invalid, could not be the basis for penalty u/s. 271(1)(c). The Tribunal also found that the assessee had provided a bona fide explanation, and the issues were debatable, further invalidating the penalty.