2016 (10) TMI 1117 - HC - Income Tax

Penalty u/s 271(1)(c) - revision downwards could not be justified - Held that - This court notices that the circumstances of the case are peculiar in that the assessee provides the income downwards after receipt of scrutiny notice. It also offered an explanation as to the unavailability of material to substantiate the revision which according to it was on account of over statement of net income. Ordinarily, the assessee s upon receipt of scrutiny of the revised revision, the returns upwards in which case the revenue could be justified in assuming that an attempt to conceal the material fact was made. In the present case, the inability of the assessee to substantiate its downward revision- for which the explanation offered was the absence of books on account on cessation of its business operations was deemed not satisfactory. We only concur with the ITAT opinion that CIT(A) s finding that the assessee is guilty of furnishing inaccurate particulars of income is inappropriate as the Assessing Officer at any point of time has not scrutinized 2003-2004 of the assessment on records and issued any notice before the filing of revised return. Thus, when the error was known to the assessee, the assessee itself has filed the revised return. This act shows that it is not intentional furnishing of inaccurate particulars of income on behalf of the assessee. - Decided against revenue

Summary

Issues:
1. Interpretation of Section 271(1)(c) of the Income Tax Act, 1961 regarding furnishing inaccurate particulars.
2. Justification for revision of taxable income by the assessee.
3. Validity of penalty imposition by the revenue authorities.
4. Assessment of the ITAT's decision in overturning the penalty.

Analysis:

1. The primary issue in this case revolves around the interpretation of Section 271(1)(c) of the Income Tax Act, 1961, specifically focusing on whether the respondent/assessee furnished inaccurate particulars to fall within the ambit of the said provision. The assessee initially reported a taxable income of &8377; 58,53,210 crores for AY 2003-2004 but later revised it downwards to &8377; 3,96,23,070/- after receiving a scrutiny notice. The revenue argued that this revision was not justified satisfactorily and warranted both the addition and imposition of penalty. However, the ITAT overturned the penalty, emphasizing that the revision was made by the assessee upon discovering an error in the initial return, without any intention to conceal income.

2. The second issue pertains to the justification provided by the assessee for revising its taxable income. The assessee explained that the revision was necessary due to the overstatement of net income, attributing the lack of material to substantiate the revision to the absence of books following the cessation of business operations. The revenue contended that this explanation was unsatisfactory, as the inability to substantiate the downward revision raised suspicions of attempting to conceal material facts.

3. The validity of the penalty imposition by the revenue authorities is another crucial aspect of this case. The revenue argued that not only the addition but also the penalty was warranted based on the findings of the AO, which were upheld by the CIT(A). However, the ITAT disagreed, highlighting that the assessee voluntarily filed the revised return upon identifying the error, indicating no intention to furnish inaccurate particulars with the aim of evading tax liabilities.

4. Lastly, the assessment of the ITAT's decision in overturning the penalty imposed on the assessee is significant. The ITAT's rationale focused on the fact that the revision was made in good faith by the assessee upon recognizing the error, and there was no deliberate attempt to provide inaccurate particulars to evade tax obligations. The ITAT's decision was supported by case laws and deemed appropriate, leading to the dismissal of the revenue's appeal. The High Court concurred with the ITAT's opinion, concluding that no substantial question of law arose in this matter, especially considering the negligible tax effect of about &8377; 1 lakh, ultimately resulting in the dismissal of the appeal.