2017 (1) TMI 1446 - AT - Income Tax

Penalty u/s 271(1)(c) - incorrect computation of capital gain - assessee Suo Moto carried out corrections and paid tax interest upon detection of error but prior to detection by the AO - assessee had trusted the computation by his earlier CA as correct until errors and omissions were detected by new CA - Held that - As per rule of evidence there is distinction between set of facts not proved and facts disproved and facts proved. Benefit of the principle that mere non-satisfactory nature of explanation furnished cannot amount to proof of falsity of explanation furnished can apply in case the fact-finding authority reaches to a stage where it can only conclude that the fact alleged is not proved which would result that except rejection of the explanation furnished by the assessee there is no material to sustain the plea of concealment. But on the other hand if the state of affairs reveals a stage where one can positively reach a conclusion that the fact alleged is proved or disproved the principle that mere rejection of explanation cannot result in levy of penalty will have no application. To reach this stage also inquiry will have to be undertaken of the disclosure made in the return or in the statement annexed to the return and to arrive at a finding whether the particulars disclosed are truthful or false or not proved to be satisfactory. In the first case it would be a positive case of no concealment in the second stage it would be a positive case of concealment and in the third case benefit of doubt will go in favour of assessee. But in either case inquiry must proceed from the stage the alleged disclosure has taken place and not stop at that stage and close the inquiry at the threshold on the abstract principle that mere rejection of explanation does not result into levy of penalty. In the present case also the Revenue has no where proved the allegation of concealment despite explanation offered by the assessee. The AO has not detected the income rather assessee suo moto declared the same and that also without any enquiry. The actual position in law is that merely because the assessee s addition has been confirmed that cannot automatically bring in levy of penalty for concealment. If the assessee offers an explanation the Revenue authorities have to consider the acceptability of the explanation and pass necessary orders. In the present case the Revenue has not rejected the explanation of the assessee and merely levied the penalty on the basis that income of the assessee is assessed. In view of the above facts we are of the considered view that CIT(A) has erred in confirming the action of the AO in levying penalty for furnishing of inaccurate particulars of income u/s 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Allegation of concealment or furnishing inaccurate particulars of income.
3. Rejection of the appellant’s explanation and suo motu revision for non-filing of revised return.
4. Bona fides of the appellant’s explanation.
5. Validity of the notice served under Sections 143(2)/142(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levied under Section 271(1)(c):
The core issue in these appeals is the confirmation of the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied on the grounds of alleged concealment of income and furnishing inaccurate particulars of income related to long-term capital gains from the sale of property. The AO initiated penalty proceedings after assessing the long-term capital gain and claimed that the assessee had furnished inaccurate particulars of income.

2. Allegation of Concealment or Furnishing Inaccurate Particulars of Income:
The AO contended that the assessee's revised computation was not voluntary but was filed in response to a notice issued under Section 142(1). The AO argued that the assessee's original return contained grossly under-reported income, amounting to gross negligence, and thus attracted the penalty as per the Supreme Court's decision in K.P. Madhusudan Vs. CIT. However, the Tribunal found that the assessee had engaged a Chartered Accountant (CA) and provided all necessary information, trusting the CA to make accurate computations. The errors were detected by a new CA, and the assessee voluntarily corrected the mistakes and paid the differential tax with interest before any hearing in the case.

3. Rejection of the Appellant’s Explanation and Suo Motu Revision for Non-filing of Revised Return:
The assessee explained that the errors in the original return were due to computational mistakes by the previous CA. Upon detection of the errors by a new CA, the assessee revised the computation and paid the differential tax with interest. The assessee attempted to file a revised return but was unable to do so due to time-barring. The Tribunal noted that the assessee had admitted the mistake, pointed out the exact errors, and requested the AO to add the additional income to the returned income.

4. Bona Fides of the Appellant’s Explanation:
The Tribunal accepted the assessee's explanation that the errors were unintentional and due to reliance on the previous CA's computations. The assessee's actions of voluntarily correcting the mistakes and paying the differential tax with interest before any assessment proceedings demonstrated bona fide intentions. The Tribunal emphasized that the process of inquiry into the correctness of the particulars furnished by the assessee should not be closed at the threshold but should consider whether the particulars disclosed are truthful or false.

5. Validity of the Notice Served under Sections 143(2)/142(1):
The AO's contention that the revised computation was filed in response to a specific query in the notice under Section 142(1) was found to be incorrect. The Tribunal noted that the notice did not contain any specific query, and the assessee had voluntarily disclosed the errors and revised the computation before any hearing. The Tribunal concluded that the AO had not alleged non-disclosure or suppression of any material facts relevant to the computation of income.

Conclusion:
The Tribunal held that the assessee had voluntarily corrected the errors and paid the differential tax with interest before any assessment proceedings, demonstrating bona fide intentions. The Tribunal found that the AO had not proven the allegation of concealment and had not detected the income; rather, the assessee had suo moto declared the same. The Tribunal concluded that the mere confirmation of the addition did not automatically warrant the levy of penalty for concealment. The Tribunal deleted the penalty and allowed the appeals of the assessee.

Separate Judgments:
The Tribunal delivered a similar judgment for the husband of the assessee in ITA No.1872/Mum/2014, as the facts and transaction of the sale of property were identical.

Final Decision:
Both appeals of the assessee were allowed, and the penalties were deleted. The order was pronounced in the open court on 20-01-2017.