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2009 (8) TMI 754 - AT - Income TaxPenalty Concealment - Assessee is a trust having registration under s. 12A of IT Act Certain addition/ deduction were made and the income determined2102720 as against nil income declared by the assessee In reply to SCN assessee was in belief that its income is not taxable due to exemption under s. 10(20) of IT Act in the earlier years - AO held that the assessee is guilty of contumacious conduct and being of the opinion that in view of Expln. 1 to sub-s. (1) of s. 271, the assessee failed to substantiate his explanation and discharge the burden to prove that the explanation is bona fide. It was therefore, imperative on the part of the assessee to show under which enabling provisions of law he is eligible for deduction for depreciation on the construction work contended to be an asset by him CIT(A) has erred in cancelling the penalty without any justifiable cause.
Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the IT Act. 2. Concealment of income and furnishing inaccurate particulars. 3. Bona fide belief and reasonable cause for not filing the return on time. 4. Applicability of Explanation 3 to Section 271(1)(c) of the IT Act. 5. Mens rea and its relevance in penalty proceedings. 6. Eligibility for depreciation on construction work. Issue-wise Detailed Analysis: 1. Deletion of Penalty under Section 271(1)(c) of the IT Act: The Revenue appealed against the CIT(A)'s order deleting the penalty of Rs. 6,35,060 imposed under Section 271(1)(c) of the IT Act. The CIT(A) held that the assessee did not conceal particulars of income nor furnished inaccurate particulars of income. The Tribunal examined whether the deletion of the penalty was justified based on the facts and legal provisions. 2. Concealment of Income and Furnishing Inaccurate Particulars: The assessee, a registered trust, did not file its return of income by the due date and filed a nil return in response to a notice under Section 148. The AO assessed an income of Rs. 21,02,720 and initiated penalty proceedings for concealment and furnishing inaccurate particulars. The Tribunal noted that the assessee failed to claim depreciation or provide details of assets, and the surplus indicated taxable income. The AO imposed a penalty, which was deleted by the CIT(A), who found no deliberate defiance of law or dishonest conduct by the assessee. 3. Bona Fide Belief and Reasonable Cause for Not Filing the Return on Time: The assessee claimed that it did not file the return on time due to a bona fide belief that its income was exempt under Section 10(20) of the IT Act. The Tribunal considered whether this belief constituted a reasonable cause. The AO did not comment adversely on the reasonable cause pleaded by the assessee, and the Tribunal found that there were bona fide reasons for not furnishing the return under Section 139, thus Explanation 3 to Section 271(1)(c) was not attracted. 4. Applicability of Explanation 3 to Section 271(1)(c) of the IT Act: Explanation 3 to Section 271(1)(c) deems a person to have concealed income if they fail to file a return within the specified period without reasonable cause. The Tribunal found that the AO issued a notice under Section 148, which the assessee complied with. Since the AO did not comment adversely on the reasonable cause, Explanation 3 was not applicable. 5. Mens Rea and Its Relevance in Penalty Proceedings: The Tribunal discussed the concept of mens rea (guilty mind) in penalty proceedings, noting that the Supreme Court in Union of India vs. Dharamendra Textile Processors held that mens rea is not an essential ingredient for imposing penalty under Section 271(1)(c). The Tribunal rejected the assessee's reliance on judgments requiring mens rea, as the Supreme Court's decision is binding. 6. Eligibility for Depreciation on Construction Work: The assessee argued that if depreciation was allowed on the WDV of assets, there would be no taxable income. However, the AO found that the assessee did not claim depreciation or provide details of assets. The Tribunal noted that the assessee did not substantiate this claim with relevant material or evidence. The Tribunal held that the assessee failed to prove that the explanation was bona fide and upheld the AO's decision to impose the penalty. Conclusion: The Tribunal set aside the CIT(A)'s order and upheld the AO's imposition of the penalty, finding that the assessee failed to substantiate its explanation and did not act in a bona fide manner. The appeal by the Revenue was allowed.
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