2011 (5) TMI 641 - HC - Income Tax

Penalty u/s 271(1)(c) - failure to file return for AY 94-95 within time limit prescribed - notice u/s 148 and 142(1) issued on 10.03.97 and 15.10397 resp. - failure to respond to SCN and reminders - best judgment assessment - Held that - The only eventuality under which non-furnishing of return of income amounts to concealment is as provided under Explanation 3 to Section 271(1). In the present case first & second requirement of Explanation 3 are satisfied as admittedly the petitioner had not been previously assessed under the provisions of the Act and had not filed his return of income within the period specified under S153(1) however a notice had been issued to the petitioner u/s 148 on 10.03.1997 which was within the period specified u/s 153(1). In the circumstances the third condition namely that no notice u/s 142(1) or Section 148 should have been issued within the period specified u/s 153(1) is clearly not satisfied. Also in the revision application the petitioner has stated that the reason for not appearing in response to the notices issued u/s 148 and 144 was that he had handed over the said notices to the income-tax practitioner Shri K. J. Joshi to do the needful in the matter. That he being his tax consultant he relied upon his assurance while in fact he betrayed him. However the revisional authority has without even considering the explanation put forth by the petitioner dismissed the revision petition merely on the ground that the petitioner had not responded to the notices issued -no penalty could be levied on the petitioner u/s 271(1)(c) - Decided in favor of Assessee.

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of Explanation 3 to section 271(1)(c) of the Income-tax Act.
3. Non-furnishing of return of income and its implications.
4. Validity of the orders passed by the Income-tax Officer and the Commissioner of Income-tax.

Detailed Analysis:

Issue 1: Imposition of Penalty under Section 271(1)(c) of the Income-tax Act, 1961
The petitioner challenged the order dated September 15, 1999, by the Income-tax Officer imposing a penalty of Rs. 83,640 under section 271(1)(c) of the Income-tax Act, 1961, and the subsequent order dated February 22, 2002, by the Commissioner of Income-tax rejecting the revision petition. The petitioner argued that penalty under section 271(1)(c) could only be imposed if there was concealment of income in the return filed, and failure to file a return does not amount to concealment of particulars of income.

Issue 2: Applicability of Explanation 3 to Section 271(1)(c) of the Income-tax Act
The petitioner contended that non-furnishing of a return of income could be deemed as concealment under Explanation 3 to section 271(1)(c) only if certain conditions were met: (1) the person should not have been previously assessed, (2) the person should have failed to furnish the return within the period specified under section 153(1), (3) no notice should have been issued under section 142(1)(i) or section 148 before the expiry of the period, and (4) the Assessing Officer should be satisfied that the person had taxable income. In this case, since a notice under section 148 was issued on March 10, 1997, before the expiry of the period specified under section 153(1), Explanation 3 was not applicable.

Issue 3: Non-furnishing of Return of Income and Its Implications
The court observed that mere failure to furnish a return of income does not amount to concealment of income under section 271(1)(c). The legal position is that non-furnishing of a return per se is not tantamount to concealment unless Explanation 3 is invoked, which was not applicable in this case. The court referred to various precedents, including S. Narayanappa and Brothers v. CIT, S. Santhosa Nadar v. ITO, and CIT v. U. P. State Handloom Corporation, which held that failure to file a return does not amount to concealment of particulars of income.

Issue 4: Validity of the Orders Passed by the Income-tax Officer and the Commissioner of Income-tax
The court found that the conditions for invoking Explanation 3 were not cumulatively satisfied in this case. Therefore, the penalty imposed under section 271(1)(c) for failure to furnish the return of income was not justified. The revisional authority's order was also found to be lacking in merit as it did not consider the petitioner's explanation and merely dismissed the revision petition on procedural grounds.

Conclusion:
The petition was allowed, and the impugned orders dated September 15, 1999, and February 27, 2002, were quashed and set aside. The court ruled that mere non-furnishing of a return does not amount to concealment under section 271(1)(c) of the Income-tax Act unless Explanation 3 is applicable, which was not the case here. Therefore, the penalty imposed was not sustainable.

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