2012 (12) TMI 486 - AT - Income Tax

Penalty u/s 271(1)(c) Whether penalty u/s 271(1)(c) can be levied on the additional income disclose in ROI filed in response to notice u/s 148 Assessee deputed to India as an employee of Foreign Company Filed his ROI declaring income as salary received India AO issue notice u/s 148 Assessee disclosed in ROI filed in response to notice u/s 148 additional income which he earned outside India from their employer AO completed the assessment and initiated penalty u/s 271(1)(c) Assessee argued that the position taken by the company and consequently by the assessee in original return of income was bonafide and was based on judicial precedent and it did not amount to concealment of income - Held that - Following the decision in case of Glories Realty (2009 (1) TMI 526 - ITAT MUMBAI) that penalty is not an automatic consequence of addition to income. Penalty u/s 271(1)(c) can come into play only when the conditions laid down under that section are satisfied, concealment of income cannot be a passive situation and it implies that the person concealing the income is hiding, covering up or camouflaging an income. Therefore, penalty is not leviable in case where assessee is able to provide a bona fide explanation and made errors under bona fide beliefs. Appeal decides in favour of assessee

Issues Involved:
1. Penalty under Section 271(1)(c) for concealment of income.
2. Validity of the explanation provided by the assessee regarding non-disclosure of income.
3. Applicability of judicial precedents and legal interpretations on the imposition of penalties.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) for Concealment of Income:
The primary issue in all appeals pertains to the imposition of penalty under Section 271(1)(c) of the Income Tax Act for concealment of income. The assessee, an employee of Tetra Pak International S.A., did not disclose certain income received outside India in the original return filed, leading to the issuance of a notice under Section 148. The additional income was subsequently disclosed in response to the notice, and the Assessing Officer levied a penalty of Rs. 43,49,376 for concealment of income, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Validity of the Explanation Provided by the Assessee:
The assessee contended that the non-disclosure of income was based on a bona fide belief that the additional income was not liable to Indian taxation. The ITAT in the first round of appeals had accepted the assessee's explanation, noting that the explanation was evidenced by material on record and that the penalty for concealment could not be imposed in the absence of categorical conclusions about the taxability of the income. The ITAT emphasized that the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee consciously concealed the particulars of his income. The jurisdictional High Court restored the issue to the Tribunal for fresh adjudication in light of subsequent judicial decisions, including the Supreme Court's decision in Dharmendra Textile's case.

3. Applicability of Judicial Precedents and Legal Interpretations:
The Tribunal referred to several judicial precedents, including the Supreme Court's decision in Dilip N. Shroff, which emphasized that penalty should not be imposed merely because it is lawful to do so and that the authority must exercise discretion judicially. The Tribunal also considered the case of Hindustan Steel Limited, which held that penalty will not be imposed for a mere mistake or inadvertent error. The Tribunal noted that the assessee's explanation for non-disclosure of income was based on the advice of tax consultants and that there was no economic rationale for the assessee to conceal or underreport his overseas salary income. The Tribunal observed that the assessee had voluntarily disclosed the additional income and paid the applicable taxes and interest, which indicated a bona fide belief and lack of intent to evade taxes.

Outcome of the Appeals:
The Tribunal concluded that the imposition of penalty was not justified in the present case, as the assessee's explanation was bona fide and substantiated by the circumstances. The Tribunal directed the Assessing Officer to delete the penalty, following the reasoning in similar cases decided by the Pune Bench and upheld by the jurisdictional High Court. The appeals filed by the assessee were allowed, and the penalties were deleted.

Conclusion:
The Tribunal's judgment emphasized the importance of considering the bona fide nature of the assessee's explanation and the absence of deliberate intent to conceal income. The decision highlighted the need for judicial discretion in the imposition of penalties and reinforced the principle that penalties should not be imposed for mere mistakes or inadvertent errors. The Tribunal's order provided relief to the assessee by deleting the penalties imposed under Section 271(1)(c) of the Income Tax Act.

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