2015 (2) TMI 813 - HC - Income Tax

Penalty under section 271(1)(c) - CIT(A) opined that the contents of the letter amply prove that the assessee had voluntarily requested the Assessing Officer to include income of the HUF in his hands and there was justification for not furnishing the revised return as there was prevention, thus penalty deleted - Tribunal confirmed penalty deletions as during the assessment proceedings itself omissions were understood by the assessee and immediately rectified the same by bringing to the notice of the authorities - Held that - In the light of the categorical statement that the entire income from the HUF was included in the individual income of the assessee which apparently was far from truth, we only have to opine that there was no honest and bona fide disclosure made by the respondent at the time of filing the return of income. On the other hand, but for the scrutiny taken up by the Department, the additional income from the HUF would have gone unnoticed and it would have escaped from computation of tax. Thus it is clear that what happened subsequent to February 6, 1998, though not crucial, the appellate authorities have placed much reliance on subsequent events than the categorical declaration in return of income on February 6, 1998. The criterion is not the contents of the letter dated February 23, 1998, nor the revised return filed in response to the scrutiny notice. The criterion in this case is categorical declaration made by the assessee at the time of submission of returns. The categorical statement with reference to the above reasoning clearly indicates there is concealment of income from the HUF, i.e., knowingly the assessee furnished inaccurate particulars of income for computation of tax. - Decided in favour of the Revenue

Summary

Issues Involved
1. Jurisdiction and correctness of the Tribunal's decision.
2. Alleged perversity and inconsistency in the Tribunal's findings.
3. Legitimacy of the Tribunal's interference with the Assessing Officer's penalty order.

Issue-Wise Detailed Analysis

1. Jurisdiction and Correctness of the Tribunal's Decision
The core issue was whether the Tribunal was right and within its jurisdiction to uphold the order of the Commissioner of Income-tax (Appeals) despite the findings of the Assessing Officer not being controverted. The assessment year in question was 1996-97, and the respondent-assessee filed the return on February 6, 1998, admitting a net taxable income of Rs. 10,76,460. The assessee included the income of the HUF in the return, citing the Supreme Court judgment in CIT v. N. Ramanatha Reddiar (HUF) [1996] 222 ITR 765 (SC), which stated that no assessment could be made in the status of HUF in Kerala post-December 1975. The Assessing Officer, however, did not accept this explanation and imposed a penalty under section 271(1)(c) of the Income-tax Act. The Commissioner of Income-tax (Appeals) cancelled the penalty, reasoning that the assessee had voluntarily disclosed the HUF income and there was no justification for imposing a penalty. The Tribunal upheld this decision, noting the assessee's prudent action in disclosing the income through a letter dated February 23, 1998.

2. Alleged Perversity and Inconsistency in the Tribunal's Findings
The Revenue contended that the Tribunal's findings were perverse and against reality, arguing that the Tribunal should have remitted the case to the Assessing Officer for fresh consideration. The Tribunal had concluded that the omissions were understood and rectified by the assessee during the assessment proceedings. The Tribunal found that the letter dated February 23, 1998, and the subsequent revised return indicated the assessee's proactive steps to correct the omissions, thus justifying the cancellation of the penalty.

3. Legitimacy of the Tribunal's Interference with the Assessing Officer's Penalty Order
The Revenue argued that under section 271(1)(c) of the Income-tax Act, mere concealment or furnishing of inaccurate particulars was sufficient to impose a penalty, without needing to establish mens rea or wilful negligence. They cited Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 (SC) and CIT v. K. Mahim [1984] 149 ITR 737 (Ker) to support their contention. The respondent-assessee argued that there was no intention of evading tax, as evidenced by the voluntary disclosure of the HUF income. The court noted that the penalty under section 271(1)(c) is a civil liability and does not require mens rea. The court emphasized that the declaration made by the assessee at the time of filing the return on February 6, 1998, was incorrect and that the subsequent letter and revised return were attempts to rectify the initial concealment.

The court observed that the appellate authorities had placed undue reliance on the subsequent letter and revised return rather than the initial incorrect declaration. The court concluded that the initial return did not honestly and bona fide disclose the HUF income, and the concealment was only discovered due to the Department's scrutiny. Therefore, the court opined that the assessee knowingly furnished inaccurate particulars of income.

Conclusion
The court answered the substantial questions of law in favor of the Revenue, setting aside the orders of the appellate authorities and confirming the Assessing Officer's penalty order. The categorical declaration at the time of filing the return was deemed crucial, and the subsequent disclosures were not sufficient to absolve the assessee from the penalty for concealment of income.