2017 (7) TMI 1146 - AT - Income Tax

Penalty u/s 271(1)(C) - additional income offered after search operations - Case of the assessee was covered u/s 153C - revised return of income on 31/12/2008 which was beyond statutory limit as provided in Section 139(5) - Held that - As decided in the recent judgment of PCIT Vs. Neeraj jindal 2017 (2) TMI 1002 - DELHI HIGH COURT The concealment has to be in the return of income filed by the assessee. Revised return filed under Section 153A & 153C takes the place of the original return under Section 139, for the purposes of all other provisions of the act and accordingly, if the same has been accepted as such by the revenue, the penalty was not justified in view of the fact that return filed pursuant to Section 153C has to be looked at as a second chance to assessee to make good omission, if any, in the original return. Once AO accepts the revised return filed under Section 153C, the original return filed u/s 139 abates and become non-est. Further, it is trite to say that concealment has to be seen with reference to the return that it is filed by the assessee. Thus, for the purpose of levying penalty under Section 271(1)(c), what has to be seen is whether there is any concealment in the return filed by the assessee under Section 153C, and not vis-a-vis the original return under Section 139. - Decided in favor of assessee

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Legality of the revised return filed by the assessee.
3. Applicability and interpretation of Section 153C and its interaction with Section 139.
4. Determination of "concealment" of income for the purpose of penalty.

Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue is the confirmation of penalty amounting to ?8,07,840/- under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed following search operations on the Euro Group of Companies, during which blank promissory notes were seized from the residence of the assessee's husband. The assessee had booked four flats and issued promissory notes totaling ?24,00,000/-. The assessee filed a revised return post-search, which included this amount as additional income. The penalty was imposed on the grounds that the additional income was disclosed only after the search operations, indicating it was not voluntary.

2. Legality of the Revised Return Filed by the Assessee:
The assessee initially filed a return showing an income of ?2,92,366/-, which was later revised to ?26,94,198/- post-search operations. The revised return was filed before the issuance of notice under Section 153C but beyond the statutory limit provided in Section 139(5). The revenue accepted the revised return as a response to the notice under Section 153C. The assessee contended that since the revised return was accepted without further additions, there was no difference between the returned and assessed income, making the penalty unwarranted.

3. Applicability and Interpretation of Section 153C and its Interaction with Section 139:
The Tribunal noted that the revised return filed under Section 153C takes precedence over the original return filed under Section 139 due to the non-obstante clause in Section 153C. This clause overrides the provisions of Section 139 and other sections, making the revised return the effective return for all purposes, including penalty considerations. The Tribunal referenced a Delhi High Court judgment, which clarified that the revised return under Section 153A (similar to 153C) replaces the original return, and any penalty must be based on the revised return.

4. Determination of "Concealment" of Income for the Purpose of Penalty:
The Tribunal emphasized that "concealment" must be determined based on the return filed under Section 153C. The penalty under Section 271(1)(c) is not automatic and requires a strict interpretation. The Tribunal cited several judicial precedents, including Supreme Court judgments, which established that mere disclosure of higher income in a revised return following a search does not automatically constitute concealment. The Tribunal concluded that since the revised return was accepted by the revenue, the original return became non-est, and no concealment could be attributed to the revised return.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the penalty under Section 271(1)(c) was not justified. The revised return filed under Section 153C, which was accepted by the revenue, replaced the original return, and no concealment was established based on the revised return. The Tribunal's decision was influenced by the principles of strict interpretation of penal provisions and the specific context of returns filed under Section 153C. The appeal was allowed, and the penalty was deleted.