2022 (2) TMI 1429 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee has not filed the original return of income though he had taxable income(interest income) - bonafide belief - As per assessee return of income had not been filed by him since he was under the bona-fide belief that since tax has been deducted at source there was no need for him to file the return of income - HELD THAT - If on facts the assessee is able to demonstrate that he has a reasonable cause for not filing return of income then the assessee cannot be subject matter of penalty u/s 271(1)(c) of the Act. In order to invoke Explanation 3 to s. 271(1)(c) AO has to establish that there was no reasonable cause on part of the assessee for non-filing of return of income. However if from the facts of the case it seems that assessee did not file return of income under a bona-fide mistake then unless the AO brings anything further to the record it is not a fit case of levy of penalty u/s 271(1)(c) of the Act. The assessee had earned interest income (being the only source of income for the captioned year) on which taxes had been duly withheld by the payer. Therefore the assessee is conscious of the fact that the Income Tax Department is aware about his having earned income but was of the mistaken view that once taxes have been deducted on this income the assessee was not required to be filed return of income. Therefore in our view this is not a fit case for levy of penalty - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the penalty order based on findings in the assessment order without additional material.
3. Burden of proof for concealment of income or furnishing inaccurate particulars.
4. Specificity of the charge regarding concealment of income or furnishing inaccurate particulars.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The appeal was filed against the penalty order u/s 271(1)(c) for the assessment year 2008-09, where the assessee was penalized Rs. 10,72,242. The penalty was levied because the assessee did not file a return of income despite having taxable income from interest. The return was filed only after the issuance of notice u/s 148. The Assessing Officer (AO) initiated penalty proceedings for concealment of particulars of income, rejecting the assessee's contention that the failure to file was due to a bona fide belief that TDS deducted sufficed.

2. Validity of Penalty Order Based on Findings in Assessment Order:
The assessee argued that the penalty was based solely on the assessment order without any additional material. The AO noted that the assessee disclosed income only after detection by the Department, initiating penalty proceedings for concealment. The CIT(A) upheld the penalty, stating the AO had invoked explanations to section 271(1)(c), indicating the assessee failed to establish a bona fide explanation for not filing the return.

3. Burden of Proof for Concealment of Income or Furnishing Inaccurate Particulars:
The assessee contended that the AO did not prove beyond doubt that the failure to file the return was without reasonable cause. The CIT(A) rejected this, emphasizing that the AO considered the assessee's explanation and found it unreasonable. The CIT(A) maintained that the penalty was justified as the assessee did not file the return voluntarily but only after receiving the notice u/s 148.

4. Specificity of the Charge Regarding Concealment of Income or Furnishing Inaccurate Particulars:
The assessee argued that the penalty order lacked a specific charge of either concealment of income or furnishing inaccurate particulars. The CIT(A) noted that the penalty was levied for concealment of particulars of income, as indicated by the AO's application of Explanation 3 to Section 271(1)(c).

Judgment Analysis:
The Tribunal examined whether the assessee had a reasonable cause for not furnishing the return of income. It referred to ITAT Kolkata's decision in Smt. Anuva Bhattacharjee vs. ITO, where it was held that inadvertent mistakes without willful intent to conceal income do not justify penalty imposition. Similarly, ITAT Mumbai in M/s. Richa Dubey vs. ITO emphasized that bona fide mistakes without deliberate concealment do not attract penalties.

The Tribunal noted that the assessee's interest income was subject to TDS, and the failure to file the return was due to a mistaken belief that TDS sufficed. The Tribunal held that the AO did not establish the absence of reasonable cause for non-filing. Therefore, the penalty u/s 271(1)(c) was not justified as the assessee had a reasonable cause for the non-filing of the return.

Conclusion:
The Tribunal allowed the appeal, canceling the penalty order, as the assessee demonstrated a reasonable cause for not filing the return of income. The judgment emphasized the necessity of establishing the absence of reasonable cause for invoking Explanation 3 to Section 271(1)(c) and highlighted the importance of bona fide mistakes in penalty considerations.

Order Pronounced:
The appeal of the assessee was allowed, and the penalty was canceled. The order was pronounced in the open court on 25-02-2022.