2016 (10) TMI 881 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - The income disclosed by the assessee has been accepted. Therefore, the assessee cannot be visited with penalty with the help of Explanation-I of section 271(1)(c) of the Act. That Explanation is not attracted in the present case. Three conditions contemplated in Explanation-3 are not available here. Notice under section 148 has been issued within time limit available for assessment of the income for this year under section 153(1) of the Act. Had this notice been not issued, then, assessee could be visited with penalty with the help of Explanation-3. Therefore, in view of the above discussion, allow ground of the appeal and delete the impugned 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. Applicability of Explanation 1 and Explanation 3 to Section 271(1)(c).

Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act, 1961
The assessee, an NRI residing in the US, did not file a return of income under Section 139. The AO, upon discovering a deposit of ?12,78,530/- in the assessee's savings bank account, issued a notice under Section 148. The assessee subsequently filed a return declaring the same amount. The AO accepted the return but initiated penalty proceedings under Section 271(1)(c), imposing a penalty of ?2,50,000/-. The department's stance was that the income would not have been disclosed had the proceedings under Section 148 not been initiated, thus justifying the penalty for concealment.

2. Applicability of Explanation 1 and Explanation 3 to Section 271(1)(c)
The assessee contended that Explanation 1 to Section 271(1)(c) was not applicable as the AO accepted the return without finding any irregularities. Explanation 3 was also argued to be inapplicable since the notice under Section 148 was issued within the permissible time period for assessment under Section 153(1). The assessee relied on the judgment of the Hon'ble jurisdictional High Court in Chhaganlal Suteriya Vs. ITO, which clarified that mere non-filing of a return does not amount to concealment unless the conditions of Explanation 3 are met.

Tribunal's Findings:
- Section 271(1)(c) Overview: The Tribunal examined Section 271(1)(c), which penalizes concealment of income or furnishing inaccurate particulars. The penalty ranges from 100% to 300% of the tax evaded. Explanation 1 creates a deeming fiction for concealment if the assessee fails to offer a credible explanation or if the explanation is found false.

- Explanation 1 Analysis: The Tribunal noted that the assessee's disclosed income was accepted by the AO, thus Explanation 1 was not applicable.

- Explanation 3 Analysis: The Tribunal referred to the High Court's judgment in Chhaganlal Suteriya, which stated that non-filing of a return per se is not concealment unless Explanation 3 applies. Explanation 3 applies if:
1. The person is a new assessee.
2. The return is not filed within the specified period.
3. No notice under Section 142(1) or 148 is issued within that period.
4. The officer is satisfied that the person had taxable income.

In this case, the notice under Section 148 was issued within the time limit specified under Section 153(1). Thus, the third condition was not met, making Explanation 3 inapplicable.

Conclusion:
The Tribunal concluded that since the notice under Section 148 was issued within the allowable time frame and the income disclosed by the assessee was accepted without discrepancies, the penalty under Section 271(1)(c) could not be justified. Consequently, the penalty of ?2,50,000/- was deleted, and the appeal was allowed.

Result:
The appeal of the assessee was allowed, and the penalty was deleted. The order was pronounced on 1st September 2016 at Ahmedabad.