2018 (5) TMI 1603 - AT - Income Tax

Penalty u/s 271(1)(c) - no tax paid on sale of property - Held that - It is the claim of the assessee that he was ill advised by counsel and the assessee being illiterate was having no knowledge of nitty-gritty s of the complex provision of 1961 of the Act. It was claimed that assessee was told by his tax practitioner that since he has purchased new residential properties and hence there is no need to pay tax on the sale of properties. The assessee has claimed that once he came to know that he is liable to pay tax he came forward and deposited income-tax after declaring the said income during the course of assessment proceedings Thus assessee has come forward with a bonafide explanation and the conduct of the assessee is bonafide which takes it out from exigibility of penalty within mandate of penalty provisions as are contained in section 271(1)(c) and hence no penalty is exigible on the assessee - Decided in favour of assessee.

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Consideration of facts and explanation provided by the assessee during proceedings.
3. Allegation of concealment of income by the Commissioner of Income Tax (Appeals).

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The primary issue was whether the penalty levied under section 271(1)(c) was justified. The assessee, a small-time dhobi, did not declare long-term capital gains from the sale of properties in his return of income. The Assessing Officer (AO) discovered the omission during scrutiny and levied a penalty of ?2,44,875 for furnishing inaccurate particulars of income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty, stating that the appellant failed to disclose the sale of two flats and the resultant income, thus constituting a clear failure to file particulars of income earned.

2. Consideration of Facts and Explanation Provided by the Assessee During Proceedings:
The assessee argued that he was illiterate, of old age, and had no knowledge of the Income-tax Act's provisions. He claimed reliance on his tax practitioner, who advised him that no tax was payable due to reinvestment in another property. The CIT(A) found this explanation unsatisfactory, noting that the assessee was financially capable of employing a skilled tax practitioner and that the omission of capital gains could not be attributed to ignorance or ill advice alone. The CIT(A) emphasized that the assessee's explanation was false and lacked bona fide belief, thus invoking the deeming provisions of Explanation 1 to section 271(1)(c).

3. Allegation of Concealment of Income by the Commissioner of Income Tax (Appeals):
The CIT(A) concluded that the appellant deliberately concealed particulars of income and furnished inaccurate particulars, which were only discovered due to scrutiny. The CIT(A) noted that the appellant had substantial financial transactions and should have disclosed the sale and purchase of properties. The CIT(A) referenced the Supreme Court decision in Dharmendra Textiles Processors Ltd., which held that mens rea was not an essential ingredient for imposing a penalty under section 271(1)(c).

Tribunal's Decision:
The tribunal considered the assessee's arguments, including his claim of being illiterate and relying on incorrect advice from his tax practitioner. The tribunal acknowledged the assessee's cooperation during assessment proceedings and noted that the assessee did not appeal the assessment order, which indicated acceptance of the AO's findings. The tribunal emphasized the duty of the AO to assist taxpayers in computing the correct income chargeable to tax, as per the CBDT circular dated 11-04-1955.

The tribunal found the assessee's explanation to be bona fide and concluded that the conduct of the assessee did not warrant the imposition of a penalty under section 271(1)(c). The tribunal ordered the deletion of the penalty levied by the AO, thereby allowing the assessee's appeal.

Conclusion:
The tribunal allowed the appeal, deleting the penalty levied under section 271(1)(c) on the grounds that the assessee provided a bona fide explanation and there was no deliberate concealment of income. The tribunal emphasized the importance of the AO's duty to assist taxpayers in computing the correct taxable income.

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