2018 (12) TMI 408 - HC - Income Tax

Penalty u/s 271(1)(c) - failure on the part of the assessee to file the returns voluntarily - o evade payment of tax on rental income - Held that - Failure on the part of the assessee to file the returns voluntarily, as statutorily prescribed, would be a culpable act or omission attracting penalty under Section 271(1)(c) - only subsequent to the search that the assessee filed returns and this reveals the intention of the assessee to avoid payment of tax; if the search had not been taken out. There is also clear evidence of attempt to evade payment of tax on rental income, which is received by his wife for property belonging to him. The fact regarding the sale of the property in variance with the consideration mentioned in the agreement is also evidence of intention to evade payment of tax. The penalty originally levied was 200%, which was reduced to 100% by the Appellate Tribunal. We find no reason, whatsoever, to interfere with that finding of the Appellate Tribunal and the questions of law are answered in favour of the Revenue and against the assessee.

Summary

Issues:
1. Justification of the appellate tribunal in partly sustaining the order of the appellate authority.
2. Justification of the appellate tribunal in not waiving the penalty in full despite voluntary disclosure of additional income.
3. Justification of the appellate tribunal in sustaining the penalty order to the extent of 100% despite the voluntary disclosure of additional income.

Analysis:

Issue 1:
The appellant, an NRI businessman, challenged the common order passed by the Income Tax Appellate Tribunal for the assessment years 2001-02 to 2003-04. The penalty under Section 271(1)(c) of the Income Tax Act, initially set at 200% by the Assessing Officer, was reduced to 100% by the Tribunal. The appellant contended that the additional income declared was voluntary and not based on seized materials, thus not warranting penalty under Section 271(1)(c). However, the Tribunal upheld the penalty, finding unexplained income and lack of return filings prior to the search, indicating an intention to evade tax. The Tribunal's decision to restrict the penalty to 100% was deemed justified.

Issue 2:
The appellant argued that the returns filed post-search should be considered as returns filed under Section 139, absolving them from penalty under Section 271(1)(c). The appellant emphasized the absence of concealment or inaccurate particulars in the returns. Conversely, the Revenue contended that failure to file returns voluntarily before the search made the appellant liable for penalty. Citing legal precedents, the court held that the appellant's conduct of filing returns only after the search revealed an intent to evade tax, especially regarding rental income and property sale considerations. The court upheld the Tribunal's decision to impose a 100% penalty.

Issue 3:
The court referred to a Division Bench decision emphasizing that the act of concealment or furnishing inaccurate particulars at the time of filing returns determines liability under Section 271(1)(c). The failure to file returns voluntarily before the search was considered a culpable act attracting penalty. Evidence of attempts to evade tax on rental income and property sale discrepancies supported the imposition of a 100% penalty. The court found no reason to interfere with the Tribunal's decision and ruled in favor of the Revenue, dismissing the appeals.

In conclusion, the court upheld the Tribunal's decision to impose a 100% penalty on the appellant, considering the circumstances of unexplained income, delayed return filings, and evidence indicating an intent to evade tax. The legal precedents and interpretations of relevant sections of the Income Tax Act supported the imposition of the penalty, leading to the dismissal of the appeals.