2019 (4) TMI 779 - AT - Income Tax

Penalty u/s 271(1)(c) under Explanation 5A - assessee is engaged in the business of real estate activities but not filed return u/s 139(1) - notice u/s 153A - return filed u/s 153A disclosing Capital Gain which was accepted - bonafide belief or inadvertent mistake - HELD THAT - A persistent default on the part of the assessee for not filing the return of income rules out the possibility of any bonafide or inadvertent mistake or belief as claimed by the assessee. The Explanation 5A to section 271(1)(c) creates a deeming fiction regarding concealment of particulars of income or furnishing inaccurate particulars of income irrespective of the fact that the assessee has declared in the return of income after search. Therefore, all the conditions as stipulated under Explanation 5A to section 271(1)(c) are satisfied in the case of the assessee and consequently the said Explanation is applicable in respect of the income which was disclosed only after search and seizure action and based on seized material. When the assessee s case is covered by the said Explanation 5A, then the decision relied upon by the assessee will not help the case of the assessee as it is neither a case of bonafide mistake nor a case of bonafide belief but it is a continues default on the part of the assessee for not filing even return of income despite the activity in the real estate and earning the income therefrom. Accordingly, we do not find any error or illegality in the impugned order of the CIT(A) - Decided against assessee.

Summary

Issues:
- Confirmation of penalty under section 271(1)(c) of the IT Act by ld. CIT (A)
- Bonafide belief of the assessee regarding non-filing of income tax returns
- Applicability of Explanation 5A to section 271(1)(c) in the case

Confirmation of Penalty:
The appeals were directed against the composite order of ld. CIT (A) confirming the penalty imposed under section 271(1)(c) of the IT Act for the assessment years 2006-07 to 08-09. The assessee, an Association of Persons engaged in real estate activities, had not filed income tax returns for these years initially. Following a search and seizure action, undisclosed income was admitted by one of the members, leading to penalty proceedings initiated by the AO. The ld. CIT (A) upheld the penalty, prompting the assessee to appeal.

Bonafide Belief of the Assessee:
The assessee contended that the non-filing of returns was due to a bonafide belief that income from real estate transactions reinvested in the business was not taxable. The assessee argued that the returned income was accepted by the AO during assessment under section 153C. The defense relied on cases emphasizing that errors due to bonafide beliefs do not warrant penalties under section 271(1)(c). However, the department argued that the concealment was evident from the failure to file returns until detection of undisclosed income.

Applicability of Explanation 5A:
The Tribunal examined the case, emphasizing that the assessee's failure to file returns despite transactions being recorded in the books precluded any bonafide belief defense. The Explanation 5A to section 271(1)(c) was deemed applicable, as the undisclosed income was only declared post-search. The ld. CIT (A) upheld the penalty invoking Explanation 5A, as the case demonstrated a continuous default in filing returns despite income generation. The Tribunal dismissed the appeals, affirming the penalty imposition.

This judgment underscores the significance of timely filing income tax returns, the impact of bonafide beliefs on penalty assessments, and the application of statutory explanations like 5A to determine concealment of income.