2019 (10) TMI 285 - AT - Income Tax

Penalty levied u/s 271(1)(c) - difference in original return of income and revised return - difference in the items of the profit loss account filed along with the original return of income submitted on 30.09.2011 and the revised return on 25.09.2012 - HELD THAT - Section 143(2) states that where a return has been furnished u/s 139, the AO, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not under paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the AO or to produce, or cause to be produced before the AO any evidence on which the assessee may rely in support of the return. For the purpose of making assessment, the AO may serve on any person a notice u/s 142(1) to produce or cause to be produced, such accounts or documents as the AO may require. Thus in the instant case, the assessee had no intention to declare its true income in the original return of income filed on 30.09.2011. Had it been the intention of the assessee to make a full and true disclosure of its income, it would have filed a revised return of income before the issuance of the notice 143(2)/ 142(1) by the AO. AO has rightly held that the assessee has deliberately and consciously failed to furnish full and true particulars of income and attempted to conceal income. To hold otherwise would be to exalt artifice over reality and to deprive the statutory provisions in question all serious purpose. However, the penalty is not levyable on the disallowance of ₹ 49,791/- (disallowance u/s 14A) and ₹ 5,00,000/- (salary). The AO is directed to restrict the levy of penalty u/s 271(1)(c) to 100% of the difference between revised income (₹ 23, 92, 594/-) and original income (₹ 9,733/-). - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Legality of penalty computation under Section 271(1)(c) of the Income Tax Act, 1961.
2. Specificity of the limb for imposing penalty (concealment of income or furnishing inaccurate particulars).
3. Validity of penalty on disallowances not initiated in the assessment order.
4. Consideration of genuine error and intent in filing revised return.

Issue-wise Detailed Analysis:

1. Legality of Penalty Computation under Section 271(1)(c):
The appellant argued that the Assessing Officer (AO) erred in computing the penalty under Section 271(1)(c) without considering that a revised return declaring higher income was filed before any hearing or assessment completion. The AO noted that the appellant revised the income from ?9,733 to ?23,92,594 after receiving a notice under Section 143(2). The AO held that this was an attempt to evade legitimate taxes, leading to the imposition of a penalty of ?7,55,811, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Specificity of the Limb for Imposing Penalty:
The appellant contended that the AO did not specify whether the penalty was for concealment of particulars of income or for furnishing inaccurate particulars of income. The AO initially mentioned both limbs in the assessment order but later issued a notice stating that the appellant concealed particulars of income. The Tribunal, following the precedents set in Mak Data P. Ltd. vs. CIT and CIT vs. Smt. Kaushalya, held that the AO had rightly initiated penalty proceedings under Section 271(1)(c).

3. Validity of Penalty on Disallowances Not Initiated in the Assessment Order:
The appellant claimed that the penalty was also levied on disallowances made, which were not initiated in the assessment order under Section 143(3). The Tribunal directed that the penalty should not be levied on the disallowance of ?49,791 under Section 14A and ?5,00,000 for salary. The AO was instructed to restrict the penalty to 100% of the difference between the revised income (?23,92,594) and the original income (?9,733).

4. Consideration of Genuine Error and Intent in Filing Revised Return:
The appellant argued that the revised return was filed to correct a bona fide mistake and there was no intent to conceal income. The Tribunal examined the profit and loss accounts filed with the original and revised returns, noting significant discrepancies. The Tribunal held that the appellant had no intention to declare true income in the original return and only revised it after receiving notices under Sections 143(2) and 142(1). The Tribunal concluded that the appellant deliberately failed to furnish full and true particulars of income, attempting to conceal income.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to restrict the penalty to 100% of the difference between the revised and original income, excluding the disallowances of ?49,791 under Section 14A and ?5,00,000 for salary. The order emphasized the importance of filing accurate returns and upheld the AO's decision to impose a penalty for deliberate concealment of income.