2020 (8) TMI 730 - HC - Income Tax

Penalty u/s. 271(1)(c) - non-disclosure of the capital gains, in the required column in the income tax report, for the relevant financial year - non disclosure of sale the lands and windmill - HELD THAT - It is not in dispute that the assessee did not disclose about the sale of the lands and windmill in the return of income - as clear from the perusal of the return of income and in the relevant column, it is stated as Nil . The assessee relies upon the annual report and substantial portion of the report was read to us by the learned counsel to impress upon us that the assessee s non-disclosure was bonafide and an inadvertent mistake. Annual report is not a report, which is filed under the Income Tax Act - it is admitted that this annual report was never filed with the Income Tax Department. That apart, the Chartered Accountant has reported the captial gains as Nil and this has been signed by the Managing Director of the Company. If such is the factual position, it will not only be a case of filing inaccurate particulars, but also a case of concealment of income. The information came to the Department through the AIR, which was forwarded by the Registration Department and after verifying the same, when notice was issued under Section 143(2), the assessee, for the first time statef that due to inadvertence, they did not disclose the particulars relating to the capital gains. The above facts will clearly show that the assessee did not act bonafidely and the belated explanation sought to be offered deserves to be rejected. One more attempt made by the assessee was 24 months after the assessment were completed by attempting to file a revised statement of income on 01.03.2017. This statement can never improve the case of the assessee nor exonerate them from penalty. Another contention advanced by M/s.S.Yogalakshmi is that the AO had not recorded his satisfaction that penalty proceedings have to be initiated, by relying to the decision in the case of D.M.Manasvi to support the argument that the enire circumstances should have been considered, more particularly, the financial distress to which the assessee was thrown. As carefully perused the penalty order dated 25.09.2015 and we find that the Assessing Officer considered all the factual aspects raised by the assessee and rejected the same to be absolutely without bonafides. As decided in MAK DATA P. LTD. 2013 (11) TMI 14 - SUPREME COURT voluntary disclosure does not release the assesee from mischief of penalty proceedings under Section 271(1)(c) of the Act. Therefore, we find that the penalty order is a reasoned order. Order passed by the Tribunal does not call for any interference and the Substantial Questions of law framed for consideration have to be answered against the assessee.

Summary

Issues Involved:
1. Validity of the penalty notice under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the penalty imposed under Section 271(1)(c) is sustainable despite the complete disclosure of the sale of windmills and vacant lands in the financial statements.
3. Sustainability of the penalty on the debatable issue of reporting capital gains from the sale of windmills and vacant lands.

Detailed Analysis:

1. Validity of the Penalty Notice under Section 271(1)(c):
The appellant argued that the notice dated 12.03.2015 issued under Section 274 r/w. 271(1)(c) of the Act was defective as it used the word 'or' instead of 'and', indicating non-application of mind by the Assessing Officer. This defect, according to the appellant, rendered the notice and all subsequent proceedings non-est. The court noted that this contention was raised for the first time before it and not at any earlier stage. The court referred to the decision in Sundaram Finance Ltd., where a similar argument was rejected, emphasizing that the assessee understood the notice and was not prejudiced by the wording. The court held that the assessee is precluded from raising this contention at this stage and that the defect did not cause any prejudice to the assessee.

2. Sustainability of the Penalty Despite Disclosure in Financial Statements:
The appellant contended that the omission to report the sale of lands and windmill was inadvertent and that these sales were disclosed in the annual report, showing no intention to conceal income. The court examined the factual position and found that the assessee took 19 months to respond to the notice under Section 143(2) and only then admitted the omission. The court noted that the annual report was not filed with the Income Tax Department and that the return of income showed 'Nil' under capital gains. The court concluded that the assessee did not act bonafidely and that the omission was not a mere inadvertent mistake but amounted to filing inaccurate particulars and concealment of income.

3. Sustainability of the Penalty on the Debatable Issue of Reporting Capital Gains:
The appellant argued that the penalty should not be automatic and that the Assessing Officer must consider the bonafides of the assessee. The court referred to the penalty order, which considered the factual aspects and rejected the assessee's explanation as lacking bonafides. The court noted that voluntary disclosure does not release the assessee from penalty proceedings under Section 271(1)(c). The court also rejected the argument that the financial distress of the assessee should be considered, citing the decision in Union of India vs. Dharmendra Textile Processors, which held that penalty cannot be cancelled merely because the return of income and assessed income showed a loss.

Conclusion:
The court found no substantial question of law arising from the contentions raised by the assessee and upheld the orders of the lower authorities. The appeal was dismissed, and the substantial questions of law were answered against the assessee.