2022 (7) TMI 677 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - portion of income relating to capital gain declared by the assessee in his return filed in response to notice u/s 148 - CIT-A held that it clearly proved that the assessee tried his best to evade taxes and filed return of income only when it was detected by the department - Assessee argued that mere fact of non-filing of return of income did not tantamount to concealment/furnishing inaccurate particulars of income for the purpose of levying penalty u/s. 271(1)(c) - HELD THAT - As decided in CHHAGANLAL S UTERIYA VERSUS INCOME-TAX OFFICER 2011 (5) TMI 641 - GUJARAT HIGH COURT position of law was that non filing of return per se would not attract penalty u/s 271(1)(c) of the Act. It thereafter noted Expl 3 to section 271(1)(c) and interpreting the same held that only on fulfillment of all conditions specified therein would penalty u/s 271(1)(c) be levied for no filing of return of income originally even if subsequently the assessee files the same in response to notice u/s 148 - penalty to be levied as per Expl 3, the assessee should be a nonfiler of return, no return ought to have been filed within the time specified for framing assessment u/s 153 of the Act and no notice u/s 142(1) /148 of the Act should have been issued to the assessee for filing return within this time period. Also the AO should be satisfied that the assessee had taxable income for the said year. The court interpreted that in such eventuality even if the assessee files return after the expiry of time u/s 153 of the Act in response to notice u/s 148 of the Act, he shall be deemed to have concealed particulars of his income and be liable for penalty u/s 271(1)(c). In the present case the assessee has demonstrated that the conditions specified in explanation 3 have not been fulfilled. He has pointed out that during the time period u/s 153 of the Act in the present case notice u/s 148 of the Act was issued to the assessee in response to which return was filed by him. The aforesaid fact has remained uncontroverted before us. In view of the same, we hold the issue is squarely covered in favour of the assessee by the decision of the Hon ble jurisdictional High court. Thus we hold that no penalty in the present case was leviable on the assessee for not having disclosed his income of capital gains earned on a property sold. The penalty therefore confirmed by the Ld.CIT(A) on the same is directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 3 to Section 271(1)(c) concerning non-filing of return.
3. Validity of the penalty order in light of procedural requirements under Section 274 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of the penalty levied under section 271(1)(c) of the Income Tax Act, 1961:
The assessee was issued a notice for reopening the case under section 148 of the Income Tax Act on 22nd July 2011. The reason for reopening was the assessee's failure to file a return of income despite earning income from the sale of property. The assessee filed the return on 31st March 2012, declaring an income of Rs. 13,29,340/- after a survey was conducted on the co-owner. The Assessing Officer (AO) initiated penalty proceedings under section 271(1)(c) of the Act and levied a penalty amounting to Rs. 4,17,700/-. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the penalty on the income declared in response to the notice under section 148, concluding that the assessee tried to evade taxes and filed the return only after detection by the department. However, the CIT(A) deleted the penalty on the addition of Rs. 2,16,420/- related to disallowed expenses, as it was not conclusively proven that the assessee concealed this income.

2. Applicability of Explanation 3 to Section 271(1)(c) concerning non-filing of return:
The assessee contended that non-filing of the return did not amount to concealment or furnishing inaccurate particulars of income for the purpose of levying penalty under section 271(1)(c). The assessee argued that Explanation 3 to Section 271(1)(c) specifies conditions under which non-filing of return would attract penalty, which were not met in this case. Explanation 3 states that if no notice under section 142(1) or 148 is issued within the period specified in section 153, and the assessee has taxable income, then the non-filing of the return would be deemed as concealment. In this case, the notice under section 148 was issued within the limitation period, and therefore, the conditions of Explanation 3 were not fulfilled.

3. Validity of the penalty order in light of procedural requirements under Section 274 of the Income Tax Act, 1961:
The assessee argued that the penalty order was passed without giving a reasonable opportunity of being heard, violating Section 274 of the Act. The assessee also relied on the decision of the Hon'ble Jurisdictional High Court in the case of Chhaganlal Suteriya vs. ITO, which held that mere non-filing of return does not amount to concealment. The court interpreted Explanation 3 to Section 271(1)(c) and concluded that all specified conditions must be met for penalty to be levied for non-filing of return. In this case, since the notice under section 148 was issued within the period specified under section 153, the conditions were not met.

Judgment:
The tribunal found merit in the assessee's contention that non-filing of return per se does not attract penalty under section 271(1)(c) unless the conditions specified in Explanation 3 are met. Since the notice under section 148 was issued within the specified period, the conditions of Explanation 3 were not fulfilled. Therefore, the penalty of Rs. 4,17,700/- levied on the income of Rs. 13,29,340/- was directed to be deleted. The appeal was allowed in favor of the assessee.

Order:
The tribunal directed the deletion of the penalty confirmed by the CIT(A) and allowed the appeal in favor of the assessee. The order was pronounced in the open court on 13-07-2022.