2017 (3) TMI 1959 - AT - Income Tax

Penalty u/s 271(1)(c) - Concealment of income by not filing the return of income - whether ignorance of law cannot be taken as a plea to escape from tax liability? - return filed in response to section 153A notice - HELD THAT - Since the assessee filed the return of income of the A.Y.2007-08 after the search and seizure action specifically in view of the notice u/s.153A. Therefore the revenue was of the view that the assessee concealed the particulars of income and levied the penalty. At the time of hearing the revenue filed the letter dated 03.01.2017 in which it is specifically explained that the assessee did not file the appeal against the quantum before the CIT(A) and before the Hon ble Income Tax Appellate Tribunal available on record. This letter has not been controverted by the representative of the assessee meaning thereby the facts of non furnishing the return u/s.139(1) of the Act was admitted and it is not in dispute that the assessee filed the return of income after service of the notice u/s.153A of the Act. CIT(A) has passed the order judiciously and correctly which is not required to be interfere with at this appellate stage. Therefore we confirmed the order passed by the CIT(A) and dismissed the appeal of the assessee. Accordingly these issues are decided in favour of the revenue against the assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

• Whether the assessee concealed income by not filing the return of income within the due date and whether ignorance of law can be a valid defense to escape tax liability.
• Whether the provisions of section 271(1)(c) of the Income Tax Act, 1961, were applicable due to the failure of the assessee to file returns on time, thus inviting penalties.
• Whether the penalty was appropriately levied on both the addition made in the assessment and the income declared by the assessee in its return of income.
• Whether the assessee failed to disclose income related to cash transactions found during the search in the return filed in response to section 153A notice.
• Whether the Work in Progress (WIP) was underestimated and various cash expenses were excluded from the WIP.
• Whether filing the income tax return after the search constituted concealment of particulars of income or furnishing inaccurate particulars, warranting a penalty under section 271(1)(c).

ISSUE-WISE DETAILED ANALYSIS

1. Concealment of Income and Ignorance of Law

The relevant legal framework involves section 271(1)(c) of the Income Tax Act, which deals with penalties for concealment of income or furnishing inaccurate particulars. The Tribunal found that the assessee did not file the original return for the assessment years 2007-08 and 2008-09 under section 139(1). The Court interpreted that ignorance of law is not a valid excuse to avoid tax liability, especially when the assessee failed to file returns within the prescribed time frame.

2. Application of Section 271(1)(c) Penalty

The Court considered the initiation of penalty proceedings under section 271(1)(c) due to the late filing of returns post-search and seizure operations. The Court reasoned that the assessee's failure to file returns on time and the subsequent filing after a search indicated concealment of income. The Tribunal upheld the penalty, emphasizing that the assessee did not contest the quantum of income assessed and admitted to filing returns post-notice under section 153A.

3. Penalty on Declared Income and Assessment Additions

The Tribunal examined whether the penalty was correctly levied on both the income declared by the assessee and the additional income assessed. The Court found that the penalty was justified as the assessee failed to disclose income related to cash transactions during the search in the returns filed in response to section 153A notices.

4. Disclosure of Cash Transactions and WIP Underestimation

The Court evaluated the evidence regarding cash transactions and the underestimation of WIP. The Tribunal noted that the assessee did not disclose certain cash transactions and underestimated WIP, leading to the conclusion that there was a concealment of income. The evidence from the search and seizure operations supported these findings.

5. Filing Returns Post-Search and Seizure

The Tribunal addressed the issue of whether filing returns post-search constituted concealment. The Court concluded that the timing of the return filing, after the search and seizure, indicated an attempt to conceal income, thus justifying the imposition of penalties under section 271(1)(c).

SIGNIFICANT HOLDINGS

The Tribunal's significant holdings include:

• The assessee's failure to file returns within the due date and subsequent filing post-search constituted concealment of income, warranting penalties under section 271(1)(c).
• The Tribunal upheld the penalties imposed by the Assessing Officer and confirmed by the CIT(A), finding no grounds to interfere with the orders.
• The Tribunal dismissed the appeals filed by the assessee for both assessment years, affirming the penalties levied for concealment of income.

Final Determinations

The Tribunal concluded that the CIT(A) acted judiciously and correctly in confirming the penalties, and the appeals were dismissed in favor of the revenue. The Tribunal's decision emphasized the importance of timely and accurate filing of returns and the consequences of failing to disclose income, especially when prompted by search and seizure operations.