2004 (3) TMI 310 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Explanation 3 to Section 271(1)(c) of the Income-tax Act.
2. Applicability of Explanation 5 to Section 271(1)(c) of the Income-tax Act.
3. Justification of penalty under Section 271(1)(c) for non-filing of return.
4. Interpretation of "concealment" of income under Section 271(1)(c).
5. Impact of assessment on an estimated basis on penalty imposition.

Issue-wise Detailed Analysis:

1. Applicability of Explanation 3 to Section 271(1)(c) of the Income-tax Act:
The assessee contended that Explanation 3 was not applicable as the assessee was previously assessed to tax. The CIT(A) and the Judicial Member agreed, stating that Explanation 3, which applies to individuals not previously assessed, did not pertain to this case. The Accountant Member, however, argued that irrespective of Explanation 3, the main provision of Section 271(1)(c) was applicable.

2. Applicability of Explanation 5 to Section 271(1)(c) of the Income-tax Act:
Explanation 5 was also deemed inapplicable by the CIT(A) and the Judicial Member because the search occurred before the effective date of this provision (1-10-1984). The Accountant Member did not dispute this but emphasized that the main provision of Section 271(1)(c) should still apply.

3. Justification of Penalty under Section 271(1)(c) for Non-filing of Return:
The CIT(A) and the Judicial Member held that penalty could not be levied for concealment of income if no return was filed, as concealment could only be assessed against a filed return. The Accountant Member disagreed, asserting that the failure to file a return itself constituted concealment under Section 271(1)(c).

4. Interpretation of "Concealment" of Income under Section 271(1)(c):
The Judicial Member and the CIT(A) interpreted "concealment" to require an act of filing a return with inaccurate particulars. The Accountant Member argued that non-filing of a return should also be considered concealment. The Third Member ultimately supported the Judicial Member's view, citing case law that concealment cannot be presumed without a filed return.

5. Impact of Assessment on an Estimated Basis on Penalty Imposition:
The CIT(A) and the Judicial Member noted that since the income was assessed on an estimated basis, it was not a fit case for penalty. The Accountant Member disagreed, indicating that the penalty was justified even if the income was estimated, as the assessee failed to disclose the income by not filing a return.

Third Member Order:
The Third Member agreed with the Judicial Member and CIT(A), stating that no penalty under Section 271(1)(c) can be levied unless a return is filed. The Third Member emphasized that the main provision of Section 271(1)(c) did not apply in the absence of a return and that other provisions, such as Sections 276C and 276CC, address failure to file returns.

Final Decision:
In accordance with the majority view, the order of the CIT(A) canceling the penalty of Rs. 4,95,410 was upheld. The appeal of the revenue was dismissed, concluding that the penalty under Section 271(1)(c) was not justified in this case.