1993 (9) TMI 163 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of penalties imposed under Section 271(1)(c) of the Income Tax Act.
2. Applicability of Explanation 3 to Section 271(1)(c).
3. Validity of returns filed before the issuance of notice under Section 148.
4. Interpretation of the term "not assessed hitherto" in Explanation 3 to Section 271(1)(c).

Issue-Wise Detailed Analysis:

1. Cancellation of Penalties Imposed Under Section 271(1)(c):

The Revenue filed appeals challenging the order of CIT(A), Bareilly, which had canceled the penalties imposed on the assessee under Section 271(1)(c) of the Income Tax Act. The penalties were initially levied by the Assessing Officer (AO) for concealment of income. The CIT(A) had canceled the penalties, interpreting that Explanation 3 to Section 271(1)(c) did not apply to the assessee.

2. Applicability of Explanation 3 to Section 271(1)(c):

The Assessing Officer initiated penalties under Explanation 3 to Section 271(1)(c), arguing that the assessee failed to file returns within the limitation period and thus concealed income. The CIT(A) disagreed, asserting that the term "not assessed hitherto" did not apply since assessments for subsequent years were concluded before the notices under Section 148 were issued for the years under appeal. The Tribunal, however, interpreted that Explanation 3 applies to situations where returns were not filed before the expiry of the limitation period, regardless of subsequent assessments.

3. Validity of Returns Filed Before the Issuance of Notice Under Section 148:

The Departmental Representative argued that the returns filed on January 18, 1989, were invalid as they were not filed under Sections 139(1), 139(2), or 139(4) and were regularized only after the issuance of notice under Section 148. The Tribunal agreed, stating that the returns filed by the assessee were non est in the eye of law and were considered valid only after the notice under Section 148 was issued.

4. Interpretation of the Term "Not Assessed Hitherto" in Explanation 3 to Section 271(1)(c):

The CIT(A) interpreted "not assessed hitherto" to mean that Explanation 3 did not apply since assessments for subsequent years were concluded before the issuance of notices under Section 148. However, the Tribunal held that the term should be interpreted to mean that the assessee was not assessed at the time of the default of not filing returns. The Tribunal emphasized that the plain reading of Explanation 3 indicates it applies to cases where no returns were filed before the expiry of the limitation period for framing assessments.

Conclusion:

The Tribunal concluded that the assessee did not file returns within the prescribed time, and the returns filed later were regularized only after the issuance of notice under Section 148. Therefore, Explanation 3 to Section 271(1)(c) was applicable, and the penalties for deemed concealment of income were rightly levied by the Assessing Officer. The Tribunal set aside the order of CIT(A) and upheld the penalties imposed for all assessment years under appeal. The appeals were allowed in favor of the Revenue.