2024 (10) TMI 1486 - HC - Income Tax

Jurisdiction of Assessment Unit, Income Tax to impose penalty u/s 271 (1) (c) - whether Petitioner has concealed its income? - TP adjustment in respect of payment of royalty - payment of management fees afresh in the light of the compliance report, modified income-tax return, and the APA. HELD THAT - We find substance in the contention of the Petitioner that, in the facts and circumstances of the case, the Respondents have no jurisdiction to initiate the impugned penalty proceedings and more particularly considering the fact that although the final Assessment Order was passed on 30 August 2018 for the Assessment Year 2013-2014, the Petitioner, on the next day, had filed the modified return of income, which was within the prescribed period of limitation from the date of the APA, as permissible in law, and therefore there could not have been any event of concealment of income by the Petitioner. Let the Respondents respond to this Petition by filing a Reply Affidavit on such contentions raised by the Petitioner. The same shall be served on the Petitioner well in advance. Stand over to 26 November 2024. Till the adjourned date of hearing, order passed under Section 271 (1) (c) of the Act, shall remain stayed.

Summary

Issues:
Jurisdiction of Respondent to impose penalty under Section 271 (1) (c) for alleged income concealment based on modified return filed after APA.

Analysis:
The primary issue in this case revolves around the jurisdiction of the Respondents to initiate penalty proceedings under Section 271 (1) (c) based on alleged income concealment by the Petitioner. The Petitioner had filed its original return of income for the Assessment Year and subsequently entered into a Unilateral Advance Pricing Agreement (APA) with the Government of India, enabling the filing of a modified return. The modified return was filed within the prescribed period of limitation from the date of the APA. The Respondents issued a Show Cause Notice under Section 271 (1) (c) despite the modified return being filed, leading to the challenge in this Petition.

The Petitioner contends that the Respondents lacked jurisdiction to initiate penalty proceedings considering the filing of the modified return after the APA. The Petitioner argues that the modified return should have been taken into account, and appropriate orders should have been passed based on the revised income disclosure. The Court found merit in the Petitioner's argument, noting that the modified return was filed within the prescribed period and, therefore, there was no concealment of income by the Petitioner. The Court directed the Respondents to file a Reply Affidavit addressing the contentions raised by the Petitioner.

In conclusion, the Court acknowledged the Petitioner's position that the Respondents lacked jurisdiction to impose the penalty under Section 271 (1) (c) based on the circumstances of the case, particularly the filing of the modified return following the APA. The impugned order imposing the penalty was stayed until the next hearing date. The case highlights the importance of considering the impact of subsequent filings, such as modified returns, on penalty proceedings related to income disclosure under the Income Tax Act.