2009 (1) TMI 436 - HC - Income Tax

Penalty-Concealment of Income- Whether on the facts and circumstances of the case and in law, the hon ble Tribunal has erred in deleting the penalty observing that as the assessee had not filed return of income on the ground that the assessee had concealed or furnished inaccurate particulars of income? Held, (i) that the effect of Explanation 1 to section 271(1)(c) of the Income Tax Act, 1961, was not an issue either before the assessing officer or the Commissioner (Appeals) or before the Tribunal. The question did not arise out of the order of the Tribunal and could not be considered by the High Court.(ii) that there was a categorical finding that the assessee had earlier filed returns. Penalty was sought to be imposed on the ground of failure to file return for the assessment year 1997-98. The assessee s case would not fall under section 271(1)(c). penalty could not be imposed under section 271(1)(c).

Summary

Issues:
Appeal against ITAT order - Penalty under section 271(1)(c) - Interpretation of provisions - Application of Explanation 3 - Effect of amendment in Finance Act, 2002 - Applicability of penalty for failure to file returns.

Analysis:
The appeal before the High Court involved a challenge against the order of the Income-tax Appellate Tribunal (ITAT) concerning the imposition of a penalty under section 271(1)(c) of the Income Tax Act. The central question raised was whether the Tribunal erred in deleting the penalty based on the grounds of the assessee not filing a return of income due to alleged concealment or furnishing of inaccurate particulars of income. The relevant provision in question was section 271(1)(c) which deals with penalties for concealing income or furnishing inaccurate particulars.

Explanation 3 to section 271(1)(c) was crucial in this case, as it specified the consequences of failure to furnish a return of income within the specified period. The court noted the significance of this explanation in determining the applicability of the penalty provision. Additionally, the court highlighted an important amendment made by the Finance Act, 2002, which omitted certain key words from the provision, thereby impacting the interpretation and application of the penalty clause.

The assessment year in question was 1997-98, and the court emphasized the importance of analyzing the provision as it stood prior to the mentioned amendment. It was established that the assessee had indeed filed returns earlier, which was a critical factor in determining the applicability of section 271(1)(c). The wording of the provision specifically referred to cases where returns had not been filed or inaccurate particulars of income had been furnished, which did not align with the circumstances of the assessee in this case.

The Tribunal's order was based on the understanding that the provision in question would not be attracted due to the assessee's prior filing of returns. The court upheld this reasoning and dismissed the appeal brought by the Revenue. Importantly, the court rejected the attempt to introduce Explanation 1 to section 271(1)(c) during the appeal process, emphasizing that this issue was not raised or considered at earlier stages of the proceedings. Consequently, the court concluded that the question raised by the Revenue did not hold merit and affirmed the Tribunal's decision to delete the penalty.