2017 (6) TMI 775 - AT - Income Tax

Penalty u/s 271(1)(c) - Omission in offering the capital gains to tax - Held that - The penalty order is woefully silent on the issue as to how this satisfaction of concealment/furnishing of inaccurate particulars was arrived at. The Ld. CIT (A) has also not examined the issue in detail but has simply confirmed the penalty by relying on the findings of the AO. It is undisputed that the assessee is an old lady who was recently widowed and it was for the very first time that she was filing her return of income without being assisted by her husband. It is equally undisputed that it was not mandatory for her to maintain regular books of accounts. It is equally undisputed that the assessee had accepted the mistake and had provided an explanation which appears plausible but the AO has not recorded a finding that the explanation furnished by the assessee was a false explanation. Thus the explanation of the assessee under the circumstances cannot be said to be not bona fide. A mere omission in offering the capital gains to tax would not ipso facto reflect concealment of income or furnishing of inaccurate particulars of income in terms of Section 271(1)(c) of the Act - Decided in favour of assessee.

Summary

Issues:
Challenge of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:
1. Background: The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2006-07. The penalty was confirmed by the CIT (A)-XVIII, New Delhi.

2. Assessee's Contention: The assessee failed to disclose short term capital gains, attributing it to genuine mistake due to lack of experience and ignorance. The assessee, a senior citizen, stated that her late husband used to handle financial matters, and after his demise, she was not well-versed in financial affairs. The money invested in mutual funds gave rise to short term capital gains, which she failed to include in her return due to lack of understanding of taxation implications.

3. Grounds of Appeal: The grounds of appeal raised by the assessee included challenges to the validity of the penalty notice, the failure to substantiate the mistake in reporting mutual fund transactions, and the contention that the penalty was contrary to facts and circumstances of the case.

4. Arguments: The Authorized Representative argued that the penalty was not imposable as there was a genuine mistake on the part of the assessee, amounting to a reasonable cause. The representative submitted written explanations on behalf of the assessee to support the claim of inadvertent error.

5. Department's Response: The Department contended that the assessee admitted the mistake only after being confronted by the Assessing Officer, and ignorance of the law was not a valid excuse. The Department argued that the explanation provided by the assessee lacked bona fides and was not supported by substantial evidence.

6. Judgment: The Tribunal referred to various legal precedents emphasizing that penalty proceedings require a fresh consideration of the facts and cannot rely solely on assessment findings. The Tribunal noted that the penalty order did not adequately establish the satisfaction of concealment or furnishing inaccurate particulars. Considering the circumstances, including the assessee's lack of experience and the plausible explanation provided, the Tribunal concluded that the omission was a mistake and did not warrant penalty under section 271(1)(c). The Tribunal directed the Assessing Officer to delete the entire penalty, allowing the assessee's appeal.

This detailed analysis highlights the key contentions, arguments, legal precedents, and the ultimate judgment in favor of the assessee, emphasizing the Tribunal's reasoning for overturning the penalty.