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Income Tax Appellate Tribunal (ITAT) Jaipur, in a recent judgment has held that there is no provision in the Income Tax Act, 1961 for levy of penalty u/s 271(1)(c) for non-filing of return of income.

Case Law Details:
ITA No. 512/JP/2013 Assessment Year:2006-07
Associated Stone Industries (Appellant) vs ACIT (Respondent)
Date of Order: 08-01-2016

Brief facts of the Case:
Assessee was having Two Divisions viz; Mining Division and Textile Division. Due to some exigencies they were proposed to be demerged as per the Scheme of Arrangement, w.e.f. 16th October, 2005.  The assesse filed its return of income A.Y. 2006 – 2007 declaring a loss of Rs. (-) 6,44,82,042/- along with audited accounts as well as the tax audit reports. The enclosures clearly mentioned the facts about companies pending demerger and also the likely tax effect of pending demerger application before Hon’ble Rajasthan High Court. Before filing the return in electronic form for AY 2006-07 on 27.11.2006, vide its letter dated 24.11.2006, the assessee intimated ld. AO relevant details and the facts about the demerger in contemplation and intention to file a revised return as and when the demerger scheme was finally approved by the Hon’ble Rajasthan High Court. The assessment for AY 2006-07 was accordingly framed u/s 143(3) on 31-12-2010 pending High Court order by making some disallowances. The Scheme of Arrangement for de-merger was finally approved by Hon’ble Rajasthan High Court vide its order dated 09.02.2007. Assessee again in its return of income for A.Y. 2007 – 2008 electronically filed on 31.10.2007 also, as an abundant caution filed relevant documents of demerger in physical form upon filing such e-return. On the basis of High Court order approving demerger and it’s effects filed by the assessee, the Assessing Officer (AO) issued notice u/s 148 reopening the assessment for AY 2006-07. During the course of reassessment proceedings, the AO was of the view that from demerger order it emerged that assessee in original return has claimed the losses attributable to resulting company for which a revised return as undertaken has not been filed. Consequently, the AO initiated penalty proceedings u/s 271(1)(c) for concealment of particulars of income or furnishing of inaccurate particulars of income in case of disallowances of losses pertaining Textile Division due to demerger effect. The AO, however did not accept the reply of the assesse and imposed the penalty. CIT(A) also confirmed the penalty.

Contention of the assessee:
The assessee contended that the return of income filed by the assessee for A.Y. 2006-2007 has to be the sole basis for evaluating the penalty provision for concealment of income or inaccurate particular. The charge of concealment / filing of inaccurate particulars is always vis-a-vis the return of income filed; nothing more, nothing less. In other words, the only document which one needs to evaluate for this purpose is the return of income. The assessee should have concealed the income / filed inaccurate particular of income vis-a-vis the return of income filed by him. Any subsequent conduct of an assessee cannot change the position in  this regard. Just as any act on the part of the assessee post filing of his return of income – whether by way of surrender of income or otherwise – does not absolve him from the charge of this penalty if, in the return of income filed, he had concealed income / filed inaccurate particular of income. The assessee also contended that he has truly and fully disclosed all the facts and has nothing concealed.

Important paragraphs from ITAT Judgment:

i.     As the record reveals assesse had filed all the relevant documents, information and events before ld. AO during the course of filing of return for AY 2006-07, assessment proceedings and in AY 2007-08 also. When the order of Hon’ble Rajasthan High Court approving the scheme of demerger was passed, the same was also duly and promptly filed by the assesse with ld. AO. These facts have not at all been disputed by the department in any manner.

ii.     The allegation of concealment or inaccurate particulars has not been established by the ld. A.O. on discovery of any new fact, information or inquiry. The entire adverse inference is drawn on nothing but asseessee’s own record and Hon’ble High Court approval for demerger schemes after the income tax department is heard. In our considered view there exists no scope to hold that assesssee has concealed any fact or furnished inaccurate particulars in the return of income dtd. 27-11-2006 filed prior to approval of demerger scheme by Hon’ble Rajasthan High Court. So also in the return filed in response to notice u/s 148 as it is not disputed that assessee did not claim any set off of loss. Thus we see no justification in alleging that assessee has concealed any fact or furnished inaccurate particulars in any returns of income.

iii.    A multitude of undisputed facts mentioned above clearly demonstrate that there were no effort much less intention to conceal any particulars or file any inaccurate particular of income by assessee testing it on the touchstone of preponderance of probability, human conduct, surrounding circumstances or reasonable logic.

iv.    There is no loss to revenue as assessee has paid all the due taxes. It has not taken any advantage as it has not claimed any set off of such losses in any manner in the subsequent year. There being repetitive and full disclosure of facts and record; there being no loss to revenue as the loss is not set off by the assesse and merely because revised return is not filed by the asssessee, it is desirable the all the surrounding circumstances, human conduct and assessee’s explanation are to be considered in harmonious manner. Considering all the aspect we are not in agreement with authorities below that assessee concealed or filed inaccurate particulars of income so as to be liable for impugned penalty.

v.    Having filed all the relevant details on several occasions whose veracity is not at all challenged by the revenue, the sole issue remains whether the impugned concealment penalty is legally or factually leviable for not filing of a revised return which was undertaken by assesse. In our considered view penalty provision for not filing a return are different i.e. sec 271(1)(a) and not 271(1)(c). Besides in original return or notice u/s 148 assesssee did not conceal any income or furnished inaccurate particulars. By the time or original return merger scheme was not approved and assesse offered income in return in response to notice u/s 148. It is trite law that penalty u/s 271(1)(c) cannot be imposed by picking up one default, the levy is to be considered after carefully considering the entirety of facts, record, assessee’s submissions, judicial precedents and applying proper discretion. Any penalty imposed without proper care and in an arbitrary manner has a propensity to become untenable.

vi.    There is no provision in the IT Act for levying concealment of income u/s 271(1)(c) for non-filing of a return. The relevant provision is sec. 271(1)(a), which is neither initiated nor attracted. Thus the penalty has been imposed for not filing a return and unfounded allegation that assessee filed inaccurate particulars in return of income dtd. 27-11-06 is unsustainable.

vii    Assessee having offered a satisfactory explanation which remains largely uncontroverted, it becomes clear that it discharged its primary onus to furnish an explanation which is corroborated by undisputed facts and substantiated by record about its truthfulness. In our considered view this is not a fit case for imposition of penalty.

viii. Our view is fortified by Hon’ble Supreme Court judgments in the case of Reliance Petro Products holding that when the relevant information is submitted in the return of income, it is to be held that assesse has the assesse has discharged its onus of offering a satisfactory explanation.

ix.    Hon’ble Supreme Court in the case of Hindustan Steels (supra) has held that penalty should not be imposed merely because it is lawful to do so. Besides technical or venial breach of law can not be visited with stringent penalty proceedings u/s 271(1)(c). With all the record in possession of department, inadvertent non filing of revised return cannot constitute a decisive factor for imposition of penalty at the cost of host of other facts available on record demonstrating that assessee filed all the relevant details times and again suo motu. A technical default for which provisions of sec. 271(1)(a) may be attracted cannot be made a basis for penalty u/s 271(1)(c).

x.    In consideration of above facts and circumstances of the case, relying on the Hon’ble Supreme Court judgments in the cases of Reliance Petro Products, Price Water House, Hindustan steels and host of other judgments on other relevant issues, we hold that, this is not a fit case for imposition of penalty u/s 271(1)(c). The same is deleted.

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There is no provision in the IT Act for levying concealment of income u/s 271(1)(c) for non-filing of a return-ITAT | 26-01-2016 |

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