Some tax evasion sought by assessee is a necessary condition for penalty u/s 271(1)(c)

Some tax evasion sought by assessee is a necessary condition for imposition of penalty u/s 271(1)(c). What has to be shown is whether, and if so, how, assessee can be said to have sought to evade tax.

ABCAUS Case Law Citation
ABCAUS 3433 (2021) (01) ITAT

Important case law relied upon by the parties:
CIT vs. Indian Metals & Ferro Alloys Ltd. (1994) 117 CTR (Ori.)  378
CIT vs. Drapco Electric Corporation 106 ITR 359
Zoom Communication (P) Ltd., 327 ITR 510
CIT vs. Drapco Electric Corporation (Guj), 122 ITR 341

In the instant case, the assessee had challenged the order passed by the CIT(A) in dismissing the appeal of the assessee against the order of the Assessing Officer (AO) imposing penalty under the provision of Section 271(1)(c) of the Income Tax Act, 1961 (the Act).

Initially, the returned income of the assessee was accepted by the Revenue, and the income tax return (ITR) of the assessee was not selected for scrutiny.   

Subsequently, reassessment proceedings u/s 147 of the Act were started by issue of notice u/s 148 of the Act.    

In response to the notice, the assessee once again filed a copy of earlier return. Later the Assessment order u/s 147 of the Act was passed accepting the returned income.

However in the Assessment Order an amount was excluded from the head “PGBP” (Profits and Gains of Business and Profession); and an addition u/s 68 of the Act was made for the same amount.    In the result, the assessed income was the same as the returned income.

The AO also levied penalty u/s 271(1)(c) of the Act holding that the assessee had furnished inaccurate particulars of income.

By the impugned appellate order, the CIT(A) dismissed Assessee’s appeal holding that the appellant had no explanation for bogus income.

Some tax evasion sought by assessee is a necessary condition for imposition of penalty u/s 271(1)(c)

The Tribunal opined that when assessed income was same as returned income, the AO as well as the CIT(A) failed to make out a case for levy of penalty u/s 271(1)(c) of the Act because they had been unable to show whether, and if so, how allegation of furnishing of inaccurate particulars of income can be said to have resulted in tax sought to be evaded by the assessee.

The Tribunal stated that there was some tax sought to be evaded by assessee, is a necessary condition for imposition of penalty u/s 271(1)(c) of the Act.

The Tribunal held that for levy of penalty u/s 271(1)(c) of the Act, what has to be shown is whether, and if so, how, assessee can be said to have sought to evade tax.  

Accordingly, the Tribunal cancelled the penalty and allowed the appeal in favour of the assessee.

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