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Karnataka High Court has given a detailed judgment on the scope of the provisions of section 271 of the Income Tax Act, 1961. One of the issue before the Court was related to procedure for imposition of penalty u/s 271(1)(c) for concealment of income or furnishing inaccurate particulars of income.
Case Details:
ITA-2564, 2565/2005
1. CIT, 2. ITO (Appellant) vs M/s Manjunatha Cotton and Ginning Factory (Respondent)
Date of Judgment: 13-12-2012
Court’s Observations:
The Court deliberated on the various aspects of the section in quite details. The Court made observation on the rebuttable presumption, intent to evade tax, non-challenging the assessment and cases where legal position is not settled.
The detailed observations of the Court were as under:
PROCEDURE FOR IMPOSING PENALTY
58. It must be noticed that this finding recording concealment in the order to be passed by these authorities is only for the purpose of initiating. The said finding is not conclusive; it is in the nature of prima facie satisfaction, which authorises them to initiate the penalty proceedings.
Once a penalty proceedings is validly initiated, then under Section 274(1) an obligation is cast on the person initiating the proceedings to issue notice to the assessee. When such a notice is issued, it is open to the assessee to contest the accusation against him that he has concealed income or he has furnished inaccurate particulars. As there is an initial presumption of concealment, it is for the assessee to rebut the said presumption. The presumption found in Explanation 1 is a rebuttable presumption. If the authority, after hearing the assessee and looking into the material produced in the said proceedings before him is satisfied that though the income is undisclosed there was no intent to avoid tax and therefore, if he holds there is no concealment of income, then question of imposing penalty would not arise. It may be a case of not disclosing income without any intent to avoid tax; it may be a case of furnishing particulars without any intention to avoiding tax. Both stand on the same footing.
It is only when the authority is satisfied that non-disclosure of income or furnishing inaccurate particulars was with the intention of evading tax, then it amount to concealment, it amounts to furnishing inaccurate particulars. Then, at his discretion, he may impose penalty as provided under the Act. Therefore, merely because the assessee accepted addition or deletion and did not challenge the assessment order by way of appeal, it cannot be concluded that such addition or deletion amounts to concealment of income or furnishing of inaccurate particulars. When a plea is taken that in order to avoid litigation and purchase peace, the tax levied is paid with interest, if the assessee is able to demonstrate his bona fides and if the authority is satisfied about his bonafides, then the question of imposing penalty would not arise.
Similarly, in cases where though the tax was not actually due but still the assessee pays tax with a hope of claiming deductions in the subsequent years, if the assessee is able to demonstrate there was no liability to pay tax at all, merely if assessee pays tax and he does not challenge order, that would not constitute concealment of income so as to enable the authorities to impose penalty.
Similarly, in cases, where the legal position is not well settled, when few High Courts and Tribunals have taken a view in favour of the assessee and some High Courts and Tribunals have taken a view in favour of the Revenue and on legal advice if an assessee relies on the said legal position for not disclosing the income and for non-payment of tax, certainly, that is a fact which should weigh in the penalty proceedings after the assessee has paid tax with interest before imposing penalty.
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Karnataka HC- Procedure for Imposing Penalty u/s 271(1)(c) for Concealment or Furnishing of Inaccurate Particulars of Income | 29-08-2015 |
