2015 (12) TMI 1592 - AT - Income Tax

High Court cancels penalty under Income-tax Act, 1961

The High Court set aside the Tribunal's order confirming a penalty under Section 271(1)(c) of the Income-tax Act, 1961, and remanded the matter for ... Penalty u/s 271(1)(c) - no return of income was submitted by the assessee for the assessment year under consideration - Held that:- Concealment of particulars of income, if any, has to be seen with reference to the return and not in any other manner and as that where no return is filed, it cannot be said that assessee had concealed the particulars of income. The context in which language used by the Legislature showed that it is the act of commission of default which is subject to penalty and not the act of omission. Explanation 3 to section 271(1)(c) of the Act, is not applicable to the existing assessee. See Yeshwant B. Chigteri Versus Assistant Commissioner Of Income-Tax [1999 (12) TMI 137 - ITAT PUNE] - Decided in favour of assessee Issues Involved:1. Confirmation of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.2. Applicability of Explanation 3 to Section 271(1)(c) for existing assessees.3. Penalty imposition in cases where income is assessed on an estimate basis.Issue-wise Detailed Analysis:1. Confirmation of the Penalty Imposed Under Section 271(1)(c) of the Income-tax Act, 1961:The appeal was filed by the assessee against the order of the CIT(A), which confirmed the penalty of Rs. 6,21,515 imposed under Section 271(1)(c) for the assessment year 2007-08. The penalty was initiated due to the assessee's failure to appear during the assessment proceedings, leading to the assessment being framed under Section 144 of the Act. The Assessing Officer (AO) applied a net profit rate of 8%, which was later reduced to 5.5% by the Tribunal. However, the High Court set aside the Tribunal's order and remanded the matter for re-adjudication, resulting in a revised net profit rate of 7%.2. Applicability of Explanation 3 to Section 271(1)(c) for Existing Assessees:The assessee contended that the penalty under Section 271(1)(c) was not justified as no return of income was submitted for the assessment year under consideration. The assessee's counsel argued that Explanation 3 to Section 271(1)(c) does not apply to existing assessees. The ITAT Pune Bench in Yeshwant B. Chigteri v Asstt. CIT held that concealment of income should be seen with reference to the return filed. If no return is filed, it cannot be said that the assessee concealed particulars of income. The Tribunal concluded that Explanation 3 is not applicable to existing assessees, and thus, the penalty was not validly levied.3. Penalty Imposition in Cases Where Income is Assessed on an Estimate Basis:The assessee's counsel further argued that penalties under Section 271(1)(c) are not applicable where income is assessed on an estimate basis. The Tribunal's earlier reduction of the net profit rate from 8% to 5.5%, and later to 7%, indicated a difference of opinion on the income estimate. The Hon'ble Jurisdictional High Court in Harigopal Singh v CIT held that when income is assessed on an estimate basis, no penalty for concealment can be imposed. The High Court emphasized that there must be a positive act of concealment, and the onus is on the Department to prove it. Since the income in the present case was assessed on an estimate basis, the penalty under Section 271(1)(c) was deemed not applicable.Conclusion:The Tribunal concluded that no penalty under Section 271(1)(c) is leviable in this case. The appeal was allowed, and the penalty was cancelled, following the principles laid down by the Hon'ble Jurisdictional High Court and other relevant judicial precedents.