Tribunal cancels penalty under Income Tax Act citing genuine financial constraints

The Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the AO to cancel the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal held that the conditions for invoking Explanation 3 to Section 271(1)(c) were not satisfied, accepting the assessee's explanation for the delay in filing the return as genuine due to financial constraints. Consequently, the penalty was deemed unjustified, and the assessee's appeal was successful.

---

---

Issues Involved:
1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:

The appeal concerns the levy of a penalty amounting to Rs. 58,35,106/- under Section 271(1)(c) of the Income Tax Act, 1961, imposed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

Facts of the Case:
The assessee, a non-filer of the return of income for the year under consideration, was issued a notice under Section 148 on 24-12-2010. In response, the assessee filed its return on 11-03-2013, declaring a total income of Rs. 2,02,69,504/-, which included long-term capital gain of Rs. 74,99,876/-. During the assessment proceedings, the AO observed discrepancies in the sale consideration of non-agricultural land and applied Section 50C to adopt the market price for capital gain calculation, determining the long-term capital gain at Rs. 99,45,876/-.

CIT(A) Proceedings:
The assessee challenged the additions before the CIT(A), who upheld the AO's valuation but allowed a further cost deduction of Rs. 25,00,000/- for enhanced compensation paid. The AO initiated penalty proceedings under Section 271(1)(c), which the assessee contested, claiming no concealment of income or furnishing of inaccurate particulars. The AO rejected these explanations and levied the penalty, which the CIT(A) upheld, stating that the assessee had concealed its taxable income and furnished inaccurate particulars by not declaring the correct capital gains.

Arguments before the Tribunal:
The assessee argued that the property was sold in a public auction and that the fair market value should be the auction price, not the value adopted by the AO. It was contended that the penalty was not justified as the notice under Section 148 was issued within two years from the end of the relevant assessment year, and thus, Explanation 3 to Section 271(1)(c) was not applicable. The assessee relied on the Gujarat High Court decision in Chhaganlal Suteriya Vs. ITO, which held that mere failure to furnish a return does not amount to concealment under Section 271(1)(c).

Tribunal's Findings:
The Tribunal noted that the AO had issued the notice under Section 148 within the specified period, thus not satisfying the conditions for invoking Explanation 3 to Section 271(1)(c). The Tribunal also considered the Pune Bench decision in Agricultural Produce Market Committee, Jalgaon, which under similar circumstances, had canceled the penalty levied under Section 271(1)(c). The Tribunal concluded that the assessee's explanation for the delay in filing the return due to financial constraints was bona fide and that the penalty was not justified.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to cancel the penalty, allowing the appeal filed by the assessee. The Tribunal emphasized that the conditions for invoking Explanation 3 to Section 271(1)(c) were not met and that the assessee had provided a reasonable cause for the delay in filing the return.

Result:
The appeal filed by the assessee was allowed, and the penalty under Section 271(1)(c) was canceled. The judgment was pronounced in the open court on 20.5.2015.

---