2017 (9) TMI 44 - HC - Income Tax

Court dismisses Tax Appeal, upholds Tribunal decision on penalty deletion for non-filing return

The High Court dismissed the Tax Appeal, upholding the Tribunal's decision to delete the penalty imposed on the assessee for non-filing of a return in the ... Penalty u/s 271(1)(c) - Assessee had earlier not filed the return - subsequently filed return in response to notice u/s 148 - Return accepted by AO without any enhancement - Held that:- Unamended Explanation 3 to section 271(1) provides that when any person “who has not been previously assessed under this Act” fails without reasonable cause to furnish return within the time specified in sub-section (1) of Section 153 required to be furnished under section 139 and until expiry of such period no notice has been issued under sub-section (1) of section 142 or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income then such person shall for the purpose of clause (c) of sub-section (1) be deemed to have concealed the particulars of his income notwithstanding that such person furnishes a return at any time after the expiry of the aforesaid period, in pursuance of a notice under section 148 of the Act. Also with effect from 01.04.2003 said explanation omitted the group of words “who has not previously been assessed under this Act”. Assessee opens up his arguments in assessment year 2002-03 and his case is that he had not previously been assessed to tax since he had only agricultural income not taxable under the provisions of the Act. In absence of an explanation providing for a deeming fiction of concealment of income the case of the assessee would not be covered under the laid provision and since as held by the Tribunal, unamended Explanation 3 also did not cover the case of the assessee, the penalty was rightly deleted. - Decided in favour of assessee. Issues:Appeal against ITAT judgment on penalty imposition for non-filing of return in assessment year 2002-03.Analysis:The Revenue appealed against the ITAT judgment regarding the imposition of a penalty for non-filing of a return in the assessment year 2002-03. The assessee initially claimed agricultural income as the only source of income and did not file a return. Subsequently, in response to a notice under section 148, the assessee filed the return, which was accepted without enhancement by the Assessing Officer. However, the penalty was imposed by the AO for not filing the return initially. The Commissioner (Appeals) reduced the penalty but upheld the penalty imposition. The Tribunal, in its impugned judgment, deleted the penalty based on the argument that the assessee had not been previously assessed to tax due to having only agricultural income, which was not taxable. The Tribunal referred to Explanation 3 to section 271(1) before its amendment by the Finance Act 2002, which deemed concealment of income if a person who had not been previously assessed failed to furnish a return without reasonable cause. The Tribunal noted that the amendment widened the scope of Explanation 3 but did not apply to the assessee for the assessment year in question, leading to the deletion of the penalty.The Tribunal's decision was based on the unamended Explanation 3, which did not cover the case of the assessee. The High Court, after hearing the Revenue's counsel, concluded that without a provision for deeming concealment of income, the assessee's case would not fall under the relevant provision. Since the unamended Explanation 3 also did not apply to the assessee for the assessment year under consideration, the penalty imposition was deemed incorrect. Consequently, the Tax Appeal was dismissed, upholding the Tribunal's decision to delete the penalty.