2023 (6) TMI 262 - AT - Income Tax

Appeal allowed, penalty deleted under Income Tax Act. Revised return not in response to notice.

The ITAT allowed the appeal of the assessee and deleted the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The ITAT held that the ... Penalty under section 271(1)(c) - Voluntary disclosure of omitted income - Revised return not filed pursuant to departmental notice - Validity of belated revised return accepted by department portal - Computer Aided Scrutiny Selection (CASS) and AIR-based selectionPenalty under section 271(1)(c) - Voluntary disclosure of omitted income - Revised return not filed pursuant to departmental notice - Validity of belated revised return accepted by department portal - Whether penalty under section 271(1)(c) could be sustained where assessee filed a revised return disclosing long term capital gains prior to any departmental notice specifically raising that transaction and the revised return was accepted by the Department's portal. - HELD THAT: - The Tribunal found on the facts that the assessee filed the revised return declaring the sale of immovable property on 31 10 2015, whereas the departmental notice which first raised the specific query about sale of the property was dated 30 06 2016; the earlier notice dated 31 08 2015 did not mention the sale. There was no evidence that the assessee was aware that assessment proceedings had been initiated to enquire into the sale, and the Department produced no communication showing such knowledge. The revised return was accepted on the Department's online portal and validated. The Tribunal applied settled principles that where disclosure is made by the assessee in the return before the omission is brought to the assessee's notice by the Department, such disclosure is voluntary and does not attract penalty under section 271(1)(c). Reliance was placed on precedents to the effect that mere filing of a revised return before detection, absent material in possession of the Department prior to such disclosure, negates imposition of penalty. On these grounds the Tribunal concluded that the CIT(A)'s confirmation of penalty was not sustainable. [Paras 5, 7]Penalty under section 271(1)(c) deleted as the revised return disclosing the capital gain was filed prior to any departmental notice specifically raising the transaction and was voluntary.Final Conclusion: The appeal is allowed and the penalty imposed under section 271(1)(c) is deleted because the assessee disclosed the omitted capital gain by filing a revised return before the Department had raised the specific transaction and the revised return was accepted by the Department's portal. Issues:The appeal involves issues related to penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for non-disclosure of long-term capital gains in the original return of income and subsequent filing of a revised return.Summary of Judgment:Issue 1: Validity of Penalty under Section 271(1)(c)The assessee contended that the penalty of Rs. 10,67,798/- was erroneously confirmed by the CIT(A) as the notice under section 271(1)(c) was issued without specifying the grounds for the penalty. The assessing officer imposed the penalty for non-disclosure of long-term capital gains in the original return of income. The CIT(A) upheld the penalty order, stating that the revised return filed by the assessee was invalid as it was beyond the due date and the disclosure of capital gains was made only after a notice under section 142(1) was issued. The CIT(A) found that the disclosure by the assessee was not voluntary and justified the penalty based on the decision of the Hon. Gujarat High Court in a similar case.Issue 2: Voluntary Disclosure by AssesseeThe assessee argued that the revised return disclosing the capital gains was filed voluntarily before detection by the assessing officer and should not warrant a penalty under section 271(1)(c). The CIT(A) noted that the sole reason for scrutiny was the non-declaration of income from capital gains, and the department had information about the transaction. The CIT(A) found that the revised return was not filed voluntarily before detection by the AO and relied on the decision of the Hon. Gujarat High Court to confirm the penalty.Issue 3: Appeal Against PenaltyThe assessee appealed the CIT(A)'s decision, arguing that the revised return was not filed in response to the notice issued by the department and that the penalty was unjustified. The Department contended that the revised return was filed beyond the due date and the assessment proceedings were initiated to inquire into the taxability of the undisclosed capital gains. The ITAT considered the facts and held that the revised return was not filed in response to the department's notice, and there was no evidence that the assessee was aware of the reason for the assessment proceedings. Relying on legal precedents, the ITAT concluded that the penalty under section 271(1)(c) was not justified in this case.Conclusion:In light of the above observations, the ITAT allowed the appeal of the assessee and deleted the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.This summary provides a detailed overview of the judgment, addressing each issue raised in the appeal regarding the penalty imposed on the assessee for non-disclosure of capital gains in the original return of income and the subsequent filing of a revised return.