2023 (8) TMI 876 - AT - Income Tax

Tribunal cancels penalty under Income Tax Act for assessment year 2008-09

Shri Maheshbhai M Pandya Versus Income Tax Officer, Ward-6, Vapi

The Tribunal directed the Assessing Officer to delete the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year ... Penalty u/s 271(1)(c) - assessee in response to the notice u/s 148 has offered capital gain and paid taxes thereon - HELD THAT:- We are conscious of the facts that assessment in the present case in completed u/s 147. Going by the language of section 148, that any such return filed under this section, replace his original return of income, for such purpose, such returned filled is treated as return filed u/s 139. We find that the ratio case of Kirit Dahyabhai Patel [2015 (1) TMI 201 - GUJARAT HIGH COURT] and is squarely applicable on the facts of the present case. Hence, we direct the Assessing Officer to delete the penalty levied u/s 271(1)(c) . As the assessee in the return of income in response to the notice u/s 148 has offered capital gain and paid tax, thus grounds of appeals raised by the assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be levied where a return filed in response to a notice under section 148 (replacing the original return) is accepted by the Assessing Officer without any variation? 2. Whether omission to disclose long-term capital gains (LTCG) in the original return, subsequently disclosed in the return filed pursuant to section 148 and accepted in reassessment under section 143(3) r.w.s. 147, attracts penalty for concealment under section 271(1)(c) in the absence of mens rea? 3. Whether the decision(s) relied upon by the Revenue establishing penalty in other factual matrices (including cases of surrender/genuine inability to justify receipts) are applicable to facts where the return in response to section 148 was accepted and tax paid on the LTCG. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Applicability of section 271(1)(c) where return filed under section 148 is accepted Legal framework: Section 148 empowers the Assessing Officer to reopen assessment and issue notice requiring the assessee to furnish a return, and the proviso treats such return as replacing the original return and as a return filed under section 139 for purposes of assessment. Section 271(1)(c) penalises concealment of income or furnishing inaccurate particulars, subject to Explanation 1 (calculation of penalty in certain cases). Precedent treatment: The Tribunal considered authority of the jurisdictional High Court holding that a return filed in response to specified notices which is treated as a return under section 139 must be treated as the returned income for the purpose of penalty under section 271(1)(c), and that no penalty can be levied when such return is accepted by the Assessing Officer without variation. Interpretation and reasoning: The Court emphasises the statutory effect of the proviso to section 148 - the return filed in response to the notice replaces the original return and is to be treated as a section 139 return. Where the re-assessment culminates in acceptance of that return without any adjustment, there is no concealment of particulars in the returned income so as to attract penalty under section 271(1)(c). The acceptance by the Assessing Officer of the re-filed return operates as recognition of the declared income for assessment purposes. Ratio vs. Obiter: Ratio - acceptance of a return filed under section 148 (treated as a section 139 return) precludes levy of penalty under section 271(1)(c) on the income declared in that return. Obiter - none beyond explanatory remarks on the statutory provision. Conclusion: Penalty under section 271(1)(c) cannot be sustained where the Assessing Officer accepted the return filed pursuant to section 148 without making any variation in assessment. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Omission of LTCG in original return and mens rea requirement for penalty Legal framework: Section 271(1)(c) contemplates levy of penalty for concealment or furnishing inaccurate particulars; judicial considerations often require examination of mens rea or willful conduct for imposition, and Explanation 1 prescribes computation where penalty is quantifiable. Precedent treatment: The Tribunal considered and distinguished decisions where penalty was upheld based on factual findings of deliberate concealment, surrender of income, or failure to substantiate claimed receipts. Interpretation and reasoning: The Tribunal notes that the assessee disclosed LTCG in the return filed under section 148 and paid tax and interest thereon; therefore there was no continuing concealment once the re-filed return was accepted. The absence of mens rea (no intention to evade tax) and the fact of payment of tax on the LTCG weigh against treating the original omission as wilful concealment warranting penalty. The Tribunal also observed that authorities upholding penalty in other matters involved distinct conduct (e.g., surrender without explanation or failure to substantiate), facts not present here. Ratio vs. Obiter: Ratio - where an assessee discloses the income in a return filed under section 148 which is accepted and tax is paid, absence of mens rea and acceptance preclude penalty under section 271(1)(c) for the same income. Obiter - comparative remarks distinguishing facts involving surrender or non-cooperation. Conclusion: The omission of LTCG in the original return, followed by disclosure in the accepted section 148 return and payment of tax, does not sustain penalty under section 271(1)(c) in the absence of wilful concealment. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Applicability of precedents upholding penalty in different factual matrices Legal framework: Judicial decisions imposing penalty are fact-sensitive; precedents are applicable only to the extent that facts align with the rationale for penalty (e.g., deliberate surrender, failure to produce evidence, or misstatements indicating concealment). Precedent treatment: The Tribunal examined the Revenue's reliance on decisions where penalties were upheld because the assessee either surrendered income to avoid litigation or failed to produce evidence proving the genuineness of transactions; such cases involved positive findings of deliberate concealment or non-cooperation. Interpretation and reasoning: The Court distinguished those precedents on facts: here the assessee disclosed LTCG in the return filed under section 148, paid the tax, and the reassessment accepted that return. The conduct in the relied-upon cases (surrender without basis or refusal to substantiate receipts) is materially different from the present facts; therefore those decisions do not support imposition of penalty in this matter. Ratio vs. Obiter: Ratio - precedents upholding penalty in cases of deliberate surrender/non-cooperation are not applicable where the return filed under section 148 is accepted and tax is paid. Obiter - emphasis on fact-sensitivity of penalty jurisprudence. Conclusion: Case law relied upon by Revenue is distinguishable and inapplicable on the facts; it does not justify sustaining penalty under section 271(1)(c) in the present case. FINAL CONCLUSION (CROSS-REFERENCE) Cross-referencing Issue 1 and Issue 2: Given that the return filed under section 148 was treated as a return under section 139, was accepted by the Assessing Officer without variation, and tax on the disclosed LTCG was paid, the prerequisites for levying penalty under section 271(1)(c) are absent. Consequently, the penalty order is to be deleted. This conclusion rests on the statutory effect of the proviso to section 148 and the facts that there was acceptance of the re-filed return and no proven wilful concealment.