2015 (1) TMI 1522 - AT - Income Tax

Penalty under Section 271(1)(c) not justified if income disclosed in revised return for another year

The ITAT Delhi held that penalty under section 271(1)(c) could not be imposed for concealment of income when the additional income was declared in a ... Penalty u/s 271(1)(c) - Additional income declared in Revised Return - Bonafile belief or mistake in original ITR - Concealment of income or not - addition of income on the basis of material received under article 25, dealing with the exchange of information (EoI) arrangements, in the old India United Kingdom Double Taxation Avoidance Agreement - HELD THAT:- The lapse of concealment of income could only have been relevant for that assessment year as the income was, for the first time, brought to the realm of taxability that time. It is only elementary that when a penalty proceeding is even initiated, it is initiated qua the findings in the assessment order in which the related quantum addition is made. As a corollary to this position, a penalty cannot be justified on the basis of some facts, howsoever relevant, which have not come to the light in the relevant quantum proceedings, but much before that. The commission income from ASIL first came to light in the revised return dated 31.1.2006 for the assessment year 2004-05 but then the present proceedings are not in respect of the proceedings in respect of this revised return which have received finality without any initiation of concealment penalty proceedings. The matter rests there. So far as the assessment proceedings before us are concerned, there is nothing more than an income from the assessment year 2004-05 being shifted to the assessment year 2003- 04. No concealment has come to light as a result of the assessment proceedings that we are in seisin of, and, therefore, the issue of concealment of an income, which was evident in the revised return filed for 2004-05 and which was filed on 31.1.2006, is not relevant now. Viewed thus, such a change in the assessment year of taxability, particularly when the assessee could not have disclosed the related income in the relevant assessment year, and, for that reason, the assessee had disclosed the same income in the next available assessment year in which disclosure could have been made, cannot be visited with penalty proceedings under section 271(1)(c). All that we need to examine in the present case, so far as the concealment penalty in respect of income which has been shifted to tax in this assessment year, is whether or not the assessee has a bonafide explanation in respect of not offering this income in the present assessment year. Assessee has a reasonable explanation for not offering this income to tax in the present assessment year inasmuch as the time limit for revision of return u/s 139(5) had expired at the point of time when income was offered to tax on 31st January 2006. The lapse of not offering the income to tax in the original income tax return was relevant in the proceedings in respect of the income tax return in which this income was offered for the first time. The stage for penalizing the assessee for this lapse of concealing the income was over long ago. The present assessment proceedings, which only shift an income from taxability in a later assessment year to this assessment year, cannot make good for the inertia of the Assessing Officer at that stage. There is no, and there could not have been any, act of concealment of income in the present assessment proceedings as the income which is now brought to tax in the present assessment year was already in the knowledge of the Assessing Officer for several years much before the initiation of the present reassessment proceedings. When there is no concealment of income qua the present assessment proceedings, there is no question of imposition of concealment penalty qua this assessment proceedings. As penalty proceedings are initiated in the course of the proceedings, and the Assessing Officer has to essentially satisfy himself that it is a fit case for initiation of concealment proceedings during such proceedings, it is a natural corollary to this legal position that the fact of concealment of income must be vis-à-vis such proceedings. That is not the case here. In any event, as we have noted earlier, for the same lapse, the penalty proceedings for the assessment year 2004-05 have been dropped on the same set of facts, for the same lapse, and, therefore, the AO cannot take different stand for this assessment year i.e. 2003-04. Assessee appeal allowed. ISSUES: Whether the imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 is justified where income was not disclosed in the original return but was subsequently offered to tax in a revised return for a different assessment year.Whether concealment penalty can be imposed when the income was disclosed following information received under Exchange of Information (EoI) arrangements and the revised return was filed beyond the time limit prescribed under section 139(5).Whether penalty proceedings can be sustained for an assessment year when penalty proceedings for the same facts and income in another assessment year have been dropped by the Assessing Officer.The legal effect of shifting income from one assessment year to another in reassessment proceedings on the applicability of concealment penalty under section 271(1)(c). RULINGS / HOLDINGS: The penalty under section 271(1)(c) cannot be upheld for the assessment year in question since the income was first disclosed in a revised return filed within the permissible period for that assessment year (2004-05), and the present proceedings merely shifted the income to an earlier assessment year where the time for filing a revised return had expired; thus, no concealment of income occurred in the present assessment year. The Court emphasized that 'penalty cannot be justified on the basis of some facts... which have not come to the light in the relevant quantum proceedings'.The fact that the income was disclosed only after confrontation with information received under EoI arrangements does not render the disclosure voluntary or in good faith, but this alone does not justify penalty imposition if the disclosure is made within the legally prescribed time for the relevant assessment year.Penalty proceedings cannot be sustained for one assessment year when on materially identical facts and the same income, penalty proceedings have been dropped for another assessment year; the Court held that 'once this happens and no distinguishing features... are pointed out, for this reason alone, penalties imposed are not sustainable in law'.The concealment penalty under section 271(1)(c) requires that the Assessing Officer or appellate authorities be 'satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income' in the course of the relevant proceedings; here, no concealment was found vis-à-vis the reassessment proceedings for the assessment year 2003-04. RATIONALE: The Court applied the statutory framework of the Income Tax Act, 1961, particularly sections 139(5), 147, and 271(1)(c), and relied on the principle that penalty proceedings must be linked to concealment detected in the relevant assessment or reassessment proceedings.It noted the limitation period for filing revised returns under section 139(5) as a critical factor, observing that the assessee could not revise the return for the assessment year 2003-04 after the expiry of the prescribed period and therefore disclosed the income in the next available year (2004-05).The Court referred to precedent emphasizing consistency in penalty imposition across assessment years with similar facts and rejected contradictory stands by the revenue authorities.The judgment refrained from deciding on the broader question whether non-disclosure of income revealed through EoI arrangements justifies penalty under section 271(1)(c), as the technical grounds sufficed to set aside the penalty.