2025 (10) TMI 752 - AT - Income Tax

Penalty under section 271(1)(c) and section 270A deleted where assessee disclosed income, paid tax, and provided consultant explanation

ITAT Pune (AT) held that penalty under section 271(1)(c) could not be sustained where the assessee disclosed correct income and paid tax in response to ... Levying penalty u/s 271(1)(c) - assessee had concealment of income - as alleged assessee has not filed correct income voluntarily - as argued assessee had duly explained that concealment of income in his case was attributable to wrong action of tax consultant and all the material facts relating thereto along with substantiating evidences in form of complaint filed against Tax Consultant before Economic Wing of Police Department etc. were also furnished by the assessee - whether the levy of penalty u/s 271(1)(c) without rebutting the explanation offered by the assessee was not justified in view of provisions of the said Act? HELD THAT:- When the notice u/s 148 was issued the appellant has disclosed his correct income & paid the due tax before issue of notice. We also find that the Assessing Officer has accepted the return as it is which was furnished by the appellant in response to the notice u/s 148 of the IT Act. We cannot accept the contention of Ld. DR that the appeal has not been filed by the appellant against assessment order wherein penalty was initiated & the revised return was not voluntary therefore the penalty u/s 271(1)(c) is inevitable. From the perusal of penalty order, it appears that the Assessing Officer himself is not sure about the particular limb under which the penalty is imposed. In para 16 of the penalty order, it is mentioned that the assessee has furnished inaccurate particular of income whereas in para 18 of the penalty order the AO has mentioned that in view of the concealment of income the penalty u/s 271(1)(c) is imposed. Decided in favour of assessee. Imposition of penalty by the AO u/s 270A - Since penalty u/s 271(1)(c) was applicable only upto assessment year 2016-17 and was replaced by a new section i.e. 270A of the IT Act, the Assessing Officer under similar facts imposed penalty u/s 270A of the IT Act for assessment year 2017-18 - In the case under consideration, the AO has failed to identify the specific Clauses from Clause (a-f) of section 270A(9), AO is directed to delete the penalty u/s 270A. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be sustained where the assessee filed an incorrect original return due to reliance on a tax consultant, promptly filed a correct return and paid tax with interest before initiation of proceedings under section 148, and the Assessing Officer's penalty order inconsistently refers to both 'furnishing inaccurate particulars' and 'concealment of income'. 2. Whether penalty under section 270A(9) can be sustained for an assessment year to which section 271(1)(c) no longer applies when the Assessing Officer fails to identify which specific sub-clause(s) (a-f) of section 270A(9) are attracted. 3. Whether and to what extent decisions of Coordinate Benches and the cited higher court authorities govern deletion of penalties in cases where the AO's order fails to specify the correct statutory limb or mixes the twin limbs of 'concealment' and 'furnishing inaccurate particulars'. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainment of penalty under section 271(1)(c) where incorrect original return was filed by a tax consultant and corrected voluntarily before notice under section 148 Legal framework: Section 271(1)(c) penalises concealment of income or furnishing inaccurate particulars of income. Principles require clear identification of which limb is invoked (concealment v. furnishing inaccurate particulars) and an assessment of voluntariness and bona fides of the assessee's conduct. Precedent treatment: The Tribunal relied on a Coordinate Bench decision which, applying a jurisdictional High Court decision (Mohd. Farhan A. Shaikh v. ACIT), held that an AO's inconsistent treatment of the two limbs (concealment vs furnishing inaccurate particulars) renders imposition of penalty unsustainable. The Tribunal also referenced broader authority on strict interpretation of statutory provisions where particulars are not properly specified. Interpretation and reasoning: The Court examined facts showing the assessee was a salaried, technically trained employee who relied entirely on a tax consultant to prepare and file returns; the consultant fraudulently claimed excess Chapter VI-A deductions for multiple employees. The assessee became aware of the fraud (post survey under section 133A), engaged a new consultant, filed a correct return and paid the tax with interest before the issue of notice under section 148. The AO accepted the return filed in response to section 148 but subsequently levied penalty under section 271(1)(c), with the penalty order containing internal inconsistency-reciting 'inaccurate particulars' in one paragraph and 'concealment' in another-without clearly specifying the statutory limb relied upon. Ratio vs. Obiter: Ratio - where the AO's penalty order fails to consistently or expressly identify the correct limb under section 271(1)(c), and where the assessee demonstrates bona fide reliance on a tax consultant together with prompt rectification and payment before notice under section 148, the penalty cannot be sustained. Obiter - factual observations about the conduct of the tax consultant and press reports, used to support findings of bona fides, are ancillary to the legal ratio but informative. Conclusions: Penalty under section 271(1)(c) was deleted. The Court held that the AO's inconsistent approach and failure to properly apply the twin limbs, coupled with the assessee's bona fide explanation and voluntary rectification prior to notice, warranted deletion of the penalty. Issue 2: Deletion of penalty under section 270A where AO did not identify specific sub-clause(s) of section 270A(9) Legal framework: Section 270A prescribes penalties for under-reporting and misreporting of income, with sub-section (9) specifying categories (clauses (a) to (f)) that determine applicability and quantum. Proper identification of the relevant clause(s) is a statutory prerequisite to sustaining penalty under section 270A. Precedent treatment: The Tribunal followed Coordinate Bench decisions (including decisions of ITAT Pune and ITAT Mumbai) and relied on principle in Commissioner of Customs (Imports), Mumbai v. Dilip Kumar And Co. that where essential statutory requisites are not discharged (here, failure to identify the specific clause(s) under section 270A(9)), the penalty must be deleted. Interpretation and reasoning: The AO, when substituting section 271(1)(c) with section 270A for later assessment years, imposed penalty but did not specify which of the section 270A(9) clauses (a-f) were made out. The Tribunal reasoned that absent identification of the precise limb(s) under section 270A(9), the statutory matrix for determining the character and quantum of penalty is incomplete and the penalty cannot be upheld. The Tribunal adhered to Coordinate Bench precedents that apply a strict interpretive approach to statutory conditions precedent for penalty imposition. Ratio vs. Obiter: Ratio - failure by the AO to identify the specific clause(s) of section 270A(9) in the penalty order requires deletion of the penalty. Obiter - references to analogous factual circumstances and enforcement steps are supplementary and not essential to the legal holding. Conclusions: Penalty under section 270A was deleted for lack of statutory specification of the relevant sub-clause(s) of section 270A(9). The Court directed deletion following established Coordinate Bench and higher court reasoning. Issue 3: Application and effect of Coordinate Bench and higher court authorities Legal framework: Administrative and judicial precedent guide interpretation of the twin limbs of section 271(1)(c) and the clause-specific requirements of section 270A(9). Tribunal decisions rely on binding or persuasive High Court and Supreme Court authorities for interpretive principles, including strict construction of penal provisions and the requirement to identify statutory bases for penalties. Precedent treatment: The Court expressly followed a Coordinate Bench decision (which applied the jurisdictional High Court decision in Mohd. Farhan A. Shaikh) concerning improper mix of 'concealment' and 'inaccurate particulars' and adopted the approach of Dilip Kumar (Supreme Court) regarding strictness where statutory prerequisites are not met. Interpretation and reasoning: The Tribunal emphasized consistency and specificity in penalty orders. Where AO's orders are internally inconsistent or omit essential statutory identification, the Tribunal will follow Coordinate Bench and higher court guidance to delete penalties. The Court treated these precedent decisions as directly applicable, not distinguished or overruled. Ratio vs. Obiter: Ratio - the Tribunal's reliance on Coordinate Bench and higher court authority to delete penalties where legal requisites are not met constitutes a binding approach within the Tribunal's jurisdiction. Obiter - commentary about the public-interest aspects of prosecuting fraudulent tax consultants is ancillary. Conclusions: Coordinate Bench and higher court authorities were followed; they support deletion of penalties in the present facts. The Court directed deletion of penalties under section 271(1)(c) for AY 2016-17 and section 270A(9) for AY 2017-18 accordingly.