FAILURE TO FILE RETURN OF INCOME DOESN’T INVITE CONCEALMENT PENALTY
FAILURE TO FILE RETURN OF INCOME DOESN’T INVITE CONCEALMENT PENALTY
Section 271(1) (c), read with section 145, of the Income-tax Act, 1961 – Penalty – For concealment of income -Estimation of income.
Where no return had been filed by assessee and income was assessed on estimate basis by revenue, no penalty could be levied for concealment of income [2015] – HIGH COURT OF GUJARAT- Income-tax Officer v. Bombaywala Readymade Stores.
FACTS
During search excess stock was found on physical verification as against book stock worked out as on date of search.
Assessee did not file return of income for relevant year in which search had been conducted.
Assessing Officer completed assessment for relevant assessment year on basis of materials available with him.
Penalty proceedings were initiated for concealing particulars of income.
The assessee file appeal before CIT appeal where the decision came in favour of assessee cancelling the penalty.
Then the department filed an appeal before ITAT.
Hon’ble Tribunal also upheld the order of the Ld. CIT (A) cancelling the penalty levied u/s.271(1)(c) of the I.T. Act holding that since no return of income had been filed by the assessee, the assessee could not be penalized for concealment of income or furnishing of inaccurate particulars of income in terms of section 271(1)(c) of the I.T. Act and further holding that since the income is assessed on estimate basis penalty for concealment of income is not leviable, ignoring the fact that the inaction of not filing return of income itself can be considered as act of concealment of particulars of income, thus, provisions of section 27(1)(c) is attracted on the facts of the case.
On appeal to High Court, Hon’ble High Court held in favour of assesee as follows:
Question of Law before High Court
Since no Income Tax Return had been filed by assessee and income was assessed on estimate basis by revenue, Whether penalty under section 271(1)(c) could be levied for concealment of income.
ARGUMENTS BY DEPARTMENT
Department counsel submitted that the decision of the Hon’ble ITAT is against the objectives of penal provisions included in the Income Tax Act. The decision not only allows the assessee to go scot free even when discrepancies have been found in the business a result of a search and which have been upheld in quantum appeal. It also encourages the assessee for not complying with the duty of filing return of income u/s. 139 of the I.T. Act. The decision of the Hon’ble ITAT in fact rewards the assessee for not filing the return.
It is further submitted it is the primary responsibility of the assessee to file the return of income. The correct income for a particular year is best known to the assessee only. In spite of several opportunities given to it, the assessee failed to file the return of income. The AO had therefore no option but to compute the income to the best of his judgment and information available to him. It is important to note that there is no contention on the part of the assessee that it has not earned income. The only contention is that income is estimated and hence penalty is not leviable. The computation of income has reached finality, according to which the assessee has substantial income chargeable under the Act. The estimate of income was resorted to by the AO only as a last resort after the assessee failed to disclose the income by filing return of the income. Thus, the inaction on the part of the assessee itself is the act of concealment of particulars of income. The word “concealment” presupposes some act on the part of the assessee. In the present case, the inaction of not filing return of income itself can be considered as act of concealment of particulars of income. Thus, provision of section 271(1)(c) is attracted on the facts of the case. It is also pertinent to mention here that an assessee not filing the return of income and not showing the income therein cannot be better off or in advantageous position than the person filing the return of income and not showing the correct income in the return. Both the persons are equally responsible for concealment of particulars of income. Thus, even though Explanation 3 to section 271(1)(c) is not attracted, the provision of section itself, irrespective of any explanation, is attracted.
Decision by High Court
The entire assessment i.e. the estimation of total income and the estimation of the stocks on the date of search is based on certain assumptions. In fact both the additions are on estimated basis. It is an accepted fact that whenever an addition is made on the basis of estimates, the penalty for concealment is not leviable. Moreover the decision relied upon by the assessing officer was in respect of the purchase of property and not stocks and therefore ratio laid down in that case is not applicable to the facts of the appellant’s case. For all these reasons therefore in my opinion, there is no reason to levy a penalty u/s 271(1)(c) of the I.T. Act.”
The penalties were upheld as it was only estimated value on which estimates of income tax was made and the books of accounts were rejected. There was no scope to levy the penalty under Section 271(1)(c), the appellant had been assessed by the Income Tax. The Tribunal has very rightly considered that both the additions are on a estimated basis. Therefore, just because estimates are made, penalty cannot be levied under Section 271(c).
High Court said that We are unable to persuade ourselves to take a different view than that taken by the Tribunal as well as CIT (Appeals), Hence, we are in complete agreement with the view taken by the Tribunal and hence, this Tax appeal stands dismissed in the above terms.
INCOME TAX UPDATE
New ITR forms and their filing utilities have been released. Key changes made in ITR forms are specified here under:
- Introduction of new Form 2A: At present individuals and HUFs having income from more than one house property or capital gains are required to file Form ITR 2. It was observed that majority of taxpayers who file Form ITR 2 do not have capital gains. With a view to provide a simplified version of this form for these individuals and HUFs, a new Form ITR 2A is notified which can be filed by an individual or HUF who does not have capital gains, income from business/profession or foreign asset/foreign income.
- Details of foreign trips: It shall not be mandatory to furnish details of foreign trips in new Form ITR 2. Only Passport Number, if available, would be required to be furnished in the Form 2.
- Details of bank accounts: Now only the IFS Code, account number of all current/savings accounts which are held at any time during the previous year have to be furnished. The balance in accounts will not be required to be furnished. Details of dormant accounts which have not been operational during the last three years are not required to be furnished.
- ITR 1 for Individuals earning exempt income: It is further provided that individuals having exempt income without any ceiling (other than agricultural income exceeding Rs. 5,000) can also file return in Form ITR 1. If taxpayer has agricultural income the return shall be filed in ITR 2 or ITR 2A, as the case may be.
- Quoting of aadhar number in ITR’s if available.
Note : It is to be noted that every individual or HUF whose total income exceeds five lakh rupees or who is required to file return in Form ITR-3 or ITR-4 shall have to file return of income electronically. It is also mandatory for taxpayer (except super senior citizen) to file return of income electronically so as to claim refund of tax from the department.
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