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. (more…)
