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Penalty imposed u/s 271(1)(c) is sustainable if assessee is unable to provide reasons for filing returns beyond statutory limitation period: ITAT

2019-TIOL-1535-ITAT-AHM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘D’ AHMEDABAD

ITA No.1614/Ahd/2012
Assessment Year: 1994-95

WORLD TRADE IMPEX LTD
102/A, STERLING CENTRE 1ST FLOOR
R C DUTT ROAD ALKAPURI, BARODA
PAN NO: AAACW2072K

Vs

ASSISTANT COMMISSIONER OF INCOME TAX
CIR.4, BARODA

Rajpal Yadav, JM & Rifaur Rahman, AM

Date of Hearing: June 19, 2019
Date of Decision: June 20, 2019

Appellant Rep by: Shri M K Patel, AR
Respondent Rep by:
 Shri Vinod Tanwani, Sr. DR

Income Tax – Section 271(1)(c)

Keywords – Concealment of income – Furnishing of inaccurate particulars of income – Penalty proceedings

THE assessee had not filed its return for the AY 1994-95. During the course of the assessment proceedings, the AO issued notice u/s 142(1) requesting the assessee to file return on or before December 27, 1995. However, according to the AO no return was filed by the assessee, thereafter other notices were issued, but the assessee failed to comply. It has filed return for the AY 1994-95 on February 12, 1997 showing total income at Rs 1.74 lacs. But according to the AO this return was filed after March 31, 1996 and beyond statutory limit so it was treated to be invalid.

Further he issued notice u/s 142(1) and ultimately passed an assessment order u/s 144 according to his best judgment because the assessee did not appear before him. The AO has made additions on five grounds out of which the CIT(A) deleted additions on two accounts. Further the AO has made an addition on 4% of the total turnover on an estimate basis which has been reduced to 2% by the ITAT in ITA No.3845/Ahd/2007. The assessee has been visited with penalty after taking into consideration order of the ITAT and penalty of Rs.4,04,660/- has been imposed. Appeal to the CIT(A) did not bring any relief to the assessee.

On appeal, the Tribunal held that,

Whether penalty u/s 271(1)(c) is liable to be sustained if the assessee fails to give satisfactory explanation for filing returns beyond the statutory limitation period – YES : ITAT

++ it is to be noted that section 271(1(c) reveals that for visiting any assessee with the penalty, the AO or the CIT(A) during the course of any proceedings before them should be satisfied, that the assessee has concealed his income or furnished inaccurate particulars of income. The other most important features of this section is deeming provisions regarding concealment of income. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations (a) whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the AO or CIT(A) and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income.

++ therefore, after considering the section 271(1)(c) and examining the facts of the present case it reveals that the assessment order was ex parte. Material exhibiting non-disclosure of profit on turnover unearthed during the search, it is observed that the assessee has not offered any explanation about the income for which it has furnished inaccurate particulars. Estimation of income is by compulsion at the end of the AO and not by choice, when the assessee failed to give requite details. Therefore, considering the concurrent finding of the both the authorities this Tribunal does not find any merit in this appeal.

Assessee’s appeal dismissed

ORDER

Per: Rajpal Yadav:

Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-III, Baroda dated 17.5.2012 passed for the Asstt.Year 1994-95.

2. Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming penalty of Rs.4,04,660/- imposed by the AO under section 271(1) of the Income Tax Act.

3. Brief facts emerging out from the assessment order are that return of income for the Asstt.Year 1994-95 became due on 30.11.1994, but no return was filed by the assessee. The AO has issued notice under section 142(1) requesting the assessee to file return of income on or before 27.12.1995. However, according to the AO no return was filed by the assessee, thereafter other notices were issued, but the assessee failed to comply. It has filed return of income for the Asstt.Year 1994-95 on 12.2.1997 showing total income at Rs.1,74,420/-. But according to the AO this return was filed after 31.3.1996 and beyond statutory limit. It was treated to be invalid. He issued notice under section 142(1) and ultimately passed an assessment order under section 144 according to his best judgment because the assessee did not appear before him. The ld.AO has made additions on five grounds; out of which the ld.CIT(A) deleted additions on two accounts. The additions made by the AO and deleted by the ld.CIT(A) are as under:

a)Net Profit (Rs.4,79,023 + Rs.4,49,470)Rs.9,28,493
b)Unexplained share capitalRs.47,50,000/-
c)Unsecured loanRs.10,50,000
d)Foreign travel expensesRs.1,13,479
e)Balance sheet difference as per seized paperRs.95,852

Deleted by the CIT(A)

a)Relief on account unexplained share capitalRs.30,00,000
b)Relief on account of unsecured loanRs.10,50,000/-

4. The ld.AO has made addition on 4% of the total turnover on an estimate basis which has been reduced to 2% by the ITAT in ITA No.3845/Ahd/2007. The assessee has been visited with penalty after taking into consideration order of the ITAT and penalty of Rs.4,04,660/- has been imposed. Appeal to the CIT(A) did not bring any relief to the assessee.

5. With the assistance of the ld.representatives, we have gone through the record carefully. Section 271(1)(c) of the Income Tax Act, 1961 has direct bearing on the controversy. Therefore, it is pertinent to take note of the section.

“271. Failure to furnish returns, comply with notices, concealment of income, etc.

(1) The Assessing Officer or the Commissioner (Appeals) or the CIT in the course of any proceedings under this Act, is satisfied that any person

(a) and (b)** ** **

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income.He may direct that such person shall pay by way of penalty.

(i)and (Income-tax Officer,)** ** **

(iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits:

Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act,

(A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this subsection, be deemed to represent the income in respect of which particulars have been concealed.”

6. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.

7. In the light of the above, if we examine facts of the present case then it would reveal that the assessment order was ex parte. Material exhibiting non-disclosure of profit on turnover unearthed during the search. The assessee has not offered any explanation about the income for which it has furnished inaccurate particulars. Estimation of income is by compulsion at the end of the AO and not by choice. It is not case that the AO was not satisfied with the details maintained by the assessee or explanation given by the assessee. Thereafter, he estimated profit at a different rate. Here estimation of profit is a mode of computation of income under compelling circumstance, when the assessee failed to give requite details. Considering concurrent finding of the both the authorities we do not find any merit in this appeal. It is dismissed.

8. In the result, appeal of the assessee is dismissed.

(Order pronounced in the Court on 20.06.2019)

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