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2025 (6) TMI 1773 - HC - Income TaxPenalty u/s 271(1)(c) - non-filing of ITR within the prescribed period - concealment of income or not? - Whether bonafide mistake which took place due to inadvertence and human error in not uploading its ITR ? - assessee had failed to file return of income u/s 139 (1) and then filing the same only in response to notice u/s 148 HELD THAT - In this case there is no evasion of tax. It is crystal clear that even the respondents have in so many words admitted that since there were no tax payable after giving the credit of TDS there was no concealment of income made by the assessee in terms of the provision laid down in clause (c) of the Explanation 4 of Section 271 of the Act. The present case is standing on a completely different footing and the judicial pronouncements placed before this Court on behalf of the Department would not help it. The bonafide and inadvertent human error is apparent on the face of it in as much as financial statements and tax audit report were duly filed and all taxes stood paid within the presented period but the ITR could not be filed/uploaded. Explanation 3 does not envisage this situation. Keeping in view clause (c) of Explanation 4 of Section 271(1)(c) of the Act this Court finds that the statements made by the petitioner in paragraph 16(iii) of the writ petition wherein calculations have been shown have not been denied and that would be important to take a view that the Assessing Officer has not applied his judicious mind even while calculating the penalty amount. This Court finds on appreciation of the scheme of Section 271(1)(c) read with Explanation 3 that it essentially covers a case where there is a concealment of the particulars of income or where the assessee has furnished incorrect particulars of his income. This Court has no difficulty in recording that it is not a case of concealment of particulars of income or furnishing of incorrect particulars of income. Even the respondents have admitted it in paragraph 9 of their counter affidavit which this Court has already quoted hereinabove. Explanation 3 clearly talks of a satisfaction to be reached by the Assessing Officer or the Joint Commission (Appeals) or the Commissioner (Appeals) that in respect of such assessment year such person has taxable income and if he has not filed his return then he will be deemed to have concealed his particulars of income in respect of such assessment year. In the present case no such satisfaction has been recorded by the Assessing Officer in the peculiar facts of this case where admittedly the petitioner had uploaded the financial statements and the tax audit report and had paid all the taxes. According to this Court the provisions of law as discussed above have been incorporated in the statute book to catch hold of a dishonest person who fails to file his return and conceals his particulars of income in order to evade taxes. In the present case the facts are glaring and showing on the face of it with an admission on the part of the respondents that it was not a case of concealment of income by the assessee. In fact the petitioner has been found entitled to refund. AO as well as the Revisional Authority both have failed to take a correct view in the facts and circumstances of this case. AO has not only committed error in applying clause (c) of subsection (1) of Section 271 read with Explanation 3 of the Act but has also failed to calculate the penalty amount by duly appreciating clause (c) attached to Explanation 4 . Thus on both counts he has committed wrong. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter include:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of penalty under Section 271(1)(c) for non-filing of ITR despite filing audited financial statements and payment of taxes Relevant legal framework and precedents: Section 271(1)(c) penalizes concealment of particulars of income or furnishing inaccurate particulars. Explanation 3 to this Section deems concealment where a person fails to file return within the prescribed period and no notice under Section 148 or 142(1)(i) has been issued, but later files return after notice under Section 148. Explanation 4(c) provides the method of quantifying tax sought to be evaded by reducing assessed tax by advance tax, TDS, and other pre-paid taxes. Court's interpretation and reasoning: The Court noted that the petitioner had furnished audited financial statements and tax audit reports timely and had paid all taxes due. The ITR was not filed due to inadvertence, a bonafide human error. The petitioner filed the ITR only after receipt of notice under Section 148. The Court emphasized that Explanation 3 is intended to catch those who conceal income by not filing return and later filing only after notice. However, in this case, there was no concealment of income as all taxes were paid and no additions were made on assessment. The respondents themselves admitted in their counter affidavit that "there was no concealment of income made by the assessee in terms of the provisions laid down in para (c) of Explanation 4 of section 271 of the I.T. Act." Key evidence and findings: The petitioner's audited financial statements and tax audit report were filed on time; taxes were discharged fully; the ITR was filed after notice under Section 148; no additional income was assessed; refund was granted; and the respondents admitted absence of concealment after accounting for tax credits. Application of law to facts: The Court held that the penalty under Section 271(1)(c) requires concealment or furnishing inaccurate particulars, which was not established here. The inadvertent omission to file ITR did not amount to concealment. Explanation 3's deeming provision was not meant to apply where taxes were paid and income was not concealed. Treatment of competing arguments: The Department argued that non-filing of ITR alone attracts penalty under Section 271(1)(c), relying on precedents where concealment was found. The Court distinguished those cases, noting that those involved deliberate concealment and non-payment of taxes, unlike the present case. Conclusion: The Court concluded that penalty under Section 271(1)(c) was not attracted in the facts of this case. Issue 2: Correctness of penalty quantification and application of Explanation 4(c) to Section 271(1)(c) Relevant legal framework: Explanation 4(c) mandates that the tax sought to be evaded is the assessed tax reduced by advance tax, TDS, tax collected at source, and self-assessment tax paid before notice under Section 148. Penalty is then calculated as a percentage of this amount. Court's interpretation and reasoning: The Court found that the Assessing Officer failed to apply Explanation 4(c) correctly. The penalty calculation ignored the tax credits and treated the entire assessed tax as evaded tax, resulting in an inflated penalty. The Assessing Officer's tabular calculation gave a misleading impression that the petitioner evaded Rs.13,92,221/- tax, which was incorrect as taxes were paid in full. Key evidence: The petitioner's calculation in paragraph 16(iii) of the writ application showed proper credit for prepaid taxes, which was not denied by the respondents. The counter affidavit admitted failure to consider Explanation 4(c). Application of law to facts: The Court held that without proper deduction of prepaid taxes, the penalty calculation is flawed and cannot be sustained. Treatment of competing arguments: The Department did not controvert the petitioner's calculation but maintained penalty was justified. The Court rejected this stance due to admitted failure to apply Explanation 4(c). Conclusion: The penalty amount imposed is not legally sustainable due to incorrect calculation. Issue 3: Whether failure to respond to show cause notices and revision proceedings justified penalty and dismissal of revision petition Relevant facts: The Assessing Officer claimed that the petitioner did not respond to show cause notices, compelling imposition of penalty. The Revisional Authority affirmed the penalty partly on the ground that no reply was received during revision proceedings. Court's reasoning: The petitioner asserted that it had appeared physically or online on all dates and had sought copies of ordersheets, which were not provided. The respondents did not deny these assertions, effectively admitting them by stating "it requires no comments." Application of law to facts: The Court found that the Assessing Officer and Revisional Authority erred in concluding non-cooperation or non-response. The petitioner's participation was established and the failure to provide ordersheets was unexplained. Conclusion: The penalty imposition and dismissal of revision petition on grounds of non-response were not justified. Issue 4: Applicability of cited precedents to present facts Relevant precedents: The Department relied on the Allahabad High Court judgment in Addl. Commissioner of Income-tax v. Mewa Lal Sankatha Prasad and the Income Tax Tribunal decision in Meka Ranganayakamma v. Income Tax Officer, which upheld penalties for concealment where returns were filed only after notices and concealment was established. Court's analysis: The Court distinguished these precedents on facts. In Mewa Lal Sankatha Prasad, the questions related to penalty calculation under different amendments and concealment was established. In Meka Ranganayakamma, the assessee concealed income from sale of land. The present case involved no concealment, full tax payment, and timely filing of audited accounts. Conclusion: The cited precedents do not support penalty imposition in the present facts. 3. SIGNIFICANT HOLDINGS The Court held:
Core principles established include:
Final determinations:
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