2025 (7) TMI 1484 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction u/s 54F denied - deduction made inadvertently and subsequently rectified by filing a revised return. Whether the act of Assessee qua rectifying her mistake by withdrawing her incorrect claim u/s 54F of the Act as inadvertent as alleged by filing revised computation of income during the assessment proceedings can be treated as bonafide mistake and would not entail the levy of penalty? HELD THAT - As simply on the reason that miniscule cases are selected for scrutiny and the Assesse has also claimed the exemption u/s 54F of the Act in the AY 2013-14 which resulted into making the disallowance and levy of penalty which is admittedly under scrutiny of the CIT(A) in first appeal and the Assessee during the assessment proceedings itself has accepted her mistake for claiming the deduction u/s 54F of the Act inadvertently by filing a reply/letter dated 16.08.2016 along with revised computation of income and has also demonstrated that the return filed by the Assessee was belated and therefore the same could not have been revised and the return of income was filed by the Assessee s accountant by using digital signature and therefore the penalty u/s 271(1)(c) of the Act is not leviable. Assessee by rectifying her mistake by filling a letter along with revised computation of income during the assessment proceedings and by giving reason for not revising the return the return of income as the original return of income was filed belatedly has demonstrated the bonafide reason and therefore the inadvertent mistake committed by the Assessee in lodging the claim u/s 54F of the Act would not entail any penalty. Thus the question posed is answered accordingly. Consequently on the aforesaid peculiar facts and circumstances and the observations and analyzations made above the penalty is liable to be deleted. AO in the Assessment order has specifically held that the Assessee is liable for penalty u/s 271(1)(c) of the Act and therefore the penalty proceedings are also initiated separately for concealment of income however vide notice dated 23.12.2016 u/s 271(1)(c) r.w.s 274 of the Act issued the show cause to the Assessee for filing of inaccurate particulars of income but not for concealment of income for which the penalty proceedings were initiated. Vide penalty order AO ultimately levied the penalty for deliberately filing of inaccurate particulars of income within the meaning of section u/s 271(1)(c) but not for concealment of income for which the proceedings were initiated in the assessment order. Admittedly both the limbs are distinct from each other and having its own connotations. As in the case of CIT vs. Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT while respectfully following the judgement in the case of T. Ashok Pai 2007 (5) TMI 199 - SUPREME COURT has also clearly held that concealment of income and furnishing of inaccurate particulars of income are two separate connotations. On the aforesaid analyzations we are of the considered view that where there is confusion in recording the satisfaction for initiation of penalty proceedings or issuing the notice u/s 274 of the Act or levy of penalty on the limb for which no satisfaction was recorded and no penalty proceedings were initiated in the assessment order then the penalty levied is un-sustainable. In simple terms the penalty levied for furnishing of inaccurate particular of income as determined by the AO in the penalty order instead of on the limb of concealment of income on which the penalty proceedings were initiated is not sustainable and liable to be deleted. Thus the question posed is answered accordingly. Admittedly the AO had recorded the satisfaction and initiated the penalty proceedings u/s 271(1)(c) of the Act qua concealment of income however issued notice u/s 271(1)(c) read with section 274 of the Act for furnishing of inaccurate particular of income and vide penalty order dated 19.06.2017 ultimately levied the penalty for furnishing of inaccurate particular of income but not for concealment of income for which satisfaction was recorded and penalty proceedings were initiated and thus the penalty under consideration on this count as well is liable to be deleted. Hence we are inclined to do so. Appeal of the Assessee is allowed.

Summary

ISSUES:

Whether the claim of deduction under section 54F of the Income Tax Act, 1961, when made inadvertently and subsequently withdrawn by the assessee during assessment proceedings, constitutes furnishing of inaccurate particulars of income attracting penalty under section 271(1)(c) of the Act.Whether the levy of penalty under section 271(1)(c) of the Act is justified in the absence of mens rea or deliberate concealment of income by the assessee.Whether a revised computation of income filed during assessment proceedings can be accepted in lieu of a revised return when the original return was belated and cannot be revised.Whether penalty proceedings initiated for concealment of income can be sustained if the penalty is ultimately levied for furnishing inaccurate particulars of income without proper satisfaction or initiation on that limb.Whether habitual incorrect claims of deduction under section 54F in previous assessment years can be considered to negate the bonafide nature of the claim in the current year.

RULINGS / HOLDINGS:

On the issue of inadvertent claim of deduction under section 54F, the court held that "merely making of the claim in the Return of Income which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the Assessee" and that the claim was rectified by the assessee through filing a revised computation during assessment proceedings.The court ruled that "a guilty mind is necessary for the purpose of levy of penalty" under section 271(1)(c), and in the absence of deliberate attempt to evade tax or conceal income, penalty is not attracted.The court accepted that since the original return was belated, the assessee was unable to file a revised return, and therefore filing a revised computation of income during assessment proceedings was a proper rectification of the inadvertent error.Regarding penalty proceedings, the court held that "concealment of income and furnishing of inaccurate particulars of income are two separate connotations" and that penalty levied for furnishing inaccurate particulars when proceedings were initiated only for concealment is "not sustainable and liable to be deleted."The court rejected the Revenue's contention that habitual incorrect claims in previous years negate bonafide nature of the claim in the instant year, noting that the penalty for the previous year had not attained finality and that an admission is "an extremely important piece of evidence but it cannot be said that it is conclusive."

RATIONALE:

The court applied the provisions of section 271(1)(c) of the Income Tax Act, 1961, which penalizes concealment of particulars of income or furnishing inaccurate particulars of income, emphasizing the requirement of mens rea or deliberate concealment for penalty imposition.Judicial precedents relied upon include the Hon'ble Supreme Court's rulings in CIT vs. Reliance Petroproducts Ltd., which clarified that mere disallowance of a claim does not attract penalty unless deliberate concealment is proved, and MAC Data Ltd., which explained the burden of proof and presumption under Explanation 1 to section 271(1)(c).The court also referred to decisions of various Tribunals and High Courts, including Nuchem Ltd. v. DCIT and Somani Evergree Knits Ltd., which held that bona fide mistakes rectified during assessment proceedings do not warrant penalty.The distinction between concealment of income and furnishing inaccurate particulars was underscored, following the jurisdictional High Court's interpretation and Supreme Court precedents, holding that penalty must be levied only on the basis of the limb for which satisfaction was recorded and proceedings initiated.The court noted the absence of compliance failures or deliberate concealment by the assessee, given the timely withdrawal of the incorrect claim upon notice and the filing of revised computation, which demonstrated bonafide intent.A doctrinal emphasis was placed on the principle that penalty is a quasi-criminal proceeding and should not be imposed unless there is conscious or dishonest conduct or willful negligence, consistent with the decision in Hindustan Steels Ltd. vs. State of Orissa.