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2025 (5) TMI 350 - AT - Income TaxPenalty u/s 271(1)(c) - difference in income declared in the return filed u/s 153A when compared with the original return - contention of the assessee that the difference was only on account of slight mistake in claiming the deduction u/s 80C - HELD THAT - Contention of the assessee was completely overlooked by the authorities below. In my opinion this is not fit case of levy of penalty as there was no concealment of income or furnishing of inaccurate particulars of income was established. At best it is only a mere change of opinion and not a case of concealment of income or furnishing of inaccurate particulars of income. In the case of Pr. CIT Vs. Neeraj Jindal 2017 (2) TMI 1002 - DELHI HIGH COURT held that when the returned income u/s 153A was accepted there was no concealment of income and there cannot be any levy of penalty u/s 271(1)(c) - Appeal of the assessee is allowed.
The core legal questions considered in this appeal pertain to the validity of the penalty imposed under section 271(1)(c) of the Income Tax Act, specifically:
Issue-wise Detailed Analysis 1. Validity of Penalty under Section 271(1)(c) for Difference in Income Declared Relevant legal framework and precedents: Section 271(1)(c) of the Income Tax Act imposes penalty for concealment of income or furnishing inaccurate particulars of income. The provision is penal in nature and requires strict proof that the assessee consciously intended to hide income. The case law cited by the Tribunal, particularly the decision of the jurisdictional High Court in Pr. CIT Vs. Neeraj Jindal (393 ITR 1), elucidates that penalty under section 271(1)(c) is not automatic and conditions for its imposition must be specifically fulfilled. Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer levied penalty on a differential income amounting to Rs. 20,000, which was declared in the return filed under section 153A but not in the original return under section 139(1). However, the Assessing Officer accepted the income declared in the section 153A return without making any addition or finding any undisclosed income during the search operation under section 132. The Tribunal emphasized that the difference arose due to a slight mistake in claiming deductions under section 80C, which was corrected in the return filed under section 153A. Key evidence and findings: The factual matrix shows that no addition was made by the Assessing Officer on account of the difference in income; the income declared in the section 153A return was accepted in entirety. The difference was due to a correction in the claim of deductions and not due to any deliberate concealment or furnishing of inaccurate particulars. Application of law to facts: The Tribunal applied the principle that acceptance of the return filed under section 153A effectively replaces the original return under section 139(1) for all purposes, including penalty proceedings. Therefore, the penalty cannot be levied on the basis of the original return once the revised return under section 153A is accepted. Treatment of competing arguments: The Revenue argued in support of the penalty, asserting concealment due to the difference in income declared. The assessee contended that the difference was only a correction of a mistake in claiming deductions and that no concealment or inaccurate particulars were furnished. The Tribunal found the assessee's argument persuasive and noted that the authorities below overlooked this aspect. Conclusion: The Tribunal concluded that the penalty under section 271(1)(c) was not justified as there was no concealment or furnishing of inaccurate particulars of income. The difference in income was a mere change of opinion or correction of an inadvertent mistake. 2. Effect of Acceptance of Return Filed under Section 153A on Levy of Penalty Relevant legal framework and precedents: Section 153A provides for assessment or reassessment of income in cases where a search has been conducted. The non-obstante clause in section 153A excludes the application of section 139, thereby making the return filed under section 153A the operative return for all purposes. The High Court decision in Pr. CIT Vs. Neeraj Jindal clarified that when the return filed under section 153A is accepted, penalty under section 271(1)(c) cannot be levied on the basis of the original return. Court's interpretation and reasoning: The Tribunal relied on this precedent to hold that once the Assessing Officer accepted the return filed under section 153A, the original return filed under section 139(1) loses relevance for penalty purposes. The Tribunal observed that the penalty was levied solely based on the difference between the original and section 153A returns, which is impermissible. Key evidence and findings: The acceptance of the section 153A return by the Assessing Officer without any addition or adverse finding was a critical fact. It demonstrated that the income declared was not concealed and that the revised return was bona fide. Application of law to facts: The Tribunal applied the principle that the return under section 153A supersedes the original return, and penalty proceedings must be based on the accepted return. Since the accepted return did not conceal income or furnish inaccurate particulars, penalty could not be sustained. Treatment of competing arguments: The Revenue's reliance on the difference between the two returns was rejected as legally untenable. The assessee's contention that the penalty could not be levied once the revised return was accepted was upheld. Conclusion: The Tribunal concluded that the penalty levied under section 271(1)(c) could not be sustained when the return filed under section 153A was accepted by the Assessing Officer. Significant Holdings "The levy of penalty u/s 271(1)(c) of the Act is not automatic. For levy of penalty u/s 271(1)(c), the conditions laid out therein have to be specifically fulfilled. Section 271(1)(c) of the Act, being in the nature of a penal provision, requires strict construction. The word 'conceal' in section 271(1)(c) would require the Assessing Officer to prove that specifically there was some conduct on the part of the assessee which would show that the assessee consciously intended to hide his income. When an assessee has filed revised returns after a search has been conducted, and such revised returns have been accepted by the Assessing Officer, merely by virtue of the fact that such return showed a higher income, penalty u/s 271(1)(c) cannot be automatically imposed. Considering that the non obstante clause u/s 153A excludes the application, inter alia, of section 139, it is clear that the revised return filed u/s 153A takes the place of the original return u/s 139, for the purposes of all other provisions of the Act. Thus, it is clear that when the Assessing Officer has accepted the revised return filed by the assessee u/s 153A, no occasion arises to refer to the previous return filed u/s 139 of the Act. For all purposes, including for the purpose of levying penalty u/s 271(1)(c) of the Act, the return that has to be looked at is the one filed u/s 153A." The Tribunal established the core principle that acceptance of the return filed under section 153A precludes penalty on the basis of the original return. It emphasized that penalty under section 271(1)(c) requires proof of conscious concealment or furnishing of inaccurate particulars, which was not established in this case. Final determination was that the penalty of Rs. 6200/- levied under section 271(1)(c) on the differential income of Rs. 20,000/- was not justified and was accordingly deleted, allowing the assessee's appeal.
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