RUDARAM D. CHOUDHARY,MUMBAI, MAHARASHTRA vs. INCOME TAX OFFICER, WARD 20(2), MUMBAI, MAHARASHTRA

None appeared on behalf of the assessee nor any adjournment application was filed. Considering the matter under consideration, it was decided that no useful purpose would be served in adjourning the matter any further and to decide the same basis material available on record.

During the course of penalty proceedings, the assessee reiterated his submissions stating that he has already filed a return of income taking gross profit of 30% of the cash deposited in the two bank accounts and has already paid taxes of Rs. 5,16,400/-, and which has been accepted in the reassessment proceedings and hence, it was requested not to levy

The submissions so filed by the assessee were considered by the Assessing Officer but not found acceptable. As per the Assessing Officer, the assessee has filed the return only after receiving the notice under section 148 of the Act. Further, regarding the submissions of the assessee that mistake was done inadvertently and in bonafide belief, the Assessing Officer held that the assessee was well aware of his bank accounts and deposit of cash at regular intervals in these accounts and therefore, it is a clear cut case of concealment of income and willful evasion by not disclosing the bank accounts in the return of income and huge deposit of Rs. 40,37,490/- cannot be inadvertent. Further, the Assessing Officer held that the assessee has not offered any explanation for source of cash of Rs. 40,37,490/- deposited in his bank accounts and no supporting evidence has been submitted by the assessee. The Assessing Officer accordingly held that it is a fit case for levying penalty under section 271(1)(c) of the Act and penalty at the rate of 200% of tax sought to be evaded on concealed income of Rs. 11,96,430/- which works out to Rs. 5,98,064/- was levied on the assessee.

The assessee, thereafter, carried the matter in appeal before the ld. CIT(A) and the submissions made before the Assessing Officer were reiterated, which were considered by the ld. CIT(A) but not fully accepted. As far as the levy of penalty under section 271(1)(c) was concerned, the same was confirmed by the ld CIT(A), at the same time, partial relief was granted to the assessee whereby the quantum of penalty was reduced from 200% to 100% of tax sought to be evaded and against the sustenance of levy of penalty @ 100%, the assessee is in appeal before us.

Heard the ld DR and the material available on record is perused. We find that it is a case where the assessee has originally filed his return of income declaring income of Rs 146,716/- and thereafter, in response to notice under section 148 has filed his return of income disclosing total income of Rs. 11,96,430/- which has been accepted by the Assessing Officer while passing the reassessment order under section 147 read with 143(3) wherein the assessed income was determined at the same figure of Rs. 11,96,430/- and the penalty proceedings u/s 271(1)(C) were thereafter initiated and penalty finally levied of the Act.

Here, it is relevant to note that the assessee had filed original return of income u/s 139(1) and it is thus not a case of deemed concealment where explanation (3) to section 271(1)(c) is applicable. In fact, the AO has not even invoked explanation 3 to section 271(1)(C) levying the penalty and it is even not the case of the Revenue before us. It is a case where the AO has simpliciter invoked the provisions of section 271(1)(c) of the Act.

In such a situation, where the proceedings have been initiated u/s 147, the assessee filed his return of income in response to notice u/s 148, and the penalty proceedings u/s 271(1)(c) have been initiated during the course of such reassessment proceedings u/s 147, what is relevant for the purposes of levying the penalty and determining the charge in terms of furnishing of inaccurate particular of income or the concealment of particular of income is the disclosure made and position taken by the assessee while filing his return of income in response to notice u/s 148 of the Act which is subject matter of reassessment proceedings and not the original return of income filed u/s 139(1) of the Act which is not the subject matter of reassessment proceedings. Secondly, the initiation of penalty has happened during such reassessment proceedings (and not during the original proceedings) and therefore, for the purposes of levy of

In the instant case, we find that while filing the return of income in response to notice u/s 148, the assessee has disclosed gross receipts of Rs 40,37,490/- and income thereon amounting to Rs 11,96,430/- (that too, exceeding the figure of gross receipts of Rs 28,02,787/- and consequent income escaping assessment forming the basis of notice u/s 148) and which has finally been accepted by the AO at the same figure of Rs 11,96,430/- without making any adjustment by way of enhancement of income. In the process, the AO has accepted the quantum and nature of gross receipts so offered by the assessee as arising out of his business activities and determined the tax liability at the rate of 30% of gross receipts. No expenses have been claimed by the assessee, thus disallowance thereof didn’t arise for consideration. In fact, we find that the AO, instead of determining appropriate profit percentage arising out of such business activities, has accepted the basis so offered by the assessee where the gross receipts have been brought to tax. In such a situation, where the very basis of filing the return of income has been accepted by the AO and the explanation so submitted by the assessee during the course of reassessment proceedings has been accepted and there has been no variation between returned income and assessed income so determined by the AO, the question of concealment of particulars of income and levy of penalty u/s 271(1)(c) doesn’t arise for consideration. In such a situation, even looking at the computational mechanism for levy of penalty in terms of explanation (4) to section 271(1)(C) of the Act, in absence of any particulars of income being concealed given that there is no variation between the returned income and assessed income, the computational machinery also fails.

In light of the aforesaid discussion and considering the entirety of facts and circumstances of the case, we hold that the penalty so levied by the Assessing Officer u/s 271(1)(C) and sustained by the ld. CIT(A) deserves to be set aside and the same is hereby deleted.

In the result, appeal filed by the assessee is allowed.