SHRI JITENDRA P.VAGHELA,,AHMEDABAD vs. THE ITO, WARD-6(3), AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member ITA No. 1731/Ahd/2019 Assessment Year 2009-10

Jitendra P. Vaghela At & The ITO, Post-Vicchiya, Sanand Ward-6(3), Ahmedabad road, Taluka-Sanand, Vs (Respondent) Dist._ Ahmedabad-382110 PAN No: AGUPV8557B (Appellant)

Appellant by : Shri Shri Jaimin Shah, A.R. Respondent by : Shri S. S. Shukla, Sr.D.R. Date of hearing : 19-04-2022 Date of pronouncement : 13-07-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-

The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)- 11, Ahmedabad, (in short referred to as CIT(A)), dated 03-09-2019, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2009-10 confirming the levy of penalty u/s. 271(1)(c) of the Act.

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 2 Jitendra P. Vaghela vs. ITO 2. Facts of the case in brief are that the assessee was issued notice for reopening its case u/s.148 of the Act dated 22nd July 2011. Reasons for reopening the assessment was that during the course of assessment proceedings in the case of Shri Amarsinh Ramubhai Solanki it was gathered that the assessee had sold property having co-ownership with Shri Amarsinh Ramubhai Solanki with 50% share but the assessee did not file the return of income. In the meanwhile, a survey U/S.133A of the Act was conducted upon Shri Amarsinh Ramubhai Soianki on 12th December, 2011. During the course of survey, statement of Shri Amarsinh Ramubhai Solanki and the assessee was recorded. Both these persons admitted that they had earned income of Rs.50 lakhs by selling property in which the appellant had 50% share. After the survey, the assessee filed his return of income on 31st March, 2012 declaring total income at Rs.13,29,340/- and paid taxes of Rs.3,44,215/- ,as admitted during the course of survey u/s.133A of the Act on 12.12.2011. Assessment order u/s.143(3) r.w.s. 147 of the Act was passed by the AO making additions of Rs.2,16,420/- after disallowing 5% out of expenditure. The AO initiated penalty proceedings u/s.271(1)(c) of the Act upon the total income of Rs. 15,44,760/- determined by the AO. Thereafter the AO levied the penalty amounting to Rs.4,17,700/-, being 100% of the tax on the assessed income vide order dated 27.9.2013.

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 3 Jitendra P. Vaghela vs. ITO Rs.13,29,340/- holding that the facts of the case clearly show that the assessee did not file his return of income either as per the provisions of Section 139(1) of the Act or after issuance of notice u/s. 148 of the Act within 30 days thereof, clearly proving that the return was filed only after survey was conducted upon the co-owner of the property and his statement recorded . Ld.CITA held that it clearly proved that the assessee tried his best to evade taxes and filed return of income only when it was detected by the department. On the addition to the income of the assessee pertaining to expenses disallowed on estimate basis ,which addition amounted to Rs.2,16,420/- he deleted the penalty levied holding that the assessee was not conclusively found to have concealed this income. The relevant findings of the Ld. CIT(A) at Para 6 of the order is as under: 6. The AO levied penalty upon Rs.13,29,340/- stating that the appellant has returned his income after conducting survey upon Shri Amarsinh Ramubhai Solanki on 12.12.2011. The appellant was given opportunity to file return of income by issuing notice u/s.148 of the Act dated 20th July, 2011 but the appellant did not file the return of income. The appellant filed return of income on 31st March, 2012 i.e. about 8 months after issue of notice u/s.148. The AO stated that if survey would not have conducted upon the appellant, he would not have returned this income and paid taxes. The appellant contended that he has returned the income and AO is not justified in imposing penalty on returned income. But the contention of the appellant is not found acceptable for the reason that the appallant did not file return of income as per provisions of section 139(1} of the Act. The appellant did not file return of income within 30 days in response to the notice issued u/s.148 of the Act. The appellant filed return of income on 31st March, 2012 after the survey was conducted upon his co-owner of the property and his statement was recorded. These facts clearly prove that the appellant had tried his best to evade the tax and he had file return of income and pay taxes when it was detected by the Department completely. If the survey was not undertaken and his statement was not recorded, he would not have filed the return of income and paid taxes. Therefore, the AO is justified in levying penalty under section 271(1j(c) of the Act upon the income of Rs.13,29,340/-.

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 4 Jitendra P. Vaghela vs. ITO Thus penalty to that extent is confirmed. Regarding the penalty levied upon Rs.2,16,420/- by disallowing expenditure on estimated basis i.e. 5% of the total expenses, it is not found justified for the reason that the additions were made on estimated basis and the AO did not prove conclusively that the appellant is liable for imposition of penalty u/s.271(1)(c) of the Act. Hence, penalty levied upon Rs.2.16,420/- are deleted. This ground of appeal is partly allowed.

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 5 Jitendra P. Vaghela vs. ITO assessee drew our attention to Explanation 3 to Section 271 (1)(c) as under: Explanation 3.—Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub- section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.

5.1. Referring to the same, he contended that as per the said explanation non-filing of return of income by the assessee within time period provided for framing assessment u/s. 153 of the Act, within which time period no notice u/s. 142(1) or 148 of the Act is issued to the assessee, would alone attract penalty even if subsequently on expiry of the period of limitation for framing assessment u/s. 153, the assessee files return of income u/s. 148 of the Act. Ld. Counsel for the assessee contended that it was only on the fulfilment of the above conditions that penalty could be levied for non-filing return of income originally and filing the same only in response to same u/s. 148 of the Act, which was the fact in the present case. Ld. Counsel for the assessee contended that in the present case though the assessee had not initially filed return of income u/s. 139(1) of the Act but the condition

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 6 Jitendra P. Vaghela vs. ITO envisaged Explanation 3 of no notice being issued either u/s. 142(1) or 148 of the Act was not fulfilled, since notice u/s. 148 of the Act was issued in this limitation period, as provided u/s. 153 of the Act and therefore the assessee was not liable for levy of penalty in the present case. Our attention was drawn to the time line of events as under: Sr. No. Particulars Date of Event 1. Notice U/s 148 was issued in case of Shri Jitendra P. Vaghela 22/07/2011 2. Notice U/s 142(1) was issued in case of assessee 11/11/2011 3. Survey U/s 133A was conducted in case of Amarsingh Ramubhai 12/12/2011 Solanki 4. Return Filled against the Notice U/s 148 of the IT. Act, 1961 31/03/2012 5. Time limit for completion of Assessment U/s 1 53(1 )(a) 31/03/2012 6. Time limit for completion of Assessment U/s 153(1)(b) 31/03/2013

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 7 Jitendra P. Vaghela vs. ITO 8. We have heard the contentions of both the parties carefully and have also gone through the order of the lower authorities.

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 8 Jitendra P. Vaghela vs. ITO framing assessment u/s 153 of the Act and no notice u/s 142(1) /148 of the Act should have been issued to the assessee for filing return within this time period. Also the AO should be satisfied that the assessee had taxable income for the said year. The court interpreted that in such eventuality even if the assessee files return after the expiry of time u/s 153 of the Act in response to notice u/s 148 of the Act, he shall be deemed to have concealed particulars of his income and be liable for penalty u/s 271(1)© of the Act. The relevant findings of the Hon’ble court at para 10-15 of the order is as under: 10. A plain reading of section 271(1) of the Act shows that if the AO or any of the officers specified under the said sub-section, in the course of any proceedings under the Act is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of his income, he may direct that such person shall pay penalty in accordance with the provisions of the Act. In the facts of the present case, the failure on the part of the petitioner is non-furnishing of return of income for the assessment year under consideration. As to whether failure to furnish return of income per se amounts to concealment of income, the law all along has been that mere failure to file a return of income is not tantamount to concealment of particulars of income. In S. Narayanappa & Bros. vs. CIT (1961) 41 1TR 125 (Mys)the question arose as to whether the ITO could levy a penalty under section 28(l)(b) of the Act where the assessee failed to submit a return in response to a notice under section 22(2) and further failed to produce his books of account when called upon to do so under section 22(4). That was a case where there was a total failure to submit a return. The Mysore High Court held that for levy of maximum penalty under section 28(l)(b) of the IT Act, 1922, the indispensable condition precedent is that the assessee should have furnished his return. The Madras High Court in the case ofS.Santhosa Nadar vs. First Addl. ITO & Anr. (1962) 46ITR 411 (Mad) while dealing with a case where a voluntary return was filed after a period of four years from the close of the assessment year and as such, was not a valid return, held that such a case should be regarded as if no return had been filed at all. The Court held that it could not be said in such a case that there had been a concealment of the particulars of income or deliberate furnishing of inaccurate particulars and section 28(1 )(c) of the Indian

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 9 Jitendra P. Vaghela vs. ITO IT Act, 1922, would not be applicable, and that the case would come only within the scope of section 28(l)(a) of the said Act. The Allahabad High Court, in the case of CIT vs. U.P. State Handloom Corporation (2009) 310 ITR 54(AUIlield that mere failure to file a return of income does not amount to concealment of income or particulars of income. 11. Thus, the legal position that emerges is that mere failure to furnish a return of income does not tantamount to concealment under section 271(l)(c) of the Act. In the circumstances, the contention raised on behalf of the Revenue that non- filing of the return of income per se amounts to concealment within the meaning of section 271(l)(c) of the Act, being contrary to the settled legal position,, does not merit acceptance. 12. 'But the introduction of Expln. 3 to section 271(1) w.e.f. 1-4-1976 has changed the law on the point in certain cases. Explanation 3 provides that if a person, who has not hitherto been assessed to tax under the IT Act, 1961 does not file a return of income for an assessment year voluntarily within the normal period of limitation and no notice under section 142(1) or 148 is issued to him till the expiry of the said period, he will be treated to have concealed his income and penalty will be leviable on him accordingly if he is later found to have had taxable income in that year. Thus, for the purpose of falling within the purview of Expln. 3, firstly a person should not have been previously assessed (that is, a new assessee); secondly, he should have failed without reasonable cause, to furnish return of income for assessment year 1989-90 or any year subsequent thereto within two years from the end of the assessment year concerned; thirdly, that no notice should have been issued to him under section 142(1) or section 148 of the Act till the expiry of the two year period; and lastly, the concerned officer is satisfied that in respect of such assessment year, such person had taxable income, hi such cases, Expln. 3 provides that such person shall be deemed to have concealed the particulars of his income within the meaning of cl. (c) of section 271(1) of the Act for such assessment year. In such an eventuality, even if the person concerned files a return after the expiry of the said period of two years in pursuance of a notice under section 148 of the Act, the deeming provision of Expln. 3 shall still have application. 13.' Though it has been contended on behalf of the respondents that in the present case Expln. 3 has not been applied; as noticed earlier mere non- furnishing of a return per se is not tantamount to concealment within the meaning of section 271(l)(c) of the Act. The only eventuality under which non- furnishing of return of income amounts to concealment is as provided under Expln. 3 to subsection (1) of section 271 of the Act. Hence, unless Expln. 3 of

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 10 Jitendra P. Vaghela vs. ITO section 271(1) of the Act is attracted, there can be no concealment as envisaged under section 271(l)(c) of the Act. hi the circumstances, it is required to be examined as to whether the provisions of Expln. 3 to section 271(1) could have been invoked in the present case. For the purpose of invoking the provisions of Expln. 3 to section 271(1) of the Act, the conditions enumerated hereinbefore are required to be satisfied. If any of the said conditions is not satisfied, the provisions of Expln. 3 to section 271(1) of the Act would not be applicable. 14. In the present case admittedly the petitioner had not been previously assessed under the provisions of the Act, hence, the first requirement of Expln. 3 is duly satisfied. The petitioner had not filed his return of income within the period specified under sub-section (1) of section 153 of the Act and as such, the second condition is also satisfied. Itowever, as noted earlier, in the present case a notice had been issued to the petitioner under section 148 of the Act on 10-3- 1997 which was within the period specified under section 153(1) of the Act. hi the circumstances, the third condition namely, that no notice under section 142(1) or section 148 of the Act should have been issued within the period specified under sub-section (1) of section 153 of the Act is clearly not satisfied. As discussed earlier, the conditions for applicability of Expln. 3 to section 271(1) are cumulative and each of the conditions has to be established for the purpose of invoking the said provision, hi the present case, all the conditions are not cumulatively satisfied. The failure on the part of the petitioner to furnish return of Income within the specified period, therefore, cannot be deemed to be concealment within the meaning of the Expln. 3 to section 271(l)(c) of the Act. 15." hi the light of the aforesaid, it is apparent that the case of the petitioner does not fall within the ambit of Expln. 3 to section 271(1) of the Act and as such, no penalty could be levied on the petitioner under section 271 (l)(c) of the Act for concealment of particulars of his income on the ground that, the petitioner had failed to furnish return of income for the year under consideration. The impugned order, therefore, being contrary to the provisions of the Act, cannot be sustained.

I.T.A No. 1731/Ahd/2019 A.Y. 2009-10 Page No 11 Jitendra P. Vaghela vs. ITO of the same, we hold the issue is squarely covered in favour of the assessee by the decision of the Hon’ble jurisdictional High court.