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Facts
The assessee, engaged in film production, failed to file its income tax return for assessment year 2011-12. Reassessment proceedings were initiated, and despite notices, no return was filed. The Assessing Officer (AO) assessed total income and levied a penalty of Rs. 4,90,689 under section 271(1)(c) for concealment of income.
Held
The Tribunal held that the assessee's contention that penalty cannot be levied on estimated additions is not applicable as the assessee was a non-filer and failed to provide substantiating documents. The provisions of Explanation 3 to Section 271(1)(c) were invoked, deeming the failure to file a return and non-furnishing of information as concealment of income.
Key Issues
Whether the penalty under section 271(1)(c) for concealment of income is leviable when the assessee failed to file its return of income and did not cooperate with assessment proceedings.
Sections Cited
271(1)(c), 139, 147, 148, 142(1), 44AB, 153(1), 271B, 274
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 03/07/2024, passed under section 250 of the Income Tax Act (“the Act”) by the learned Commissioner of Income Tax (Appeals)-11 Pune, [“learned CIT(A)”], for the assessment year 2011-12, which in turn, arose from the penalty order dated 22/12/2023, passed by the Assessing Officer (“AO”) under section 271(1)(c) of the Act.
In this appeal, the assessee has raised the following grounds: –
Pumpkin Pictures Private Limited ITA No.4197/Mum./2024
“1. The Ld. CIT (A) had erred in confirming the Penalty of Rs. 4,90,689/- erroneously levied by Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 while passing the Impugned Penalty Order.
2. The Ld. Assessing Officer had erred in levying the penalty under section 271(1)(c) of the Income Tax Act, 1961, for the reasons stated in the Impugned Order, without giving reasonable opportunity to the Appellant Company. The Impugned Order has been passed Ex-parte without considering the request for adjournment sought by the Appellant Company.
The Ld. Assessing Officer had passed the Impugned Order without stating the nature and amount of concealment of income in the show cause notice issued to the Appellant Company or even in the Impugned Order.
4. The Ld. CIT(A) had erred in not considering the fact produced by Appellant Company vide written submission dated 14th June, 2024 before passing the Impugned Order.
5. The Ld. CIT (A) and Ld. Assessing Officer has erred in not considering the fact that the entire amount of addition to the total income had been made on estimated basis which is purely a guess work of Assessing Officer and there is no wilful concealment of income.
6. The Ld. CIT (A) and Ld. Assessing Officer had erred in not considering the case laws submitted by Appellant Company before passing the Impugned Orders.
7. The Ld. CIT (A) and Ld. Assessing Officer had erred in not considering the fact that it is a settled law that the penalty under section 271(1)(c) of the Income Tax cannot be levied on addition made on estimated basis as for levying penalty under section 271(1)(c) of the act, Assessing Officer has to clearly state that the assessee had concealed his income or has furnished inaccurate particulars of income. Hence, penalty is not leviable.
8. The Ld. CIT (A) and Ld. Assessing Officer had erred in not considering the fact that the matter is squarely covered by the judgement of Honourable Supreme Court, Honourable Bombay High Court and Honourable ITAT, Mumbai.
9. The Ld. CIT (A) and Ld. Assessing Officer had erred in citing the case laws which are not relevant to the Appellant Company.
10. The Ld. CIT (A) and Ld. Assessing Officer had erred in not following the due process of law before passing the Impugned Orders.”
3. The only grievance of the assessee is against the levy of penalty under section 271(1)(c) of the Act.
Pumpkin Pictures Private Limited ITA No.4197/Mum./2024
The brief facts of the case as emanating from the record are: The assessee is engaged in the production of cinematographic films, educational programs, advertisement, production training institutes in India and abroad, setting up educational documentaries, motion pictures etc. On perusal of information available on the ITD system and analysing the Individual Transaction Statement from Non-Filers Monitoring System (‘NMS’) pertaining to the assessment year 2011-12, it was noted that despite receiving substantial contract receipts and professional and technical fees, the assessee had not filed its original return of income under section 139(1) of the Act.
Accordingly, on the basis of the above information, proceedings under section 147 of the Act were initiated in the case of the assessee, and notice under section 148 of the Act was issued on 30/03/2018. In response to the notice, the assessee did not file its return of income. A letter regarding the reassessment proceedings under section 147 of the Act was sent to all four directors of the assessee company. Thereafter, notice under section 142(1) along with a specific questionnaire was also issued to the assessee on 28/09/2018. In response, the Authorised Representative of the assessee attended the proceedings and explained the case and also assured the AO that the details as called for would be submitted immediately. During the assessment proceedings, the assessee was asked to furnish the details of expenditure along with bills and vouchers and was also requested to submit complete details of professional or technical fees or contract receipts party- wise received during the financial year and reconciled with the receipts appearing in Form 26AS for the assessment year 2011-12. However, despite ample opportunities, the assessee submitted only a few bills and vouchers of Page | 3
Pumpkin Pictures Private Limited ITA No.4197/Mum./2024 the expenditures claimed and failed to submit the name, address and PAN of the parties to whom the payment was made. Accordingly, in the absence of information, as called for, and on account of failure on the part of the assessee to prove the genuineness of the expenditure, the AO, vide order dated 26/12/2018 passed under section 143(3) r/w section 147 of the Act, assessed the total income of the assessee at Rs. 59,57,450. The learned CIT(A) granted partial relief to the assessee and directed the AO to apply a net profit rate of 20% on undisclosed receipts of Rs.4,25,000. In further quantum appeal, the Tribunal vide its order dated 20/06/2023, passed in ITA No. 100/Mum./2023 granted further relief to the assessee and restricted the addition to 6% of gross receipts instead of the net profit rate of 20% applied by the learned CIT(A).
Meanwhile, the penalty proceedings vide notice issued under section 274 read with section 271(1)(c) of the Act were initiated and the assessee was asked to show cause why the penalty under section 271(1)(c) of the Act be not imposed for under-reporting of income. Vide order dated 22/12/2023 passed under section 271(1)(c) of the Act, the AO held that the assessee has not disclosed income of Rs. 15,87,990 and has also not disclosed the said income either by filing the return of income under section 139(1) or in response to notice issued under section 148 of the Act. Accordingly, the AO levied a penalty of Rs.4,90,689 under section 271(1)(c) of the Act, on account of concealment of income to the tune of Rs. 15,87,990.
The learned CIT(A), vide impugned order, held that the assessee received certain business receipts exceeding Rs. 2.5 crore, during the year
Pumpkin Pictures Private Limited ITA No.4197/Mum./2024 under consideration. However, the assessee neither filed the return of income under section 139 of the Act nor filed the same in response to notice issued under section 148 of the Act. The learned CIT(A) also emphasized the fact that during the assessment proceedings, the assessee could not substantiate the expenses claimed in the profit and loss account by filing supporting evidence. The learned CIT(A) also rejected the contention of the assessee that no penalty can be levied when the income is determined purely on an estimation on the basis that such a proposition is applicable only in a scenario where the assessee has filed original return of income and some minor defects were notice during the assessment proceedings and the disallowance was made on an estimated basis. However, in the present case, despite having huge business receipts, no return of income was filed either under section 139 or pursuant to the notice issued under section 148 of the Act. Accordingly, the learned CIT(A) dismissed the appeal filed by the assessee and upheld the penalty levied by the AO under section 271(1)(c) of the Act. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. In the present case, it is undisputed that the assessee is a non-filer of return and on the basis of the information received from the NMS portal and ITD system, reassessment proceedings under section 147 of the Act were initiated on the basis that despite receiving substantial contract receipts and professional and technical fees, the assessee has not filed its return of income under section 139(1) of the Act. It is discernible from the record that even in response to the notice issued under section 148 of the Pumpkin Pictures Private Limited ITA No.4197/Mum./2024 Act, the assessee did not file its return of income. However, made partial compliance with the notices issued under section 142(1) of the Act. From the material available on record, we find that in the quantum proceedings, the addition was ultimately restricted to 6% of the gross receipts by the coordinate bench of the Tribunal. During the hearing, the learned Authorised Representative (“learned AR”) submitted that no penalty can be levied, in the present case, as the addition was made purely on an estimated basis. We find that similar contentions raised by the assessee were rejected by the learned CIT(A), by observing as under: –
“9. The only contention of the appellant is that no penalty can be levied when income is determined purely on an estimate basis. I do not agree with this contention of the appellant because such proposition is applicable only in situations where the assessee had filed original return of income and some minor defects were noticed during the assessment proceedings and the disallowance was made on estimate basis. The proposition as contended by the appellant cannot be applied to a case where even after having the business receipts of more than Rs.2.5 crores, no ITR was filed u/s. 139 of the Act and even during the reassessment proceedings, the assessee could not substantiate the claim of expenses made by filing the bills/vouchers. If the contention raised by the appellant is accepted, in that case, an assessee will not maintain proper books of accounts and will not file his Income Tax Return even after earning taxable income and once same comes to the notice of the Department and the income is determined by applying a net profit rate, the assessee will claim that no penalty can be levied in its case. This is certainly not the intention of the legislature. Neither this has been held in any of the cases relied upon by the appellant. The cases relied upon by the appellant are distinguishable on facts because in the present case neither any ITR was filed u/s. 139 of the Act nor the appellant could substantiate the expenses claimed in the ITR. Since, books of accounts were not properly maintained, the A.O. as well as Hon'ble ITAT had no option but to determine the income on estimate basis.”
The learned AR further contended that the assessee could not file the return of income due to failure on the part of its auditor, who even failed to file the tax audit report as required under section 44AB of the Act. The learned AR submitted that the coordinate bench of the Tribunal vide its order dated
Pumpkin Pictures Private Limited ITA No.4197/Mum./2024 25/01/2023 passed in assessee’s own case in Pumpkin Pictures Private Limited v/s DCIT, in ITA No. 2093/Mum./2022, deleted the penalty levied under section 271B of the Act for failure to file the audited report under section 44AB of the Act.
Before dealing with the aforesaid contentions on behalf of the assessee, it is relevant to note the provisions of section 271(1)(c) of the Act, which provides that if the assessing officer in the course of proceedings under this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of his income, he may direct such person shall pay by way of penalty a sum which is not less than but which shall not exceed three times the amount of tax sought to be evaded. We find that Explanation 3 to section 271(1)(c) of the Act further provides as follows: –
“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.”
Therefore, from a careful perusal of the provisions of Explanation 3 to section 271(1)(c) of the Act, it is evident that in case any person fails, without reasonable cause, to file its return of income under section 139 within the period specified in section 153(1) and until the expiry of the aforesaid period, no notice has been issued to him under section 142(1) or section 148 and the Pumpkin Pictures Private Limited ITA No.4197/Mum./2024 AO is satisfied that in respect of such assessment year, such person has taxable income, then such person shall be deemed to have concealed the particulars of his income for the purpose of section 271(1)(c) of the Act. It is further provided that such an assumption shall be valid even though such person furnishes the return of his income at any time after the expiry of the period as mentioned above in pursuance of the notice issued under section 148 of the Act.
In the present case, it is evident from the record that the assessee neither filed its return of income under section 139 nor filed its return of income in response to notice issued under section 148 of the Act. It is also evident from the record that the notice under section 148 of the Act and other statutory notices were issued beyond the time period specified under section 153(1) of the Act. Further, the AO on the basis of the information received from the ITD systems and NMS portal was satisfied that the assessee has received substantial contract receipts amounting to Rs. 2.5 crore, during the year under consideration. Therefore, on a plain application of the provisions of Explanation 3 to section 271(1)(c) of the Act, the present case clearly falls in the category of “concealment of particulars of income” for the purpose of section 271(1)(c) of the Act.
Such being the facts, we find merits in the findings of the learned CIT(A), as noted in the foregoing paragraph, in rejecting the contention of the assessee that no penalty can be levied in the present case as the addition has been made purely on an estimated basis. As evident from the record, the assessee has been in complete defiance of various statutory requirements and Page | 8
Pumpkin Pictures Private Limited ITA No.4197/Mum./2024 also did not furnish the details as called for during the assessment proceedings. Thus, when necessary data, at least the income tax return, has not been filed by the assessee, despite opportunity even pursuant to notice issued under section 148 of the Act, the assessee cannot now take the plea that since the addition has been made by applying the net profit rate, no penalty can be levied in its case. Therefore, we are of the considered view that the decisions relied upon by the learned AR in support of the aforesaid plea are completely distinguishable on facts and thus, not applicable to the present case.
Insofar as the contention of the learned AR that the assessee could not file the return of income due to failure on the part of its auditor, it is pertinent to note that under the provisions of section 139 of the Act, it is the responsibility of the assessee to file its return of income within the due date and same cannot be compared to the filing of audit report under section 44AB of the Act, which specifically requires the accounts to be audited by an accountant and furnishing of such audit report in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. Thus, we are of the considered view that even if due to the failure on the part of the auditor the assessee failed to file its audit report, as required under section 44AB of the Act, the same does not absolve the assessee from its responsibility to file the return of income under section 139 of the Act. At this stage, it is also pertinent to reiterate that the assessee also failed to file its return of income in pursuance of notice dated 30/03/2018 issued under section 148 of the Act. Thus, when the assessee has failed to Pumpkin Pictures Private Limited ITA No.4197/Mum./2024 comply with its statutory requirements under section 139 of the Act and also has completely ignored the notice issued under section 148 of the Act, the assessee now cannot shift its responsibility to its auditor. Accordingly, we find no merits in the aforesaid plea made on behalf of the assessee and the reliance placed on the decision of the coordinate bench rendered in assessee’s own case is completely misplaced.
Since the present case squarely falls within the ambit of the provisions of Explanation 3 to section 271(1)(c) of the Act, we are of the considered view that the AO correctly levied a penalty under section 271(1)(c) of the Act in the present case and the same has been rightly upheld by the learned CIT(A).
In light of our aforesaid findings, we find no infirmity in the impugned order in upholding the levy of penalty under section 271(1)(c) of the Act. As a result, the impugned order is upheld and the grounds raised by the assessee are dismissed.
In the result, the appeal by the assessee is dismissed.
Order pronounced in the open Court on 17/12/2024.