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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI S.V. MEHROTRA & SHRI K.N. CHARRY
This appeal by the assessee is directed against the order dated 05.05.2009 in appeal no. 32/2008-09 passed by the Commissioner of Income Tax (Appeals)-Faridabad, where under the Ld. CIT (A) confirmed the penalty of Rs. 5,78,198/- imposed u/s 271(1)(c) of the Income Tax Act.
Brief facts of the case are that the assessee is an individual deriving income from sale and purchase of lottery tickets, he failed to file the return of income for the AY 1997-98 as such notice dated 22.03.2004 was issued u/s 143 of the Act in response to which the assessee filed his return of income on 23.04.2004 declaring a total income of Rs. 1,64,164/-. During the assessment u/s 143(3) of the Act the AO made a total addition of Rs. 1,43,22,540/- out of which, in appeal no. 81/2005-06, the Commissioner of Income Tax (Appeals) – Faridabad vide order dated 11.05.2006 deleted the addition to a tune of Rs. 1,25,76,000/- and confirmed the rest. While making additions the AO initiated proceedings under Explanation 3 to Section 271(1)(c) of the Act and concluded them by way of order dated 31.03.2008 by imposing a penalty of Rs. 5,78,198/-. Appeal preferred by the assessee against this penalty was dismissed by the Ld. CIT (A) by way of the impugned order.
The assessee is therefore, in appeal before us on the ground that the Ld. CIT (A) erred in sustaining the penalty considering the assessee as the assessee is in default for concealing or furnishing all inaccurate particulars of income.
It is the argument of the Ld. AR is that due to the decoity in the business premises of the assessee before the due date, the assessee could not file the return of income. Further according to him the law all along has been that mere failure to file a return of income does not tantamount to concealment of particulars of income, but the introduction of Expln. 3 to s. 271(1) w.e.f. 1st April, 1976, has changed the law on this point in certain cases inasmuch as, as per Expln. 3, if a person who has not hitherto been assessed to tax under the Act does not file a return for an assessment year voluntarily within the normal period of limitation and no notice under s. 142(1) or 148 is issued to him till the expiry of the said period, he is to be deemed to have concealed his income and penalty is leviable on him if he is later found to have taxable income in that year. He submitted that for the purpose of invoking the provisions of Expln. 3 to s. 271(1), the conditions enumerated therein are required to be satisfied cumulatively and if any of the said conditions is not satisfied, the provisions of Expln. 3 would not be applicable. He further submitted that new grounds basing on law could be taken for the first time in appeal or if they are basedon the facts already available before the lower authorities.
Per contra it is the argument of the Ld. DR that sufficient time was available to the assessee to file the return of income before the alleged date of dacoity as such it’s not a ground for the assessee to take shelter for his not filing the return of income before due date.
He vehemently relied upon the orders of the authorities below.
So far as the facts are concerned, those are borne out of record. This is a case of the A.Y. 1997-98. According to the original assessment order vide last paragraph the observations of the AR are as follows:
“Assessee has failed to furnish his return of income u/s 139(1) of the Income Tax Act, 1961 which was due on 31.10.1997 and the return of income has been filed on 23.04.2004 in pursuance of notice u/s 148, hence, penalty proceedings under Explanation 3 to Section 271(1)(c) have been initiated as whole of the income assessed is his concealed income.” 6. The alleged dacoit took place in the business premises of the assessee on 06.10.1997 i.e. before 31.10.1997 as referred to in the order of the AO. Notice u/s 148 of the Act was issued on 22.03.2004, return was filed on 23.04.2004 and the assessment was completed by 24.03.2005. In this backdrop of the facts and contentions raised on either side the question that arises for our consideration is whether the failure of the assessee to furnish the return of income before the due date could be deemed to be concealment of particulars of income.
Insofar as the argument of the Ld. AR that the powers of the Tribunal in dealing with the appeals are expressed in the widest possible terms and it has jurisdiction to examine the question of law which arises from the facts available before lower authorities and which has a bearing on the liability of the assessee, even if such question has not been raised before the lower authorities, is concerned, he is fortified in his submission by the judgements of the apex court in in Jute Corporation of India Limited vs. CIT 187 ITR 688 National Thermal Power Corporation Ltd. vs. CIT (1998)
229 ITR 383 (SC).
On the aspect of applicability of Explanation 3 to Section 271(1), it is the submission of the Ld. Counsel that the provision of law as it stood on the relevant date for the AY 1997-98 was discussed by the Hon’ble Gujarat High Court in CHHAGANLAL SUTERIYA vs. INCOME TAX OFFICER & ANR (2011) 337 ITR 0350, wherein while referring to the section as it stood then was, it was held as follows:
“9. In this regard, it may be germane to refer to s. 271 of the Act as it stood at the relevant time, which insofar as the same is relevant for the purpose of the present petition, reads as under : "271. (1) If the AO or the Dy. CIT(A) or the CIT(A) in the course of any proceedings under this Act, is satisfied that any person— (a) (..........) (b) has failed to comply with a notice under sub-s. (1) of s. 142 or sub-s. (2) of s. 143 or fails to comply with a direction issued under sub-s. (2A) of s. 142, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,— (i) (..........) (ii) in the cases referred to in cl. (b), in addition to any tax payable by him, a sum which shall not be less than one thousand rupees but which may extend to twenty-five thousand rupees for each such failure; (iii) in the cases referred to in cl. (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income : Explanation. 1—..... Explanation 2.—..... Explanation 3.—Where any person who has not previously been assessed under this Act, fails, without reasonable cause, to furnish within the period specified in sub-s. (1) of s. 153, a return of his income which he is required to furnish under s. 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 cl. (i) of sub-s. (1) of s. 142 or s. 148 and the AO or the Dy. CIT(A) or the CIT(A) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of cl. (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 s. 148."
10. A plain reading of s. 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 ITR 125 (Mys) the question arose as to whether the ITO could levy a penalty under s. 28(1)(b) of the Act where the assessee failed to submit a return in response to a notice under s. 22(2) and further failed to produce his books of account when called upon to do so under s. 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 s. 28(1)(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 of S. Santhosa Nadar vs. First Addl. ITO & Anr. (1962) 46 ITR 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 s. 28(1)(c) of the Indian IT Act, 1922, would not be applicable, and that the case would come only within the scope of s. 28(1)(a) of the said Act. The Allahabad High Court, in the case of CIT vs. U.P. State Handloom Corporation (2009) 310 ITR 54 (All) held that mere failure to file a return of income does not amount to concealment of income or particulars of income.
Thus, the legal position that emerges is that mere failure to furnish a return of income does not tantamount to concealment under s. 271(1)(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 s. 271(1)(c) of the Act, being contrary to the settled legal position, does not merit acceptance.
But the introduction of Expln. 3 to s. 271(1) w.e.f. 1st April, 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 s. 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 asst. yr. 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 s. 142(1) or s. 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. In 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 s. 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 s. 148 of the Act, the deeming provision of Expln. 3 shall still have application.
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 s. 271(1)(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 sub-s. (1) of s. 271 of the Act. Hence, unless Expln. 3 of s. 271(1) of the Act is attracted, there can be no concealment as envisaged under s. 271(1)(c) of the Act. In the circumstances, it is required to be examined as to whether the provisions of Expln. 3 to s. 271(1) could have been invoked in the present case. For the purpose of invoking the provisions of Expln. 3 to s. 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 s. 271(1) of the Act would not be applicable.
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-s. (1) of s. 153 of the Act and as such, the second condition is also satisfied. However, as noted earlier, in the present case a notice had been issued to the petitioner under s. 148 of the Act on 10th March, 1997 which was within the period specified under s. 153(1) of the Act. In the circumstances, the third condition namely, that no notice under s. 142(1) or s. 148 of the Act should have been issued within the period specified under sub-s. (1) of s. 153 of the Act is clearly not satisfied. As discussed earlier, the conditions for applicability of Expln. 3 to s. 271(1) are cumulative and each of the conditions has to be established for the purpose of invoking the said provision. In 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 s. 271(1)(c) of the Act.
In the light of the aforesaid, it is apparent that the case of the petitioner does not fall within the ambit of Expln. 3 to s. 271(1) of the Act and as such, no penalty could be levied on the petitioner under s. 271(1)(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.”
In the present case, admittedly the petitioner had been previously assessed under the provisions of the Act, hence, the first requirement of Expln. 3 is not duly satisfied. On a careful reading of Section 271(1) Explanation 3 and the above decision, we are of the considered opinion that since the assessee was not a person who has not previously been assessed under this Act Explanation 3 of Section 271(1) is not applicable to him and he cannot be deemed it to have concealed the particulars of his income. We, therefore, hold that the penalty proceedings are without jurisdiction and on consequentially they cannot be sustained. The orders of the authorities below are quashed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21.04.2017