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Penalty Under Section 271(1)(C) of the Income Tax Act 2016

Dilip K Raina 
Updated on 15 June 2020

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Does the filing of revised income tax returns amount to concealment of income or furnishing inaccurate income by the assessee? In the case of Income Tax (central), Bengaluru Vs. Goa Coastal Resorts and Recreation Pvt. Ltd. the High Court of Bombay at Goa the case was decided in favor of the assessee on November 11, 2019.

Penalty Under Section 271(1)(C) of the Income Tax Act 2016

The assessing officer levied penalty under section 271(1)(c) of the Income Tax Act 1961 assuming that the assessee has concealed his income. The basis for the assumption was that the assessee revised his income tax returns thus disclosed his income/information in piece meals. The revenue being Appellant, in this case, submitted that the disclosures were made by the assessee in piece meals thus the assessing officer relying on the case of Mak Data (P.) Ltd v/s Commissioner of Income-tax levied penalty under section 271(1)(C) of the Income Tax Act 1961 where it was stated that such disclosure does not relieve the assessee of the requirement of paying penalty.

In the above-referred case Mak Data (P.) Ltd v/s Commissioner of Income-tax the Hon’ble Supreme court upheld the penalty levied by the assessing officer on the following grounds:

  • Assessee regularly filed Income Tax Return.
  • During the assessment, the case was picked for scrutiny.
  • In response to a query raised by the assessing officer, assessee disclosed additional income and termed it as voluntary disclosure to buy peace and avoid litigation and settle the matter mutually.
  • The assessee could not prove that the disclosure was voluntary and not in response to the communication received from the assessing officer.

The Hon’ble supreme court categorically stated that “The AO, in our view, shall not be carried away by the plea of the assessee like “voluntary disclosure”, “buy peace”, “avoid litigation”, “amicable settlement”, etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise.”
Thus, assessee declared additional income in response to the query raised by the assessing officer and not voluntary.

 

In the case of Income Tax (central), Bengaluru Vs. Goa Coastal Resorts and Recreation Pvt. Ltd the returns were revised by the assessee voluntary and not in response to a notice or query raised by the assessing officer. The Hon’ble High Court in its order observed that from the records it is evident that no findings were made by the revenue and the notices sent to the assessee were sent in a very casual approach. The notices issued were drafted in a casual manner even the unrelated parts of the printed notices were not struck off. Thus, notice to be issued needs to be drafted with all possible clarity explaining the facts for reliance and in case the notices are issued on a printed form the irrelevant parts need to be struck off. All this was missing while levying the penalty under section 271(1)(C).

 

Observation of the Hon’ble High Court were:


 

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“The contention-based upon MAK Data (P.) Ltd.(supra) also does not appeal to us in the peculiar facts of the present case. The notice in the present case in itself is defective and further, there is no finding or satisfaction recorded in relation to concealment or furnishing of inaccurate particulars.  For the aforesaid reasons, we hold that no substantial questions of law arise in this appeal. Consequently, this appeal is dismissed.”


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