By TIOL News Service

JAIPUR, MAY 17, 2017: THE ISSUE BEFORE THE COURT IS - Whether delayed filing of I-T return on account of a bonafide belief, is no ground for levy of penalty u/s 271(1)(c). YES is the verdict.

Facts of the case:

The assessee trust having registration u/s 12-A of Income Tax Act, had failed to file its return till Oct 31, 2005, therefore, a notice u/s 142(1) was issued requiring the assessee to furnish its return of income for the A.Y concerned. A return was accordingly filed by the assessee declaring no income. On being assessed u/s 143(3), the AO determined the income of assessee with certain additions and disallowances and while doing so proceedings to impose penalty as per provisions of Section 271(1)(c) too were initiated. The assessee, being aggrieved by the additions and disallowances as well as initiation of penalty proceedings, preferred an appeal that travelled upto the ITAT consequent to which the income of assessee was determined at Rs.3,22,48,549/-. A show cause notice then was issued for imposing penalty in response to which the assessee responded with assertion that there was no willful neglect or guilt in filing the return and disclosing correct particulars of the income. The AO after considering the explanation given, imposed a penalty in a tune of Rs.1,44,36,945/- i.e. equivalent to the tax liability said to be evaded. An appeal, giving challenge to the order imposing penalty, was filed before the CIT(A), that came to be accepted by arriving at the conclusion that the assessee did not avoided filing of return deliberately and was also not guilty of dishonest conduct, hence, the penalty imposed was not correct. On appeal, the ITAT observed that the assessee led no reliable material or evidence to substantiate his claim of depreciation nor the particulars of assets owned and eligible for depreciation allowance were brought on record to enable the tribunal to make inquiry as to how the explanation pertaining to availability of depreciation was bonafide or at least plausible.

On appeal, the HC held that,

++ from perusal of the explanation tendered by the assessee, it is apparent that a debatable issue was there about depreciation available to the assessee. The assessee with a bonafide belief about availability of depreciation did not file return. The stand of the assessee was ultimately vindicated in the case of Commissioner of Income Tax v. Krishi Upaj Mandi Samiti. The penalty u/s 271(1)(c) could have been imposed only if the assessee would have intentionally concealed the income in its returns or had given incorrect details of its expenditure as well as in the returns. In the case in hand there is neither concealment of particulars of income of the assessee nor there is furnishment of inaccurate particulars of income. The assessee with a bonafide belief about allowable depreciation did not file the return. The explanation given by the assessee was also debatable and ultimately that debate came to be decided in favour of the assessee. As such, we are of the opinion that there was no sufficient reason to subject the assessee for a penalty u/s 271(1)(c). The question formulated stands resolved and the order passed by the CIT(A) is restored.

(See 2017-TIOL-937-HC-RAJ-IT)