ITAT Upholds Penalty for Non-Filing Return Before Reassessment Notice:

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that penalty for concealment of income under Section 271(1)(c) of the Income Tax Act, 1961 is leviable where an assessee fails to file the return of income within the prescribed time and discloses taxable income only after issuance of notice under Section 148. However, the Tribunal directed the Assessing Officer to verify whether interest under Sections 234A, 234B and 234C was wrongly included while computing the penalty amount.

The assessee had not filed her return of income under Section 139(1) despite having taxable income. Based on information regarding substantial financial transactions, including investments in shares, fixed deposits, sale of shares and interest income aggregating to Rs. 3.25 crore, the case was reopened under Section 148. In response, the assessee filed a return declaring total income of Rs. 37.46 lakh, which was accepted in reassessment proceedings.

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Subsequently, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) on the ground that the assessee had concealed income by failing to file her return within the prescribed time. The assessee explained that she was an elderly widow suffering from ill health and that most of her income was subject to TDS. She also contended that taxes had substantially been discharged through TDS and advance tax.

The Assessing Officer rejected the explanation and levied penalty at 100% of the tax sought to be evaded. The Commissioner (Appeals) affirmed the penalty, observing that filing a return only after issuance of notice under Section 148 could not cure the original default and that the income would have escaped assessment had the notice not been issued.

“Had notice u/s 148 not been issued, the income would have escaped assessment.”

Before the Tribunal, the assessee argued that nearly 88% of the tax liability had already been discharged through TDS and advance tax and that there was no intention to evade taxes. It was also contended that the Assessing Officer had incorrectly included interest while computing the penalty amount.

The Tribunal observed that the case was squarely covered by Explanation 3 to Section 271(1)(c), which deems concealment where a taxpayer fails to furnish a return despite having taxable income and files the return only after initiation of reassessment proceedings.

“The case of the assessee is squarely covered by the deeming provisions of Explanation 3 to section 271(1)(c) of the Act.”

The Bench upheld the levy of penalty and held that the Assessing Officer had correctly computed the tax sought to be evaded by granting credit for advance tax, TDS and self-assessment tax paid before issuance of notice under Section 148, in accordance with Explanation 4(c) to Section 271(1)(c).

However, on the assessee’s contention that interest under Sections 234A, 234B and 234C had also been considered while computing the penalty, the Tribunal directed the Assessing Officer to verify the factual position and take appropriate action in accordance with law. Thus, the appeal was partly allowed for statistical purposes.

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