No Penalty if Assessee voluntarily & bona fidely declare its income

ITAT DELHI BENCH ‘SMC’

Vaish Degree College Trust

Versus

Assistant Commissioner of Income-tax

Income Tax Appeal Nos. 4538 To 4543 (Delhi) Of 2011
[Assessment Years 2003-04 TO 2008-09]

Date of Pronouncement – 28.09.2012

ORDER

1. These appeals filed by the assessee are against the order dated 21-07-2011 of the Ld. CIT(A), Muzaffarnagar for AYs 2003-04 to 2008-09.

2. In these appeals, the issue is regarding penalty u/s 271(1)(c). Except for the amount of penalty, the facts are identical in all the AYs under consideration. Therefore, I refer to the facts as obtaining in Ay 2003-04 vide ITA No. 4538/Del/2011.

3. The assessee is a society registered under Societies Registration Act, 1860. It was running a college known as “Vaish Inter College, Muzaffarnagar”. The assessee had not filed any return for the year under consideration. The Assessing Officer has observed that during the assessment proceedings of M/s Sarti Devi Raja Ram Public School, it was noticed that Sh. Ramesh Chand Gupta was the Secretary of that trust. That trust was not registered u/s 12AA of the Income Tax Act, 1961 till 29.03.2006. The exemption u/s 10(23C)(iiiad) was also disallowed on certain grounds. The Assessing Officer noticed that Sh. Ramesh Chand Gupta was also Secretary in the present trust. He observed that before any notice could be issued, the assessee filed a petition u/s 273A of the Income Tax Act on 06.04.2009 before the CIT, Muzaffarnagar, copy of which was also endorsed to the Assessing Officer. The Assessing Officer observed that the petition filed by the CIT, Muzaffarnagar was also having photocopies of the return which was not filed in regular course. The income declared in the return was Rs. 2,11,070/- under the head income from house property.

4. Since the assessee did not file any return, notice u/s 148 was issued on 03.08.2009, after recording following reasons:-

“Assessee, the society, filed a petition u/s 273A of the Income Tax Act requesting the Commissioner of Income Tax to waive the penalty, if any, livable or payable. From the perusal of the petition the following factors gathered:-

1. The “Vaish College, Shamli is society registered under Societies Registration Act, 1860 was running a college known as “Vaish Inter College” and was having the following properties:-

(a) 23 shops (S. No. 1 to 23) with Chabutra on Shamli Kairana Road, Shamli.

(b) 23 rooms along with varanda on the back of above shops.

(c) Two shops (No. 24 & 25) with Chabutar on Shamli Kairana Road, Shamli.

2. The aforesaid society donated the above properties to a trust consisted the following trustee:-

3. The object of the trustee was declared to maintain B.A. classes.

4. The terms and condition provide that the trustees of the trust shell meet at least 6 once in every year for the purpose of transaction the business of the said trust and the trustees may make rules and regulation relation to such meeting and to conduct their business.

5. The trustees are authorized at any time to sell the premises or it’s part at any time for the purpose of making investment of sale proceed on more profitable securities.

The above terms and condition shows that the assessee is not running any such educational institute, which is solely for education and not for profit as the trustees were authorized to regulate the Business and also to sell the properties for making investment for more profit. Thus, the income of the trust is neither exempt u/s 10(23C)(iiiad) for which the institution must be wholly for education and for profit nor exempt under section 11 of Income Tax Act, as the object of the assessee is not wholly charitable and it is not registered under section 12AA of the Income Tax Act.

The assessee filed the income and expenditure account for the year under consideration in which the surplus is shown at Rs. 62,383/- on perusal of the income and expenditure it is noticed that the assessee is claiming depreciation of Rs. 1,81,359/- mainly on immovable properties, being rooms and shop and can not be utilize for BA classes and they are let out. That the depreciation is not trust as taxable.

The assessee has shown Rs. 4,29,306/- as rent received. As neither any return is filed by the assessee not any notice requiring the assessee to file the return is issued. I have reason to believe that income to extent of Rs. 4,29,306/- escaped assessment.”

5. In compliance to notice u/s 148, the assessee filed return declaring income of Rs. 2,13,256/-, under protest. After discussions, the Assessing Officer completed the assessment at the returned income.

In the back drops of these facts, the Assessing Officer initiated penalty proceedings u/s 271(1)(c). In reply to show cause notice, the assessee stated that it had filed voluntary return without any detection by the Assessing Officer along with the petition u/s 273A submitted before the Additional Commissioner of Income Tax, Range-2, Muzaffarnagar. The Assessing Officer observed that assessee had filed the petition u/s 273A before CIT, Muzaffarnagar and not before him. He, therefore, concluded that assessee had not filed any voluntary return before the Assessing Officer. He further observed that the return filed along with the petition u/s 273A before CIT, cannot be treated as return filed voluntarily. He further pointed out that assessee did not file the return in compliance to notice u/s 148 within time allowed in the notice i.e 30 days nor any reply was filed. He, therefore, concluded that the return was filed after detection of concealment by the department and after receiving the notice u/s 148. He further pointed out that the penalty proceedings could not be vacated or kept in abeyance on the ground of petition u/s 273A of the Act, being pending before the CIT and the provisions of explanation 1 of section 271(1)(c) were also attracted as the explanation given by the assessee, was not satisfactory.

6. Ld. CIT(A) dismissed the assessee’s appeal for the following reasons:-

(1) From the petition filed u/s 273A before CIT, it was evident that the assessee from the very beginning, was quite apprehensive that its action of filing so called “voluntary returns” could attract penalty. Therefore, the penalty u/s 271(1)(c) was attracted.

(2) The petition u/s 273A was not filed voluntarily because Sh. Ramesh Chand Gupta, the Secretary of the assessee trust had already faced the income tax proceedings in another case namely M/s Sarti Devi Raja Ram Public School (being its Secretary also) and it was inevitable with the present case, would have faced the similar proceedings.

(3) The trust was aware that it was deriving rental income since beginning and it did not bother to file its return citing ignorance of law which is not excusable.

(4) The so-called returns filed along with petition u/s 273A were not returns but simply piece of paper in the eye of law. The Assessing Officer utilized the information on these papers and got regularized the returns.

(5) The assessee’s conduct had not been fair. Just after receiving the notice u/s 148, instead of filing the return or requesting the Assessing Officer to treat the return of income which was accompanying the petition u/s 273A as return filed in compliance to notice u/s 148, the appellant presumed it automatic and further had chosen to file the fresh return after five months after issue of notice u/s 148 under “protest”.

(6) In such circumstances, the entire assessed income as determined by Assessing Officer constitutes the concealed income and the Assessing Officer was fully justified in imposing penalty u/s 271(1)(c).

(7) The assessee had not bothered to pursue its petition u/s 273A of the Income Tax Act. Instead it was surprising to note that just after receiving the penalty order, the assessee had moved the petition u/s 264 of the Income Tax Act, before the CIT, Muzaffarnagar which had also not been pursued by the assessee and present appeal had been filed.

(8) Once there is material for deemed particular amount as concealed income, imposition of penalty was automatic.

(9) The assessee’s argument that voluntary return was filed, had no basis because no return at all was filed by the assessee under any section of the Act.

(10) When the assessee approached CIT u/s 273A, he does not dispute his liability to pay the penalty. All he wants is a relief. The conduct of the assessee right from filing of application u/s 273A of the Act, had been doubtful inasmuch as before filing the return of income, the assessee had approached the CIT for waiver of penalty u/s 271(1)(c) of the Act.

(11) The assessee filed appeal against imposition of penalty u/s 271(1)(c) wherein it desires the adjudicating authority to allow relief which had not been allowed till date by the CIT u/s 273A or u/s 264 of the Act, as the assessee’s applications are pending.

(12) The assessee’s assertion that penalty for concealment of income should be initiated from the return of income only is also held untenable for the reason that there are plethora of decisions of Hon’ble Courts wherein it has been held penalty for concealment of income u/s 271(1)(c) of the Act can be imposed even if the assessment is completed u/s 144 of the Act.

7. Ld. Counsel for the assessee re-iterated the facts and submitted that the very basis of penalty u/s 271(1)(c) was the petition filed by the assessee u/s 273A. Ld. Counsel further submitted that notice u/s 148 was issued on the basis of petition u/s 273A. Therefore, the assessee had voluntarily returned income. He further submitted that there is no variation between the returned income in response to section 148 and the assessment made u/s 143. Therefore, there was no concealment of income. He submitted that while petition u/s 273A was filed on 06.04.2009, the penalty order has been passed on 12.04.2010. He submitted that none of the conditions as contemplated in explanation 1 to section 271(1)(c) have been fulfilled.

8. Ld. DR relied on the order of lower revenue authorities and submitted that nothing was voluntary since the assessee did not file return of income.

9. I have considered the submissions of both the parties and have perused the records of the case. Facts are admitted. The assessee had filed petition u/s 273A on 06.04.2009 along with return of income. A copy of this petition was also endorsed to Assessing Officer. On the basis of this petition, the Assessing Officer issued notice u/s 148 on 03.08.2009. The assessee filed return of income without any variation of returned income as filed before CIT, Muzaffarnagar along with petition u/s 273A. The assessment had been completed on the same amount.

10. In the back drop of these facts, it is to be examined whether the assessee had concealed the particulars of his income or furnished inaccurate particulars of his income. Further it is to be examined whether assessee had voluntarily disclosed the income before its detection by the department. The expressions “concealed the particulars of income” or “has furnished inaccurate particulars of income” have not been defined either in section 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in details, although they may lead to the same effect, namely, keeping off a certain portion of income. The former is direct and the letter may be indirect in its execution. The word “conceal” implies to hide or withdraw from observations; to prevent the discovering of; to withhold know of.

The offence of concealment is thus a direct attempt to hide an income or a portion from the knowledge of Income Tax Authority. The Assessing Officer has concluded that action of assessee was not voluntary because petition u/s 273A was filed by assessee only after action had been taken in the case of M/s Sarti Devi Raja Ram Public School. The trustee, Sh. Ramesh Chand Gupta, was common in both the trusts. Admittedly, both are different trusts and, therefore, once in a particular trust, some default came to the notice of a trustee managing its affairs and the same trustee is also managing the affairs of other trust then, if the trustee of the second trust voluntarily comes forward before the department and discloses material facts, which have been duly accepted by the department, then it cannot be said that assessee’s conduct was not bona fide or voluntary. It can be said to be a case of concealment only when income comes to the notice of assessee but he still withholds the same from disclosing to the department.

11. In the present case, since assessee voluntarily filed the petition u/s 273A which admittedly was not very legal, as no penalty had been imposed, but, nevertheless was the starting point for initiation of reassessment proceedings.

Section 271(1)(c) contemplates the satisfaction of Assessing Officer in the course of any proceedings under this Act regarding concealment of the particulars of his income or furnishing of inaccurate particulars of such income. Therefore, Assessing Officer should have arrived at a satisfaction in the course of reassessment proceedings regarding fulfilment of either of these twin conditions. This satisfaction had to be derived from the conduct of the assessee. Since the very basis for initiation of reassessment proceedings was the petition u/s 273A along with which assessee had filed return of income and the same income had been returned in consequence to proceedings u/s 148, therefore, it cannot be held that Assessing Officer had judiciously acquired the satisfaction regarding fulfillment of wither of these twin conditions. In my opinion, the assessee trust voluntarily and bona fide belief declared its income and, therefore, no penalty was to be levied in the peculiar facts of this case.

12. As far as applicability of explanation 1 to section 271(1)(c) is concerned the same, is not applicable because no amount has been added or disallowed in computing the total income of assessee trust. Penalty proceedings are quasi criminal in nature and, therefore, to narrow or to technical view cannot be taken but the overall conduct of assessee has to be taken into consideration for deciding whether the assessee trust should be saddled with penalty or not.

13. In view of the above discussion, the assessee’s appeals are allowed.

14. In the result, the assessee’s appeals are allowed.