Penalty u/s 271(1)(c) is Leviable only If the Assessee Files Incorrect, Erroneous or False Return: ITAT Hyderabad [Read Order]

The division bench of the ITAT Hyderabad recently ruled that penalty under section 271(1)(c) of the Income Tax Act cannot be levied if there is no finding that the return filed by the assessee is incorrect, erroneous or false.

In the instant case, the AO rejected the return filed by the appellant, an individual, on ground that the genuineness of the transactions in terms of identity, credit worthiness and genuineness of the loan creditors were not proved before him. The additions made in the assessment were confirmed by the CIT(A). Consequently, penalty u/s 271(1)(c) was initiated against the assessee by finding that the assessee has concealed true and correct particulars of income.

Before the Tribunal, the assessee contended that the he had furnished confirmation, produced creditors before the AO and further submitted that the levy of penalty needs affirmative findings as to ‘concealment’ not just being satisfied with creditworthiness /genuineness of the transactions.

The division bench noted that assessee has brought on record the details of loan creditors and during the assessment proceedings produced before the AO all the creditors, even the creditors have confirmed the amount lent to the assessee. The penalty was levied on ground that the genuineness of credit worthiness of the creditors was not proved. The bench pointed out that the assessee all along declared the details of the loan and creditors in the return and produced the creditors before the AO.

The bench noticed the Apex Court decision in the case of Reliance Petroproducts Pvt. Ltd. (supra) in which it was held that there has to be concealment of particulars of the income of the assessee and the assessee must have furnished inaccurate particulars of his income. The meaning of the word ‘particulars’ used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars.

In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question inviting penalty u/s 271(1)(c). In the given case, the assessee has furnished all the details and found to be correct. Only the creditworthiness of the creditors was not proved. As far as the particulars are concerned, all the details are fully furnished and also the creditors have submitted their confirmation. Hence, in our view, there is no concealment of any particulars of income in the return. AO had found that the creditworthiness of the creditors are not genuine, it may be a good case to make addition u/s 68, but, cannot be a case for levying penalty as all the particulars of income and details of loan are fully disclosed in the return of income. Therefore, this is not a fit case to levy penalty u/s 271(1)(c) of the Act and the CIT(A) is justified in deleting the penalty levied by the AO u/s 271(1)(c).

Read the full text of the order below.