When validly revised return, filed pursuant to notice u/s 153A, is accepted, defects found in original return cannot be considered for purpose of penalty: ITAT

THE ISSUE IS - Whether when validly revised return of the assessee, filed pursuant to notice u/s 153A, is accepted by the AO and income is assessed, the defects of original return can still be considered for the purpose of penalty u/s 271(1)(c). NO IS THE ANSWER.

Facts of the case

THE assessee-company, filed the return for the relevant AY by declaring a loss of around Rs.1.13 cr. However, a search was conducted on the assessee and thereafter, the assessee again filed a return by declaring loss of around Rs 27.62 lakhs and thereafter, again revised the same declaring NIL income. Accordingly, the assessment was completed on the NIL income. However, the AO was of the opinion that the conduct of the assessee in initially declaring a huge loss, which was reduced substantially pursuant to the notice u/s 153A and subsequent revision declaring nil income amounts to concealment of income by filing inaccurate particulars. Therefore, He initiated proceedings u/s 271(1)(c) and imposed a penalty of around Rs.35.14 lakhs being the 100% of the tax sought to be evaded. On assessee's appeal, the CIT(A) upheld the decision.

On appeal, the Tribunal held that,

++ there is no dispute that pursuant to the notice issued u/s 153A, the assessee filed the return of income on 14.7.2014 which was revised on 24.2.2015 declaring nil income and the assessment was also completed on 24.3.2015 at nil income only. On the question of whether or not the assessee set up any business during the year and the loss claimed cannot be allowed, in the revised return the assessee withdrew such a claim and declared the income at nil. No doubt the question of whether or not the assessee set up any business during the year and whether no business could be turned out even after the business was set up is a disputed question of fact, and is a debatable issue. However, the AO felt that the claim of loss on the premise that the business was set up amounts to concealment of income by filing inaccurate particulars. From the assessment order it is not clear as to whether it was concealment of income or furnishing of inaccurate particulars;

++ as the facts indicate the entire dispute relates to the question whether the business is set up or not. Whether the assessee did any business or not is not relevant if the business is set up during the year under consideration. This is a debatable issue and was not finally decided by the AO because the assessee withdrew their claim by revising the return of income. As is held in the case of Neeraj Jindal and other cases relied upon by the assessee, the return of income filed pursuant to the notice u/s 153A takes the place of the return filed u/s 139(1) which was validly revised by the assessee even before any defect was pointed out by the AO. In such circumstances, in view of the decision in the case of CIT vs Reliance Petro Products P. Ltd., no penalty could be levied;

++ when the revised return is accepted and the income is assessed as per the revised income, there is no scope for penalty. In the case of Kirit Dahyabhai Patel vs ACIT, the High Court held that in view of specific provision of Section 153A, the return of income filed in response to notice u/s 153A is to be considered as return filed u/s 139, as the AO has made assessment on the said return and, therefore, the return has to be considered for the purpose of penalty u/s 271(1)(c) of the Act and the penalty is to be levied on the income assessed over and above the income returned u/s 153A, if any. Admittedly, in this matter both the returned income and the assessed income are nil. On this ground also, we cannot sustain the penalty order.