(Per : Honourable MR.Justice Akil Kureshi)
1. Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 23.08.2016 raising the following question for our consideration:
Whether the ITAT is justified in law and in fact in quashing and setting aside order of AO imposing penalty?
2. The issue pertains to assessment year 2002-03. The assessee had not filed return claiming that his only source of income was agricultural income. However, subsequently, in response to the notice under section 148 of the Act, the assessee filed the return. The income declared in such return was accepted by the Assessing Officer without any enhancement. The Assessing Officer, however, initiated and imposed penalty on the ground that the assessee had earlier not filed the return. The Commissioner (Appeals) reduced the penalty but confirmed the action of levying penalty. The issue ultimately reached the Tribunal. The Tribunal by impugned judgement deleted the penalty by making following observations:
"Learned counsel representing assessee opens up his arguments in assessment year 2002-03 first involving section 147/148 proceedings. His case is that this assessee had not previously been assessed to tax since he had only agricultural income not taxable under the provisions of the Act. The same is stated to be sufficient cause for the purpose of reversing both the lower authorities action in imposing the impugned penalty. Shri Yogesh Pandey, learned C.I.T - (D.R.) at this stage vehemently argues that section 271 explanation 3 of the Act to this effect stands amended vide Finance Act 2002 w.e.f. 01.04.2003. We notice at this stage that the first year for the purpose of impugned explanation 3 application is assessment year 2003-04 and not the one in question i.e. 2002- 03. Shri Pandey has not otherwise opposed assessee's arguments on facts that he had not been previously assessed to tax since having agricultural income only. We accept assessee's contention accordingly to conclude that his case is covered under the un-amended section 271(1) Explanation 3 of the Act as applicable in assessment year 2002-03. We reverse action of the lower authorities imposing section 271(1)(C) penalty of Rs. 6,03,534/-."
3. It can be thus seen that the Tribunal referred to Explanation 3 to section 271(1) prior to its amendment by the Finance Act 2002 with effect from 01.04.2003. Unamended Explanation 3 provided that when any person "who has not been previously assessed under this Act" fails without reasonable cause to furnish return within the time specified in sub-section (1) of Section 153 required to be furnished under section 139 and until expiry of such period no notice has been issued under sub-section (1) of section 142 or section 148 of the Act and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income then such person shall for the purpose of clause (c) of sub-section (1) be deemed to have concealed the particulars of his income notwithstanding that such person furnishes a return at any time after the expiry of the aforesaid period, in pursuance of a notice under section 148 of the Act. The Tribunal noted that with effect from 01.04.2003 said explanation omitted the group of words "who has not previously been assessed under this Act". Since this change widened the scope of Explanation 3 only within which the assessee would be covered but since the amended explanation did not apply in case of the assessee for the assessment year under consideration, the Tribunal deleted the penalty.
4. We have heard learned counsel Mr. Desai for the Revenue and find that in absence of an explanation providing for a deeming fiction of concealment of income the case of the assessee would not be covered under the said provision and since as held by the Tribunal, unamended Explanation 3 also did not cover the case of the assessee, the penalty was rightly deleted. Tax Appeal is, therefore, dismissed.