2025 (5) TMI 1178 - AT - Income Tax

Penalty u/s 270A - under-reporting of income when the return of income was filed for the first time u/s 148 - HELD THAT - The provision of section 270A(2)(b) of the Act stipulates that a person shall be considered to have under-reported his income where no return of income is furnished or where the return is furnished for the first time under section 148 of the Act. In the present case the assessee had filed his return of income for the first time under section 148 of the Act. Therefore the provisions of section 270A(2)(b) of the Act was squarely applicable to the case of the assessee. As per section section 270A(6)(a) where the assessee offers an explanation for non-filing of return and if the explanation of the assessee is found to be bona fide then it will not be considered as under-reporting of income. In the present case the assessee had explained that he had already paid self-assessment tax on 23.07.2019 which was much before the date of issue of notice under section 148 of the Act on 25.03.2021. The assessee was prevented from filing the return after payment of self-assessment tax for the reason that the return filing window did not allow him to file the return. From the copy of return filed by the assessee in response to section 148 of the Act notice it is found that the assessee had paid self-assessment tax of Rs. 10, 41, 140/- on 23.07.2019; the credit of which was also allowed in the computation sheet of the order u/s 147 of the Act dated 24.03.2022. Thus the assessee had disclosed the income to the Department by paying the self-assessment tax on 23.07.2019. The explanation of the assessee for not furnishing the original return is found to be bona fide . It is also found that the self-assessment tax paid by the assessee was higher than the amount of Rs. 10, 12, 950/- on which 50% penalty u/s 270A was imposed. Considering the explanation and the conduct of the assessee the case is found to be covered in the exception provided u/s 270A(6)(a) of the Act. Under the circumstance no penalty u/s 270A of the Act was called for in this case. Appeal of assessee are allowed.

The core legal questions considered in this appeal pertain to the applicability and validity of penalty under section 270A of the Income Tax Act, 1961, specifically:

1. Whether the assessee can be held liable for penalty under section 270A for under-reporting of income when the return of income was filed for the first time under section 148 of the Act.

2. Whether the explanation offered by the assessee for non-filing of the original return of income and subsequent payment of self-assessment tax qualifies as bona fide under section 270A(6)(a), thereby excluding the case from the ambit of under-reporting.

3. Whether penalty imposed on the basis of presumptions and without considering the bona fide nature of the assessee's conduct is justified.

Issue-wise Detailed Analysis

Issue 1: Applicability of penalty under section 270A where return is filed for the first time under section 148

The relevant legal framework is section 270A(2)(b) of the Income Tax Act, which states that a person shall be deemed to have under-reported income if no return is furnished or if the return is furnished for the first time under section 148. This provision is designed to penalize taxpayers who evade timely filing of returns but subsequently file returns only after initiation of reassessment proceedings.

The Court noted that in the present case, the assessee had not filed any original return for the Assessment Year 2017-18. Instead, the return was filed for the first time in response to the notice issued under section 148. Therefore, prima facie, the provisions of section 270A(2)(b) were applicable, justifying the initiation of penalty proceedings for under-reporting of income.

The Assessing Officer imposed penalty at 50% of the tax payable on the ground that the return was filed belatedly and under-reporting had occurred. The CIT(A) upheld this penalty.

Issue 2: Bona fide explanation under section 270A(6)(a) and exclusion from under-reporting

Section 270A(6)(a) provides an exception to the penalty by excluding from under-reported income those amounts where the assessee offers an explanation which is found to be bona fide, and where all material facts have been disclosed to substantiate the explanation.

The assessee's explanation was that he was an agriculturist and illiterate, unaware of the tax liability on sale of immovable property, and thus did not file the original return. After consulting a tax consultant, he paid self-assessment tax on 23.07.2019, prior to the issuance of the section 148 notice on 25.03.2021. However, the assessee was prevented from filing the return within the due date as the system did not permit late filing beyond the deadline.

The Court examined the evidence, including the return filed under section 148 and the credit of self-assessment tax in the assessment order. It was found that the assessee had paid self-assessment tax of Rs. 10,41,140/- on 23.07.2019, which was accepted in the assessment. The amount of penalty was based on a lower tax amount (Rs. 10,12,950/-), indicating that the self-assessment tax paid was even higher than the tax on which penalty was levied.

The Court reasoned that since the assessee had disclosed the income by paying self-assessment tax well before the reassessment notice and had a genuine inability to file the return due to system constraints, the explanation was bona fide. The assessee had disclosed all material facts and acted in good faith.

Therefore, the case fell within the exception carved out under section 270A(6)(a), excluding it from the definition of under-reporting of income for penalty purposes.

Issue 3: Validity of penalty imposed on presumptions and surmises

The assessee contended that the penalty was imposed on presumptions and surmises without proper consideration of facts and explanation, violating principles of natural justice. The Court noted this submission and observed that the penalty provisions must be applied with due regard to the bona fide nature of the assessee's conduct and full disclosure of material facts.

Given the acceptance of the explanation and the fact that the return was accepted by the Department, the Court found that the penalty was not justified. The imposition of penalty without considering the bona fide explanation and prior payment of self-assessment tax was contrary to the statutory exception and principles of natural justice.

Significant Holdings

The Court held that "the provisions of section 270A(2)(b) of the Act was squarely applicable" but also emphasized that "where the assessee offers an explanation for non-filing of return and if the explanation of the assessee is found to be bona fide, then it will not be considered as under-reporting of income."

It was further held that:

"Considering these facts, the explanation of the assessee for not furnishing the original return is found to be bona fide. It is also found that the self-assessment tax paid by the assessee was higher than the amount of Rs. 10,12,950/- on which 50% penalty under section 270A was imposed. Considering the explanation and the conduct of the assessee, the case is found to be covered in the exception provided under section 270A(6)(a) of the Act. Under the circumstance, no penalty under section 270A of the Act was called for in this case."

The final determination was that the penalty imposed by the Assessing Officer was to be deleted and the appeal of the assessee was allowed.

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