Sarojben Urmishbhai Shah Vs ITO (ITAT Ahmedabad)
Section 271(1)(c) Penalty Deleted Where Non-Filing Had Reasonable Cause; Section 271(1)(c) Penalty Deleted as Explanation 3 Conditions Not Met; Return Filed After Section 148 Notice Does Not Automatically Attract Penalty: ITAT Ahmedabad
Summary: The appeal was filed by the assessee against the order dated 12.01.2026 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, confirming penalty of Rs.55,870/- under Section 271(1)(c) of the Income Tax Act, 1961. The appeal relates to Assessment Year 2016-17, as stated in paragraph 1 of the order.
The assessee had initially not filed a return of income. Subsequently, a notice under Section 148 of the Act was issued and the assessee filed a return declaring income of Rs.6,45,230/-. The income declared in the return filed in response to the Section 148 notice was accepted in the reassessment proceedings without any addition or disallowance. Despite this, penalty under Section 271(1)(c) was initiated and levied.
The CIT(A) confirmed the penalty on the reasoning that the assessee had taxable income but had not filed the return under Section 139 or paid tax thereon. According to the CIT(A), the return was filed only after the assessee was confronted by the Revenue through reassessment proceedings. The CIT(A) accordingly held that failure to furnish the return despite having taxable income fell within the purview of Section 271(1)(c).
Before the Tribunal, the assessee contended, among other things, that the reassessment was completed at the very same income declared in the return filed pursuant to Section 148 and that no addition or disallowance was made. The assessee also relied upon a reasonable-cause explanation for the earlier non-filing of the return. She stated that she was a senior citizen, was not much literate and did not have substantial knowledge of accounts, and had therefore engaged a person named Hitesh Khalas for maintaining books of account and filing her income-tax return. According to the assessee, her books had been prepared for the relevant financial year, but owing to a dispute concerning higher fees, the consultant did not file the return and did not inform her that the return had not been filed.
The Tribunal examined Explanation (3) to Section 271(1)(c). The Explanation provides, in the circumstances specified therein, for a statutory deeming of concealment where a person fails, without reasonable cause, to furnish the return within the period specified in Section 153 and subsequently furnishes a return pursuant to a notice under Section 148. The Tribunal therefore considered the existence or otherwise of reasonable cause to be material to the application of the deeming provision.
The Tribunal also considered Section 153 of the Act. The order reproduces the provision stating that no assessment order under Section 143 or Section 144 shall be made after expiry of twenty-one months from the end of the assessment year in which the income was first assessable. On the facts recorded by the Tribunal, the assessee had not filed a return up to the expiry of the limitation referred to in Section 153 and subsequently filed the return in response to the Section 148 notice.
However, the Tribunal held that Explanation (3) would operate to deem the assessee to have concealed or furnished inaccurate particulars only where the return had not been furnished within the prescribed period without reasonable cause. The Tribunal found that the assessee had consistently pleaded reasonable cause for the non-filing of the return earlier. Her explanation concerning her status as a senior citizen, limited literacy and knowledge of accounts, and her reliance upon the tax consultant who allegedly failed to file the return after preparing the books, was also recorded in the CIT(A)’s order.
The Tribunal found that there was reasonable cause for the assessee’s failure to file the return earlier. Consequently, it held that the assessee could not be deemed to have concealed income or furnished inaccurate particulars merely because the income was returned only in response to the Section 148 notice.
The Tribunal specifically observed that both the lower authorities had simply considered the fact that the assessee disclosed the income only in the return filed under Section 148 and had not considered the statutory requirement that, where there was reasonable cause for not returning the income earlier, penalty under Section 271(1)(c) was not leviable on the basis of the deeming provision in Explanation (3).
Accordingly, the Tribunal held that the penalty of Rs.55,870/- levied under Section 271(1)(c) and confirmed by the CIT(A) was contrary to the applicable provisions. The penalty was deleted and the assessee’s appeal was allowed.
The order contains an internal inconsistency regarding the assessment year and certain dates. Paragraph 1 identifies the appeal as relating to A.Y. 2016-17, whereas paragraph 6 refers to the assessment year involved as A.Y. 2015-16. The order also records different dates in its discussion concerning the Section 148 notice and filing of the return. These particulars have not been independently reconciled and are retained as stated in the supplied Full Text.
For the statutory framework concerning Section 271(1)(c), TaxGuru coverage explains the penalty provision relating to concealment of income and furnishing of inaccurate particulars. The Tribunal’s decision in the present case, however, specifically turns upon the reasonable-cause requirement contained in Explanation (3) to Section 271(1)(c), as applied to an assessee who filed the return only after a notice under Section 148.
The order’s discussion of reassessment and the Section 148 notice is also situated within the statutory mechanism governing Section 148 notices and reassessment proceedings under Section 147. The Tribunal’s ultimate relief, however, was based on its finding of reasonable cause under Explanation (3) to Section 271(1)(c), rather than on invalidity of the reassessment proceedings.
The Tribunal therefore allowed the appeal and deleted the penalty of Rs.55,870/- under Section 271(1)(c).
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”) dated 12.01.2026 confirming levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2016-17.
2. The grounds of appeal raised by the assessee are as under:
“1. The Ld. CIT(A), NFAC has erred in law and on facts in confirming the penalty of Rs. 55,870/- levied u/s 271(1)(c) of the Income-tax Act, 1961, which is bad in law, unjustified, and liable to be deleted.
2. The Ld. Authorities below failed to appreciate that the assessment for A.Y. 2016-17 was completed u/s 147 r.w.s. 143(3) & 1448 at the very same income as returned by the appellant and no addition or disallowance was made; hence, there was neither concealment of income nor furnishing of inaccurate particulars.
3. The penalty has been levied merely on the ground that the return was filed in response to notice u/s 148, which by itself does not attract the provisions of section 271(1)(c) in absence of any addition to income.
4. The Ld. CIT(A) erred in ignoring the bona fide explanation of the appellant that the non-filing of original return was due to circumstances beyond her control and professional lapse of the earlier tax consultant, and not due to any mala fide intention or deliberate concealment.
5. The penalty order is vitiated as it does not specify clearly whether the penalty is for ‘concealment of income or for ‘furnishing of inaccurate particulars of income’, rendering the initiation and levy of penalty invalid in law.
6. The Ld. CIT(A) has failed to consider settled judicial precedents holding that when returned income is accepted in reassessment proceedings, penalty u/s 271(1)(c) is not leviable.
7. The appellant submits that there was full disclosure of all material facts during reassessment proceedings and due taxes were paid; therefore, the essential ingredients of section 271(1)(c) are not satisfied.
8. The order of the Ld. CIT(A) is arbitrary, mechanical, and based on surmises and conjectures, and deserves to be quashed.
9. The appellant craves leave to add, alter, amend, or withdraw any of the above grounds at the time of hearing.”
3. We have heard both the parties.
4. As per facts of the present case, the assessee had initially not filed any return of income and it was only in response to notice issued u/s.148 of the Act that return declaring income was filed by the assessee, which was accepted in the order passed u/s.147 of the Act without making additions. Penalty u/s.271(1)(c) of the act was initiated and levied on the assessee, which in turn, was confirmed by the Ld. CIT(A) for the reason that the assessee initially had not returned this income to tax in return filed as per Section 139 of the Act and had returned the same only when it was cornered by the Revenue Department by initiating re-assessment proceedings. The findings of the Ld. CIT(A) at para 5 of the order as under:
“5. Decision:
I have carefully considered the facts of the case, penalty order and the submissions made by the appellant. It is seen that the appellant had taxable income of Rs. 6.45,230/- for the year under consideration and she did not file her return as required u/s. 139 of the Act. The return was filed by the appellant in response to notice u/s. 148 in which she had declared income of Rs. 6,45,230/-. Hence it cannot be said to be a voluntary compliance. If notice u/s. 148 was not issued in the case of the appellant, the income would have escaped assessment and the taxes paid by the appellant in the return filed in response to notice u/s. 148 would not have come to the account of the Government. The appellant had taxable income for the year under consideration. Still the appellant did not file her return of income under section 139 and had not paid tax on the same. The department issued notice u/s. 148 as the appellant’s income had escaped assessment and the A.O had information about the same. Failure to furnish return of income inspite of having taxable income and not paying tax on the same falls within the purview of Section 271(1)(c) of the Act. Hence, the AO has correctly levied penalty u/s. 271(1)(c) of the Act. Hence, penalty levied by the AO is confirmed and the appeal of the appellant is dismissed.”
5. We do not find any merit in the order of the Ld.CIT(A) confirming the penalty levied on the assessee merely because the assessee had not initially returned income to tax, but, had returned the same only in return filed during re-assessment proceedings. The law in this regard is provided for by Explanation (3) to Section 271(1)(c) of the Act, which states that the assessee will be deemed to have concealed or furnished inaccurate particulars of income when it returns income to tax only in re-assessment proceedings and not originally u/s.139 of the Act, only in the circumstance where the assessee, without any reasonable cause, does not furnish return of income up to the time provided for framing assessment u/s.153 of the act. The provisions of Explanation (3) of Section 271(1)(c) of the Act in this regard read as under:
“Explanation 3.—Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.”
6. In the facts of the present case, the assessment year involved is A.Y.2015-16 and reopening was resorted too by issuing notice u/s.148 of the Act in March 2023. Assessment u/s.153 of the Act was to be framed within 21 months from the end of the relevant assessment year in which income was assessable. The applicable provision of Section 153 of the Act are as under:
“153. (1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry of twenty-one months from the end of the assessment year in which the income was first assessable:
7. In the facts of the present case, the assessee undisputedly had not filed any return of income up to the expiry of limitation for framing assessment for the impugned year as per Section 153 of the Act and had filed return only in response to notice u/s.148 of the Act thereafter. As per Explanation (3), it is only if the assessee does so without any reasonable cause, that he shall be deemed to have concealed or furnish inaccurate particulars of income by returning income to tax only in the return filed u/s.148 of the Act and not originally up to the date of framing the assessment u/s.143(3) of the Act. In the facts of the present case, the assessee, we find, had consistently pleaded reasonable cause for not having furnished return of income earlier, which are reproduced in CIT(A)’s order also wherein the assessee has contended that she is a senior citizen lady,not much literate and not having much knowledge of accounts and for filing income tax return she took the services from a person named Hitesh Khalas who due to some dispute regarding higher fees did not file her return despite having got ready her books of accounts.That he did not inform the assessee of the same also and she became aware of the same only when notice u/s.148 of the Act was issued to the assessee. Her submissions in this regard are reproduced at para 4 of the CIT(A)’s order as under:
“4. WRITTEN SUBMISSION:
The appellant has filed written submission as under:
That your appellant is a senior citizen lady and law-abiding citizen not much literate and not much having knowledge of accounts and produce for filing of Income Tax return.
Therefore, your appellant takes service for writing books of accounts and filing of Income Tax return from qualified person named “Hitesh Khalas” who was writing books of accounts and after finalizing he was filing my Income Tax return That for the financial year 01-04-2015 to 31-03-2016 corresponding to assessment year 2016-17 my books of accounts were got ready by “Hitesh Khalas” in time However, due to some dispute regarding higher fees your assesse’s accountant cum Income Tax consultant “Hitesh Khalilas” has not failed my return of income for the assessment year 2016-17 not handover my books of accounts therefore your appellant was helpless as well as he also mot informed that return of Income is not filed by him. That your appellant received a notice under S. 148 dated 22-04-2023 asking to file Income tax return for the assessment year 2016-17. The your assesse has filed Income tax return on 22.04.2023 declaring a total income of Rs. 6,45,230/- That your appellant s order was passed under S.147 r.w.s 1448 of Income Tax Act dated 19-01-2024 and the declared income vis-à-vis the assessed income was same and duly accepted by the AO of Assessment Unit.
AO vide order bearing no, ITBA/AST/S/147/2023-24/1059912761(1) dated 19 -01-2024 passed under section 143(3) r.พ.ร. 147 r.w.s. 144B of the Income Tax Act, 1961 which is attached herewith.”
8. Clearly, there was reasonable cause with the assessee for not having filed her return of income earlier and, therefore, as per Explanation (3) to Section 271(1)(c) of the Act, the assessee could not be deemed to have concealed or furnished inaccurate particulars of income for having returned her income only in response to notice u/s.148 of the Act and not originally. The levy of penalty, therefore, confirmed by the Ld. CIT(A) in the facts of the present case, we hold, is against the provisions of law. Both the authorities below have simply considered the fact that the assessee disclosed her income only in the return filed u/s.148 of the Act and did not consider the provisions of law which provided that if there was a reasonable cause for not having returned the income earlier, no penalty u/s.271(1)(c) of the Act was leviable. In the light of the same, we delete the penalty levied of Rs.55,870/- u/s.271(1)(c) of the Act.
9. In the result, appeal filed by the assessee is allowed.
This Order pronounced on 22/05/2026
