Case Law Details
Ashwin Liladhar Shah Vs National Faceless Appeal Centre Delhi (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) Mumbai, in a recent case involving an advocate, upheld the penalty under section 271F imposed for late filing of Income Tax Returns (ITRs). The appellant argued that he was unaware of the fact that the income earned from a partnership firm was liable for tax, asserting it as a reasonable cause for the delay in filing the ITR.
The court observed that the appellant, an advocate by profession and partner in a law firm, couldn’t rely on the assertion that he was ignorant about the tax obligations concerning income earned from a partnership firm. The court emphasized the Latin maxim “Ignorantia juris non excusat,” meaning ignorance of law is no excuse. The court opined that being an advocate, the appellant holds a higher responsibility to be aware of the law’s provisions, making his claim unacceptable. Further, the argument of financial crises and his accountant leaving employment didn’t justify the late filing of ITRs. In essence, the tribunal upheld the penalty imposed by the Assessing Officer, confirming that the reasons cited by the assessee for the failure to file ITRs were not ‘reasonable causes’ under section 273B of the Income Tax Act.
This ruling from ITAT Mumbai reemphasizes that ignorance of the law, especially regarding tax obligations, is not an acceptable defense for failure to comply with the provisions of the Income Tax Act. The onus is on every individual, especially those in the legal profession, to be cognizant of their tax liabilities, and any failure in fulfilling these duties could potentially attract penalties.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) u/s.250 of the Income Tax Act, 1961 (‘the Act’), pertaining to the Assessment Year (‘A.Y.’ for short) 2012-13.
2. The solitary issue involved in this appeal is the levy of penalty u/s. 271F of the Act amounting to Rs.5,000/-. The brief facts of the case are that the assessee is an individual engaged in the legal profession and also works as a partner at a law firm S. Ashwinkumar & Co. The Assessing Officer (A.O. for short) observed that the assessee has not filed his return of income for A.Y. 2012-13 and had also observed that the assessee has sold immovable property for consideration of Rs.75 lacs as per the Individual Transaction Statement (ITS) under the AST system. The A.O. reopened the assessee’s case u/s. 147 of the Act by issuing notice dated 31.03.2019 u/s. 148 of the Act. The assessee filed his return of income dated 17.07.2019 in response to notice u/s. 148 of the Act, declaring total income at Rs.5,23,890/-. The A.O. then passed the assessment order u/s. 143(3) r.w.s. 147 of the Act dated 20.12.2019, determining the total income at Rs.5,23,890/-. The A.O. also initiated the penalty proceeding u/s. 271F of the Act for having failed to comply with the provision of section 139(1)/139(4) of the Act and vide order dated 11.11.2021, levied a penalty of Rs.5,000/- on the ground that the assessee has not substantiated his failure to file his return with reasonable cause.
3. The assessee was in appeal before the ld. CIT(A) challenging the impugned penalty levied by the A.O.
4. The ld. CIT(A) confirmed the penalty imposed by the A.O. u/s. 271F of the Act for the reason that the assessee has failed to explain the reasonable cause for non filing of the returns inspite of having earned income from various sources. The ld. CIT(A) relied on the decision of the Hon’ble Apex Court in the case of Hindustan Steel Ltd. vs. State of Orissa [1972] 83 ITR 26 (SC) and the decision of the Hon’ble Calcutta High Court in the case of CIT vs. Bengal Iron Galvanising Works [1987] 165 ITR 249 (Cal).
5. The assessee is in appeal before us, challenging the impugned order of the ld. CIT(A).
6. The learned Authorised Representative (ld. AR for short) for the assessee contended that the assessee was on a belief that partnership firms were exempted from tax and that the assessee is said to have earned substantial income from the partnership firm. The ld. AR further contended that the assessee’s Accountant left the job due to assessee’s financial crunch and the same was the reason for assessee’s failure to compile the financial transactions and, hence, the reason for non-filing of the returns during the impugned year. The ld. AR for the assessee relied on the decision of the Hon’ble Apex Court in the case of Hindustan Steel Ltd. (supra) which held that the levy of penalty is only a matter of discretion of the authority which has to be exercised judiciously and on consideration of all the facts and circumstances.
7. The learned Departmental Representative (ld. DR for short) for the Revenue, on the other hand, controverted the said fact and stated that the assessee himself being an Advocate cannot be ignorant of the prevailing law of the land. The ld. DR further stated that the assessee has not substantiated his failure in non filing of the returns by any reasonable cause as per the provisions of the law. The ld. DR relied on the order of the lower authorities.
8. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee is an Advocate by profession and is also a partner in a law firm. It is observed from the assessee’s submission that since the assessee was litigating for Arpan Licensing Company Ltd. in which the assessee was earlier one of the Director which was in a financial crisis, the assessee was unable to file his returns on time and also for the reason that his Accountant left employment was said to be the reason for non failure to file returns during the impugned year. The assessee has further stated that he was unaware of the fact that the income earned from partnership firm was liable to tax only to the extent of remuneration drawn and not on share of profit. The assessee also harped on the fact that the income declared by him was accepted by the A.O. in the assessment proceeding u/s. 147 of the Act. The assessee relied on the decision of the Hon’ble Apex Court in the case of Hindustan Steel Ltd. (supra), which held that the penalty cannot be imposed merely because it was leviable and levy of penalty is the discretion of the authority which is to be exercised judiciously and on consideration of the facts and circumstances. It is observed from the submission of the assessee that the assessee has not substantiated his failure in filing the return of income within the stipulated time by any reasonable cause supported with cogent evidence. The assessee has merely stated that owing to the financial crisis and his Accountant quitting the employment the assessee was unable to file returns, cannot be a reasonable cause for the failure on the part of the assessee. It is also pertinent to point out the fact that the assessee was on a bonafide belief that income of a partnership firm is exempted from tax, is an unacceptable contention that cannot be relied upon by a person like the assessee who is himself in the Advocacy of law. As we are well aware of the Latin maxim Ignorantia juris non excusat which means “ignorance of law is no excuse”, holds applicable not only to a common man but also to a person who has to hold the integrity of the law of land. The assessee is in a higher footing than any other person to be aware of the provisions of the statute nevertheless to mention that he has to abide by the said law.
9. From the above observation, we are of the considered view that the reason stated by the assessee for the failure in filing the ITR is not a reasonable cause nor is it sufficient to delete the impugned penalty levied by the A.O. and confirmed by the ld. CIT(A). Though the provision of section 273B of the Act enumerates that the penalty shall not be imposed in certain cases which covers section 271F of the Act when there is a ‘reasonable cause’ for the failure, the present case in hand neither the lower authorities nor us find the reason stated by the assessee to be a reasonable cause as per the ambit of the said provision. We, therefore, find no infirmity in the order of the ld. CIT(A).
10. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 31.05.2023.
