Virtual Galaxy Infotech Ltd. Vs ACIT (ITAT Nagpur)
Nagpur ITAT Deletes ₹1.08 Crore Penalty U/s 271(1)(c): Income Disclosed in Return Filed u/s 148 and Accepted Without Any Addition Cannot Be Treated as Concealed Income
The assessee had not filed its original return of income for AY 2014-15. Upon reopening u/s 147, it filed a return in response to notice u/s 148 declaring income of ₹1.66 crore. Significantly, the AO completed the reassessment accepting the returned income in toto, without making any addition or disallowance. Nevertheless, the AO levied penalty of ₹1,08,26,994 u/s 271(1)(c), being 200% of the tax sought to be evaded, alleging concealment of income.
The CIT(A) confirmed the penalty on the reasoning that the assessee had taxable income but failed to file the original return and disclosed the income only after reassessment proceedings were initiated; hence, according to the CIT(A), the disclosure was not voluntary.
The Nagpur ITAT reversed the finding. It emphasised that there was complete identity between the income returned u/s 148 and the income ultimately assessed. Where the returned income is accepted without any variation, the foundation for invoking section 271(1)(c) is absent unless the Revenue independently establishes concealment of income or furnishing of inaccurate particulars.
The Tribunal held that merely because the return was filed only in response to a notice u/s 148 does not automatically establish concealment. Reassessment and penalty proceedings are separate and distinct, and reopening itself cannot constitute conclusive proof of concealment. The AO must independently establish the ingredients of section 271(1)(c).
Relying upon the Supreme Court ruling in CIT v. Reliance Petroproducts (P.) Ltd., the ITAT held that penalty u/s 271(1)(c) is not automatic. Since the Revenue could demonstrate neither concealment nor inaccurate particulars, the Tribunal deleted the entire penalty of ₹1.08 crore.
Key takeaway: Non-filing of the original return, followed by disclosure in a return filed pursuant to section 148, cannot by itself justify concealment penalty u/s 271(1)(c), particularly where the reassessment accepts that returned income without a single addition or disallowance.
Cases Discussed:
- CIT v. Reliance Petroproducts (P.) Ltd. (Supreme Court), [2010] 189 Taxman 322 (SC)
- Pushpa Jadhav v. ITO (ITAT Mumbai), ITA No. 201/Mum/2023
FULL TEXT OF THE ORDER OF ITAT NAGPUR
This appeal filed by the assessee is directed against the order of National Faceless Appeal Centre, Delhi, (for short, “CIT(A)”), dated 25/03/2025 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”) which is emanating from the penalty order dated 26.01.2022 passed u/s. 271(1)(c) of the Act, for the Assessment Year (AY) 2014-15.
2. This appeal is barred by limitation by 115 days. The assessee has filed an application seeking condonation of the delay, stating that the delay occurred on account of suffering from hypertension and anxiety during the relevant period. Considering the reason s stated in the application, and being satisfied that the delay was neither deliberate nor attributable to any mala fide intention, we are of the view that sufficient cause has been shown for the delay. Accordingly, the delay of 115 days in filing the appeal is condoned, and the appeal is admitted for hearing.
3. The sole issue involved in the present appeal is whether Ld..CIT(A) was justified in upholding the levy of penalty of Rs. 1,08,26,944/- u/s. 271(1)(c) of the Act, being 200% of the tax sought to be evaded, despite the fact that the income in question had been duly disclosed in the return of income furnished in response to the notice issued u/s. 148 of the Act.
4. Brief facts of the case are that assessee did not file its return of income during the year under consideration. Subsequently, case was reopened u/s. 147 of the Act, and after recording the requisite reasons, the Ld. AO issued a notice u/s. 148 of the Act. In response thereto, assessee filed its return of income declaring a total income of Rs. 1,66,85,150/-. Thereafter, statutory notices u/s. 143(2) & 142(1) of the Act were duly issued and served upon the assessee. In compliance with the said notices, assessee furnished, inter alia, copy of the return of income, computation of income, bank statements, details of sales and purchases, details of receipts, and particulars of investments along with the sources thereof. After examining the material placed on record, the Ld. AO completed the assessment u/s. 143(3) r.w.s. 147 of the Act, accepting the returned income and determining the total income at Rs. 1,66,85,150/ -. Subsequently, the Ld. AO passed penalty order dated 26.01.2022 u/s. 271(1)(c) of the Act, levying a penalty of Rs. 1,08,26,994/ -, being 200% of the tax sought to be evaded, on the ground that the assessee had concealed its income.
5. Being aggrieved by the penalty order passed u/s. 271(1)(c) of the Act, assessee preferred appeal before the Ld. CIT(A). After considering the facts of the case, the findings recorded by the Ld. AO, and the submissions made by the assessee, Ld. CIT(A) upheld the levy of penalty. Ld.CIT(A) observed that assessee had failed to file the original return of income within the prescribed time and had not disclosed any taxable income voluntarily, despite admittedly having taxable income chargeable to tax. According to the Ld.CIT(A), the income came to be disclosed only after the reopening of the assessment u/s. 147 of the Act and in response to the notice issued u/s. 148. The Ld.CIT(A), therefore, held that the disclosure made by the assessee was not voluntary but was a consequence of the reassessment proceedings initiated by the Ld. AO. Accordingly, Ld.CIT(A) concluded that the Ld. AO was justified in treating the case as one of concealment of income and in levying penalty u/s. 271(1)(c) of the Act, and consequently dismissed the appeal filed by the assessee.
6. Aggrieved by the order of the Ld.CIT(A), assessee is in further appeal before this Tribunal. Learned counsel for the assessee submitted that income earned during the year under consideration was duly disclosed in the return of income furnished in response to the notice issued u/s. 148 of the Act. He submitted that the said return was accepted by the Ld. AO without making any addition or disallowance, and the assessment was completed by accepting the returned income. Therefore, according to him, there was neither any concealment of income nor furnishing of inaccurate particulars of income so as to attract the provisions of section 271(1)(c) of the Act. Ld.counsel further contended that penalty levied u/s. 271(1)(c) was misconceived, as the only allegation against the assessee was the failure to file the original return of income within the prescribed time. He submitted that non – filing or belated filing of a return of income, by itself, does not constitute concealment of income within the meaning of section 271(1)(c). The Act contains a separate and specific provision, namely section 271F (as applicable for the relevant assessment year), for levy of penalty for failure to furnish the return of income. Therefo re, according to him, resort to section 271(1)(c) for penalising the assessee merely on account of non -filing of the original return is legally unsustainable. In support of the aforesaid contentions, learned counsel placed reliance on the judgment of the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322 (SC), wherein it has been held that penalty u/s. 271(1)(c) cannot be levied unless there is concealment of income or furnishing of inaccurate particulars of income. It is an admitted fact that qua the return submitted there is no variation in income, hence, the very imposition of penalty is fragile. He also relied upon the decision of the Coordinate Bench of the Tribunal, Mumbai, in Pushpa Jadhav v. ITO in ITA No. 201/Mum/2023, wherein, on similar facts, the penalty levied u/s. 271(1)(c) was deleted.
Accordingly, learned counsel prayed that penalty of Rs. 1,08,26,994/- levied u/s. 271(1)(c) of the Act be deleted.
7. Ld. Departmental Representative (DR) supported the orders of the authorities below.
8. We have heard the rival submissions and perused the material available on record. The solitary issue arising for our consideration is whether the authorities below were justified in levying and confirming the penalty of Rs. 1,08,26,994/- U/s. 271(1)(c) of the Act. It is an undisputed fact that, pursuant to the notice issued u/s. 148 of the Act, assessee filed its return of income on 04.11.2019 declaring a total income of Rs. 1,66,85,150/ -. It is also undisputed fact that while completing the assessment u/s. 143(3) r.w.s. 147 of the Act, the Ld. AO accepted the returned income in toto and did not make any addition or disallowance. Thus, there is complete identity between the income returned by the assessee and the income ultimately assessed by the Ld. AO. In our considered opinion, where the returned income has been accepted without any variation, the very foundation for invoking section 271(1)(c) of the Act is absent. The provisions of section 271(1)(c) can be attracted only where the assessee has either concealed the particulars of its income or furnished inaccurate particulars thereof. In the present case, the Ld. AO has neither recorded any finding that the particulars furnished by the assessee were inaccurate nor pointed out any item of income which remained undisclosed in the return filed in response to the notice u/s. 148. The penalty has been levied solely on the premise that the assessee had not filed the original return of income within the prescribed time and disclosed the income only after issuance of notice u/s. 148. Merely because the return of income was filed in response to a notice u/s. 148, it does not automatically follow that the assessee is guilty of concealment of income warranting levy of penalty u/s. 271(1)(c). Reassessment proceedings and penalty proceedings are separate and distinct. Reopening of an assessment cannot, by itself, be construed as conclusive proof of concealment so as to justify automatic levy of penalty. The Ld. AO must independently establish the existence of either concealment of particulars of income or furnishing of inaccurate particulars of income, which has not been done in the present case. The Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [(2010) 322 ITR 158 (SC)] has categorically held that penalty u/s. 271(1)(c) is not automatic and can be levied only where the conditions prescribed in the section are satisfied. The Apex Court observed that unless the case falls within the ambit of concealment of particulars of income or furnishing of inaccurate particulars thereof, the provisions of section 271(1)(c) cannot be invoked. Applying the ratio laid down by the Hon’ble Supreme Court to the facts of the present case, we find that the Revenue has failed to demonstrate any concealment of income or furnishing of inaccurate particulars by the assessee. In these circumstances, we hold that the penalty levied u/s. 271(1)(c) of the Act is unsustainable in law. We, therefore, set aside the order of the Ld.CIT(A) and direct the Ld. AO to delete the penalty of Rs. 1,08,26,994/-. The grounds raised by the assessee are accordingly allowed.
9. In the result, appeal filed by the assessee stands allowed.
Order pronounced on 10.08.2026 under Rule 34 of Income Tax (Appellate Tribunal) Rules, 1963
