2022 (9) TMI 875 - AT - Income Tax

Penalty u/s 271F - not filing the return of income for the year under considerations - HELD THAT - If the benefits were allowed to the assessee then in that eventuality the capital gain arose on the sale of immovable property could have been below taxable limit. It is noteworthy to mention that the provisions of Section 273B categorically mentions that penalty u/s 271F is not leviable in case the assessee proves that there was a reasonable cause for not filing the return of income during the year under consideration, as per provisions of Section 139 of the Act. After analyzing the facts of the present case, Bench finds that AO has passed the assessment order ex-parte taking into consideration the assessee has not advanced any documents pertaining to sale of house in question. It is also noted from the record that the assessee is not having any taxable income and the AO has not given the benefit of indexed cost of acquisition and indexed cost of improvement on the immovable property in question and thus in that eventuality the capital gain arose on the sale of immovable property would have been below taxable limit. This plea of the assessee in view tantamounts to reasonable cause as is prescribed u/s 273B - While giving benefit of the same, the Bench deletes the penalty levied by the AO u/s 271F - Appeal of the assessee is allowed.

Summary

Issues:
Condonation of delay in filing the appeal due to consultant's negligence, Justification of penalty under section 271F for not filing income tax return, Consideration of indexed cost of acquisition and improvement in determining taxable income for penalty assessment.

Condonation of Delay:
The appeal filed by the assessee was delayed by 35 days due to the consultant's negligence in informing the assessee about the appellate order. The Bench allowed the condonation of delay citing the Supreme Court's decision in Collector, Land Acquisition vs. Mst. Katiji, emphasizing the need for substantial justice and a rational approach in such matters. The delay was considered justified, and the application for condonation of delay was accepted.

Justification of Penalty under Section 271F:
The AO imposed a penalty of Rs.5,000 under section 271F for not filing the income tax return, citing that the assessee deliberately avoided filing the return despite having taxable income. The ld. CIT(A) confirmed this penalty, stating that the AO was justified in levying it. However, the assessee argued that the AO did not consider the benefits of indexed cost of acquisition and improvement, which would have made the capital gain fall below the taxable limit. The Bench noted that the AO's ex-parte assessment did not consider these aspects, and the assessee's plea amounted to a reasonable cause under Section 273B of the Income Tax Act. Consequently, the penalty of Rs.5,000 under section 271F was deleted, and the appeal of the assessee was allowed.

Consideration of Indexed Cost in Penalty Assessment:
The assessee contended that the AO did not provide the benefit of indexed cost of acquisition and improvement, leading to an incorrect assessment of taxable income. The Bench agreed that if these benefits were allowed, the capital gain would have been below the taxable limit. Section 273B of the Act specifies that penalty under section 271F is not applicable if there was a reasonable cause for not filing the income tax return. Considering these factors, the Bench deleted the penalty imposed by the AO and allowed the appeal of the assessee.

In conclusion, the ITAT Jaipur allowed the appeal of the assessee, deleting the penalty of Rs.5,000 imposed under section 271F for not filing the income tax return. The decision was based on the failure to consider the benefits of indexed cost of acquisition and improvement, which would have resulted in the capital gain falling below the taxable limit. The Bench emphasized the importance of reasonable cause in penalty assessments and upheld the principles of substantial justice in the application of tax laws.