2023 (11) TMI 702 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee had not filed return of income despite having received salary income - case of the assessee is that it had filed return of income in response to the notice issued u/s 148 and disclosed the particulars of income and Merely because the assessee failed to file return of income under a wrong conception of law, should not be the basis for imposing the penalty - HELD THAT - The undisputed facts are that the employer have deducted the tax on the salary and deposited in the bank accounts. So far the employer is concerned, there is no default reported by the lower authority. The default on the part of the assessee is regarding non-filing of the Income Tax return. The factum of receipt of salary came into notice of AO through 26AS. The explanation regarding non-filing of income tax return is stated that the assessee was under impression that if the tax is deducted at source, she is not required to file income tax return. But when she received notice u/s 148 of the Act, she duly filed her income tax return and disclosed all her income. In our considered view, the levy of penalty is not automatic. If the assessee makes out a case that the default was due to reasonable cause in that case, no penalty would be called for in terms of section 273B of the Act. The Hon ble Supreme Court in the case of Motilal Padmavat Sugar Mills Co.(P.) Ltd. vs State of Uttar Pradesh Ors. 1978 (12) TMI 45 - SUPREME COURT observed that it must be remembered that there is no presumption that every person knows the law. The assessee has demonstrated reasonable cause for the default. We hold accordingly. The AO is hereby, directed to delete the impugned penalty. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the penalty order is barred by limitation.
2. Whether the penalty initiated vide notice dated 12.12.2019 is illegal, bad in law, and without jurisdiction.
3. Whether the penalty under section 271(1)(c) for Rs. 3,50,361/- should have been levied.
4. Whether the penalty should have been levied on the returned income.

Summary:

Issue 1: Penalty Order Barred by Limitation
The appellant contended that the penalty order is barred by limitation. The assessment order was passed on 12.12.2019, and the notice under section 274 read with section 271(1)(c) was issued on the same day after the closing of assessment proceedings. The appellant argued that the penalty notice issued after the completion of assessment proceedings is illegal, citing ITAT Delhi and ITAT Mumbai precedents.

Issue 2: Legality and Jurisdiction of Penalty Notice
The appellant argued that the penalty notice dated 12.12.2019 is illegal, bad in law, and without jurisdiction. The appellant, a salaried individual, failed to file a return of income under the misconception that tax deducted by the employer negated the need for filing. The appellant filed the return only after receiving a notice under section 148 and paid the due taxes and interest. The appellant cited the ITAT Jaipur decision, stating that penalty provisions for not filing a return are different and should not lead to a penalty under section 271(1)(c).

Issue 3: Levy of Penalty under Section 271(1)(c)
The appellant argued that no penalty under section 271(1)(c) should have been levied as there was no concealment of income or submission of inaccurate particulars. The appellant cited various case laws to support the argument that technical defaults should not attract stringent penalty proceedings. The appellant emphasized that the return was filed promptly upon receiving the notice, and all taxes were paid.

Issue 4: Penalty on Returned Income
The appellant contended that no penalty should have been levied on the returned income. The appellant argued that the non-filing of the return was due to a reasonable cause, as the appellant believed that tax deducted at source by the employer was sufficient compliance. The appellant cited section 273B, which states that no penalty shall be imposed if there is a reasonable cause for the failure.

Tribunal's Decision:
The Tribunal noted that the assessee failed to file the return of income despite receiving salary income from two sources. The Tribunal acknowledged the appellant's argument that the failure to file was due to a misconception of law and that the return was filed upon receiving the notice. The Tribunal emphasized that the levy of penalty is not automatic and should consider whether the default was due to a reasonable cause. Citing section 273B and the Hon'ble Supreme Court's observation that there is no presumption that every person knows the law, the Tribunal found that the appellant demonstrated reasonable cause for the default. Consequently, the Tribunal directed the AO to delete the impugned penalty and allowed the appeal.

Conclusion:
The appeal of the assessee was allowed, and the AO was directed to delete the penalty imposed under section 271(1)(c). The Tribunal recognized the appellant's reasonable cause for the default and held that penalty should not be imposed in such circumstances.