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Facts
The assessee failed to file a return of income for AY 2014-15. The Assessing Officer (AO) reopened the case and made an addition of Rs. 39,685/- on account of undisclosed interest income from Fixed Deposits. The reassessment resulted in a refund of Rs. 7,306/- after considering TDS. Despite this, the AO levied a penalty of Rs. 25,63,119/- under Section 271(1)(c) of the Income Tax Act.
Held
The Tribunal held that the penalty levied by the AO was based on a misconception of the law. Since the total TDS was higher than the tax liability even after the addition, and the ultimate result of the reassessment was a refund, the conditions for levying penalty under Section 271(1)(c), particularly Explanation 4(c), were not met. Therefore, the penalty was deleted.
Key Issues
Whether penalty under Section 271(1)(c) can be levied when the net tax effect of the reassessment is a refund, and the TDS exceeds the tax liability.
Sections Cited
271(1)(c), 147, 148, 156, 115JC, 89, 90, 90A, 91
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI GIRISH AGRAWAL
Present for: Assessee : Shri Haridas Bhat, CA Revenue : Shri Virabhadra Mahajan, Sr. DR (Virtually Present) Date of Hearing : 22.09.2025 Date of Pronouncement : 30.09.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2025-26/1078167303(1), dated 03.07.2025 passed against the penalty order by National Faceless Assessment Centre, Delhi, u/s. 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.09.2022 for Assessment Year 2014-15.
Chattanathan Devarajan AY 2014-15 2. Grounds taken by the assessee are reproduced as under: “A. On the facts and circumstances of the case, CITA and Income Tax Officer 34(1)(1), Mumbai ("the A.O.") has erred in levying the penalty of Rs. 25,63,119/- being 100% of the tax sought to be evaded. B. On the facts and circumstances of the case and in law the CITA erred in confirming that: i. Tax payable was fully covered by TDS deducted, the assessee was unable to file the return due to technical error. ii. There was no difference between the returned income and assessed income other than a minor difference of Rs. 39,685/-. iii. AO levied penalty on total income of the assessee even though the ITR filed u/s 148 of the Act was accepted by the AO with a minor difference of Rs. 39,685/-. iv. There was no tax payable on the Return filed U/s 148 and the addition made by the AO was tax neutral and was not prejudicial to the interest of the revenue. v. If at all any penalty to be levied it can be on Rs.39685/-only. C. The appellant, therefore, prays that penalty charged of Rs. 25,63,119/- may please be deleted.”
Facts of the case are that assessee did not file his return of income for the year under consideration. Ld. Assessing Officer took note of the information about financial transactions and activities undertaken by the assessee from the ITBA system of the department. Details of the information appearing in ITS is summarized as under: S. Info Code Info Description Total Value in No. Rs. (a) TDS-192 Salary Received (TDS Form 92,87,376 24Q, Section 192) (b) TDS-194A TDS Return Other Interest 3,84,683 (Section 194A) (c) TDS-1941(b) Rent Received (TDS Form 26Q, 7,50,200 Section 1941(b) (d) AIR-002 Paid Rs. 2,00,000 or more 10,27,000 against Credit Card bills Total 1,14,49,259 3.1. Since the amount exceeded the maximum amount which is not chargeable to tax for which the assessee had not filed his return of income, case was taken up for reopening by initiating proceedings u/s. 147 r.w.s.148. Accordingly, notice u/s. 148 was issued on 30.03.2021. In response to the said notice, assessee filed his return of income on 04.05.2021, reporting total income at Rs.88,21,870/-.
3.2. In the course of reassessment proceedings, ld. Assessing Officer noted that on verification of Form 26AS and interest certificate issued by ICICI Bank, certain interest on fixed deposits were not included in the Form 26AS due to no deduction of tax at source on such FDR interest. The details of this interest are tabulated below: Sr.no. as FD's account number Interest paid Tax deducted per certificate Rs. Rs. certificate 9 107725000321 4,762 0 10 107725000317 4,762 0 11 107725000319 14,287 0 12 107725000318 6,350 0 13 107725000320 9,524 0 Total 39,685 0 3.3. Ld. Assessing Officer thus, completed the assessment by making an addition of this short disclosure of interest on FDs, amounting to Rs.39,685/- and assessed the total income at Rs. 88,61,553/-. Notice of demand issued u/s.156 on completion of the said reassessment stated ‘zero’ amount payable by the assessee. In this respect, computation sheet forming part of the impugned reassessment order is reproduced below, which is material to deal with the issue raised by the assessee in the present appeal:
3.4. From the above computation sheet, it is noted that total income assessed is at Rs. 88,61,550/-, as appearing in Row no.18. On the said assessed total income, total taxes payable by the assessee comes to Rs. 25,70,730/-, as stated in Row no. 45 which includes interest and surcharge, wherever applicable. At Row no. 46 of this computation sheet, TDS amount reflected is Rs. 25,78,036/- which is more than the aggregate income tax liability, resulting into a refund of Rs.7,306/- as stated in Row no. 52 and finally, at Row no. 59.
Subsequent to the reassessment, ld. Assessing Officer initiated the proceedings for levy of penalty u/s. 271(1)(c). In para 7 of the impugned penalty order, ld. Assessing Officer noted that the total amount for which the reassessment has been completed is at Rs. 88,61,550/-. Assessee is deemed to have concealed this income. He thus, proceeded to levy penalty at the rate of 100% of tax sought to be Chattanathan Devarajan AY 2014-15 evaded on this total assessed income. Accordingly, penalty of Rs. 25,63,119/- was imposed by passing the impugned penalty order u/s. 271(1)(c). Ld. CIT(A) confirmed the said imposition of penalty against which assessee is in appeal before the Tribunal.
Ld. Counsel for the assessee submitted that contention was raised before the ld. CIT(A) that there was no tax payable on the return filed in response to notice u/s.148 and the addition made by the ld. Assessing Officer was tax neutral, there being no prejudice caused to the interest of Revenue. It is a fact on record which was claimed before the ld. CIT(A) that assessment has resulted into refund without any payment of advance or self-assessment tax. Assessee relied on certain judicial precedents including that of Hon'ble High Court of Delhi in the case of CIT vs. SAS Pharmaceuticals 335 ITR 259 (Del). In this decision, reference was made to explanations 4, 5 and 5A of section 271(1)(c), that no penalty can be imposed unless conditions stipulated in these provisions are duly and unambiguously met.
Before us, ld. Counsel for the assessee referred to clause (c) of explanation 4 to section 271(1)(c) to state that the amount of tax sought to be evaded is nil in the present case, since tax liability on the assessee, despite small addition of Rs.39,085/-, has ultimately resulted into a refund of Rs. 7,306/- and therefore is squarely covered by this said clause. Contents of the said clause (c) are reproduced for ready reference. “(c) where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self- assessment tax paid before the issue of notice under section 148.” 6.1. From the above, it was pointed out that in a case where Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed, as reduced by the amount of Chattanathan Devarajan AY 2014-15 advance tax, TDS, TCS and self-assessment tax paid before the issue of notice u/s.148. We note that the present case is covered by Explanation 3 which mentions section 148. Further, in the present case, as taken note of from the computation sheet, there is a TDS which is much more than the total amount of tax liability, even after making addition by the ld. Assessing Officer to the total income returned by the assessee. Thus, the amount of tax sought to be evaded is nil in the present case as it gets covered by the amount of TDS already done, duly claimed by the assessee in its return and credit allowed by the ld. AO. Accordingly, in the given set of facts and circumstances and the applicable provision as referred above, the penalty levied by the ld. AO by considering total assessed income as concealed income by the assessee, is on a misconception of the provisions of the law and the facts of the case. Case of the assessee is squarely covered by clause (c) of Explanation 4 to Section 271(1)(c) as evident from the computation sheet extracted above. Thus, we delete the penalty imposed by the ld. Assessing Officer.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 30 September, 2025