BHAGWANDAS GURU DAYAL SHARMA,BANGALORE vs. INCOME TAX OFFICER WARD-1(1)(1),, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER

ITA No.2455 & 2456/Bang/2025 Assessment Year: 2016-17 & 2018-19

Bhagwandas Guru Dayal Sharma, The Income Tax Officer, Vs. No.10/1, Palace Road, Ward – 1(1)(!), Vasanthnagar, Bangalore. Bangalore – 560 052. PAN – APWPS 3185 H APPELLANT RESPONDENT Assessee by : Shri Vijay Kumar, CA Revenue by : Shri N Balusamy, JCIT (DR) Date of hearing : 07.05.2026 Date of Pronouncement : 26.05.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

This set of two-appeals filed at the instance of the assessee is instituted by the assessee against the order of the Ld. CIT(A) passed u/s 250 of the Act dated 26.08.2025 relevant for AY 2016-17 and 2018-19.

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4.1 However, penalty proceedings u/s 271(1)(c) of the Act were initiated by the AO for non-filing of return of income as the AO observed that income has been offered to taxation only after issuance of notice u/s 148 of the Act and therefore imposed a penalty of Rs. 4,38,338/- only (being 100% of tax liability).

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However, The Ld. CIT(A) was not convinced with the submissions of the assessee. The Ld. CIT(A) observed that Explanation 3 to section 271(1)(c) of the Act provides that where a person having taxable income fails to furnish return of income within the prescribed time and files the return only after issuance of notice u/s 148 of the Act, such person shall be deemed to have concealed particulars of income for the purpose of levy of penalty u/s 271(1)(c) of the Act. Since the assessee had filed the return only after issuance of notice u/s 148 of the Act, the Ld. CIT(A) held that the assessee had concealed particulars of income and was liable for penalty. The Ld. CIT(A) further observed that the judicial precedents relied upon by the assessee were distinguishable on facts. Accordingly, the appeal of the assessee was dismissed in limine and the penalty levied by the AO was confirmed.

7.1 The assessee before us submitted that the penalty levied u/s 271(1)(c) of the Act and sustained by the learned CIT(A) is not justified under the facts of the present case. The assessee submitted that he could

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not file the return of income within the prescribed time due to severe personal hardship, life threatening circumstances, prolonged litigation and extreme mental and physical distress faced during the relevant period. In this regard, the assessee sought admission of additional evidences under Rule 29 of the ITAT Rules in the form of affidavit, FIRs, Court order sheets and Municipal notices to demonstrate existence of reasonable cause within the meaning of section 273B of the Act.

7.2 The assessee further submitted that these evidences could not be properly placed before the lower authorities due to poor legal assistance and disturbed mental condition during the penalty proceedings. It was contended that the penalty has been levied merely by invoking Explanation 3 to section 271(1)(c) of the Act without properly appreciating the surrounding circumstances and reasonable cause shown by the assessee.

7.3 The assessee further submitted that the rental income relating to the disputed property was not actually received by him and the tenant was depositing the rent amount before the Hon’ble Court in terms of court directions. Therefore, the assessee did not have actual control or receipt of the said rental income. It was submitted that the same shall be offered to tax in the year of actual receipt in accordance with law. Accordingly, the assessee prayed that the additional evidences may be admitted and the matter may be considered afresh in the interest of substantial justice.

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income fails to furnish return of income within the prescribed time and files the return only after issuance of notice u/s 148 of the Act, such person shall be deemed to have concealed particulars of income. It was submitted that the assessee failed to file the return within the prescribed time and therefore the AO was justified in levying penalty u/s 271(1)(c) of the Act, which was rightly confirmed by the learned CIT(A).

9.1 We have carefully considered the rival submissions of both the parties and perused the materials available on record including the affidavit and additional evidences filed by the assessee. We note that the AO levied penalty u/s 271(1)(c) of the Act mainly by invoking Explanation 1 to the said provision, whereas the learned CIT(A), while confirming the penalty, proceeded on a different footing by invoking Explanation 3 to

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section 271(1)(c) of the Act. Thus, the very basis on which the penalty has been sustained by the learned CIT(A) is different from the basis adopted by the AO while levying penalty.

9.2 We further note that the assessee has placed on record a detailed affidavit along with supporting evidences including FIRs, court proceedings and documents relating to family disputes to explain the circumstances under which the return of income could not be filed within the prescribed time. The material available before us shows that during the period from 2015 to 2017, the assessee was facing serious personal difficulties, prolonged family litigation, threats and incidents involving violent attempts, due to which the assessee was under severe mental stress and hardship. In our considered opinion, these circumstances constitute a reasonable cause for non-filing of return of income within the prescribed time. Therefore, merely because the return of income was filed in response to notice issued u/s 148 of the Act, penalty u/s 271(1)(c) of the Act cannot be levied automatically. The explanation offered by the assessee appears to be bona fide and is duly supported by the surrounding circumstances and evidences placed on record.

9.3 At this juncture, it would be relevant to reproduce Explanation 3 to section 271(1)(c) of the Act, which forms the basis for levy of penalty in the present case: “Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the 99[Joint Commissioner (Appeals) or the] Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to

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have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.”

9.4 At this stage, it is relevant to note that the Hon’ble jurisdictional High Court in the case of Commissioner of Income-tax vs. Manjunatha Cotton & Ginning Factory reported in [2013] 35 taxmann.com 250 (Karnataka)/[2013] 218 Taxman 423 (Karnataka)/[2013] 359 ITR 565 (Karnataka)/[2013] 263 CTR 153 (Karnataka) dated 13-12-2012 has held that penalty proceedings are separate and independent from assessment proceedings and penalty cannot be imposed automatically merely because addition has been made or accepted by the assessee. The Hon’ble High Court further held that where the explanation offered by the assessee is bona fide and all material facts are disclosed, penalty u/s 271(1)© of the Act is not leviable. The Hon’ble High Court also held that taking up penalty proceedings on one limb and finding the assessee guilty on another limb is unsustainable in law. The relevant para is reproduced below: “The findings recorded in the assessment proceedings insofar as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings”

9.5 The assessee has relied upon the decision of the Hon’ble Karnataka High Court in the case of Commissioner of Income-tax vs. Manjunatha Cotton & Ginning Factory. We notice that the facts of the said case were mainly related to additions arising from survey/search proceedings and levy of penalty on account of concealment of income or furnishing of inaccurate particulars. However, in the present case, the issue relates to non-filing of return of income within the prescribed time and filing of

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return only after issuance of notice u/s 148 of the Act in reassessment proceedings u/s 147 of the Act. Therefore, the facts of the present case are different from the facts before the Hon’ble Karnataka High Court. However, the broader principle laid down by the Hon’ble jurisdictional High Court that penalty u/s 271(1)(c) of the Act is not automatic and that a bona fide explanation offered by the assessee deserves proper consideration, would still support the case of the assessee.

9.6 In the present case also, the explanation given by the assessee for non-filing of return within time has not been found to be false and the surrounding circumstances placed on record show existence of reasonable cause. Therefore, though the facts are different, the ratio laid down by the Hon’ble Karnataka High Court supports the bona fide explanation offered by the assessee.

9.7 Considering the totality of facts and circumstances of the case and keeping in view the broader principles laid down by the Hon’ble jurisdictional High Court in the case of Commissioner of Income-tax vs. Manjunatha Cotton & Ginning Factory regarding consideration of bona fide explanation in penalty proceedings, we are of the considered view that this is not a fit case for levy of penalty u/s 271(1)(c) of the Act. Accordingly, we direct the AO to delete the penalty levied u/s 271(1)(c) of the Act.

Coming to ITA No. 2456/Bang/2025 Shri Bhagwandas Sharma AY 2018-19

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assessed income, the penalty u/s 270A of the Act cannot be imposed. However, the Ld. CIT(A) observed that section 270A of the Act provides that a person shall be considered to have under-reported his income if the income assessed is greater than the income determined in the return processed under 143(1)(a) or the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished. The assessee has taxable income and furnished ROI only after issuance of notice u/ 148 of the Act. Accordingly, the appeal of the assessee was dismissed in limine and the penalty levied by the AO was confirmed.

16.1 The assessee before us submitted that the order of the Ld. CIT(A) confirming the penalty u/s 270A of the Act is contrary to law, facts and principles of natural justice. It was submitted that the penalty order itself is without jurisdiction as the show cause notice issued u/s 274 r.w.s. 270A of the Act did not specify the exact limb or clause under which penalty was proposed.

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16.2 The assessee further submitted that the AO has not complied with the mandatory statutory requirements before levying penalty u/s 270A(9) of the Act. It was contended that the facts of the case do not fall within any of the clauses of misreporting mentioned in section 270A(9) of the Act. Therefore, levy of penalty treating the case as under-reporting in consequence of misreporting is not sustainable. The assessee relied on the judicial precedent of Hon’ble Bangalore ITAT in the case of Mr. Nateshan Sampath vs. DCIT in ITA No.1779/Bang/2024 dated 22.01.2025 in this regard.

16.3 The assessee further submitted that there is neither under- reporting of income nor under-reporting in consequence of misreporting of income. The return filed in response to notice u/s 148 of the Act has the same legal status as a return filed u/s 139 of the Act. Once such return was accepted by the AO without making any addition or variation, there remained no basis for levy of penalty u/s 270A of the Act.

16.4 Without prejudice, the assessee submitted that even assuming penalty was leviable, the case at the highest could fall under under- reporting of income and not misreporting of income u/s 270A(9) of the Act. Accordingly, the assessee prayed that the penalty of Rs.2,73,768/- sustained by the Ld. CIT(A) be deleted. Accordingly, the assessee prayed that the additional evidences may be admitted and the matter may be considered afresh in the interest of substantial justice.

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only after notice u/s 148 of the Act was issued. Therefore, the AO was justified in initiating penalty proceedings u/s 270A of the Act. The Ld. DR further submitted that merely because the income declared in the return filed in response to notice u/s 148 was accepted by the AO, penalty cannot be avoided, since the income was offered only after reopening of the assessment. Accordingly, the Ld. CIT(A) rightly confirmed the penalty levied by the AO.

18.1 We have heard the rival submissions of both the parties and perused the materials available on record. The issue involved in the present appeal relates to levy of penalty u/s 270A of the Act. We note that the assessee filed return of income in response to notice issued u/s 148 of the Act and the income so returned by the assessee was accepted by

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the AO without making any further addition or variation. However, the AO proceeded to levy penalty u/s 270A of the Act by treating the case as one of under-reporting/misreporting of income.

18.2 The primary contention of the assessee before us is that the show cause notice issued u/s 274 r.w.s. 270A of the Act does not specify the exact limb or clause under which penalty proceedings were initiated. The assessee has further contended that the facts of the present case do not fall within any of the clauses prescribed under section 270A(9) of the Act relating to misreporting of income.

18.3 At this juncture, it would be relevant to refer to the decision of the Coordinate Bench of the Tribunal in the case of Mr. Nateshan Sampath vs. DCIT in ITA No.1779/Bang/2024 dated 22.01.2025 wherein the Tribunal elaborately considered the scheme of section 270A of the Act and held that before levying penalty, the AO is first required to establish existence of under-reporting of income as contemplated u/s 270A(2) of the Act and thereafter specifically establish that the case falls under any of the clauses of misreporting prescribed u/s 270A(9) of the Act. The Coordinate Bench further held that unless the assessee is specifically put to notice regarding the exact charge and exact limb invoked by the AO, effective opportunity of defence cannot be said to have been granted and such penalty proceedings would violate principles of natural justice. The relevant para is reproduced below: “We are further of the considered opinion that the penalty by hereditary nature is always discretionary. The legislature has used the word “may” in section 270A(1) of the Act which clearly says that it is discretionary on the part of the AO to levy penalty or not. We are also of the opinion that penalty is not at par with the tax and interest and therefore, penalty should not be levied in a light hearted manner or in routine manner and not every additions/disallowances are liable for penalty. The primary onus is on the revenue to prove that assessee falls under particular limb of default. The AO has to bring the case in the four

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corners of the sections in order to levy penalty, which in our opinion, the authorities below failed to do so. In view of the above, we delete the penalty of Rs.38,05,290/- u/s 270A of the Act and accordingly allow the appeal of the assessee.”

18.4 On careful perusal of the materials available on record in the present case, we note that the AO has not brought any specific findings demonstrating as to how the case of the assessee falls within any of the specific clauses of section 270A(9) of the Act. Merely because the return of income was filed in response to notice issued u/s 148 of the Act, the same by itself cannot automatically lead to levy of penalty for misreporting of income.

18.5 We further note that the return filed by the assessee in response to notice u/s 148 of the Act has been accepted by the AO without any further addition or variation. In our considered opinion, once the income returned by the assessee has been accepted as such, the foundation for levy of penalty becomes extremely weak unless specific material is brought on record establishing deliberate under-reporting or misreporting falling within section 270A(9) of the Act.

18.6 We also find force in the contention of the assessee that the penalty provisions being penal in nature are required to be construed strictly and the burden lies upon the Revenue to clearly establish that the case falls within the four corners of section 270A of the Act. In the present case, the Revenue failed to discharge such burden.

18.7 Considering the totality of facts and respectfully following the ratio laid down by the Coordinate Bench in the case of Mr. Nateshan Sampath (supra), we are of the considered opinion that the penalty levied u/s 270A

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of the Act is unsustainable in law. Accordingly, we direct the AO to delete the penalty levied u/s 270A of the Act.

Order pronounced in court on 26th day of May, 2026 Sd/- Sd/- (SOUNDARARAJAN K) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 26th May, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore