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Facts
The assessee, a partnership firm, failed to file its income tax return for AY 2016-2017 within the due date. A penalty under Section 271F was imposed. The assessee's explanation for the delay involved a dispute among partners leading to a freeze on financial activities.
Held
The Tribunal held that the assessee had provided a reasonable explanation for the delay in filing the return of income due to disputes among partners and the freezing of financial activities, as supported by a High Court order. Both the Assessing Officer and CIT(A) failed to appreciate these facts.
Key Issues
Whether the penalty imposed under Section 271F for non-filing of return of income is justified when the assessee provides a reasonable cause for the delay.
Sections Cited
250, 271F, 148, 139(1), 273B
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
(Assessment Year: 2016-2017) Sainath Builders and Developers 4 Aditi Apartment, Mithagar Road, Mulund East Mumbai – 400081. Maharashtra. [PAN:ABRFS3503J] .…………. Appellant Vs Income Tax Officer 41(2)(5), Mumbai Kautilya Bhavan, C41-43, G Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051. Maharashtra. …………. Respondent Appearance For the Appellant/Assessee : Shri Sunil R. Talreja For the Respondent/Department : Shri Bhangepatil Pushkaraj Ramesh Date Conclusion of hearing : 24.03.2025 Pronouncement of order : 27.05.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Assessee is directed against the order, dated 22/11/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Learned CIT(A) had dismissed the appeal against the Penalty Order, dated 23/09/2024, passed under Section 271F of the Act for the Assessment Year 2016-2017.
The Assessee has raised following grounds of appeal :
“1. The FAA did not adjudicated the grounds pleaded at all, in first appeal.
Assessment Year 2016-2017 2. The FAA without pointing out any defect or deficiency in the grounds raised during the course of first appeal proceedings dismissed the appeal in arbitrary manner.”
3. The relevant facts in brief are that the Assessee has challenged the order of the Learned CIT(A) whereby the penalty levied upon the Assessee under Section 271F of the Act for non-filing of the return of income for the Assessment Year 2016-2017 within the due date for filing the return was confirmed.
We have heard both the sides and have perused the material on record.
The primary grievance of the Assessee is that the Learned CIT(A) has dismissed the appeal without considering the submission of the Assessee. The relevant extract of the order of the CIT(A) reads as under: “3. I have considered the ground of appeal and seen the submission/statements of facts made by the appellant and perused the order passed u/s 271F of the Income Tax Act, 1961. As per the penalty order, the AO imposed the penalty for non-filing of the return of income for A.Y. 2016-17 within due date. The appellant only stated that after filing the return of income u/s 148 and assessment thereafter, it resulted to refund payable to the appellant. Considering the submissions of the Appellant, I found that the explanation of the Appellant is not reasonable. There is no genuine reasonable cause for the Appellant due to which the return of income was not filed. In my considered view, the penalty imposed is justified. Therefore, the penalty imposed by the AO is hereby confirmed. Accordingly, the ground of appeal raised by the Appellant is dismissed. In the result, appeal is dismissed.”
6. We note that the impugned order passed by the CIT(A) does not contain any discussion on the explanation offered by the Assessee for non-filing of return of income. The CIT(A) merely recorded that the Assessee has contended that even after filing return of income in response to notice issued under Section 148 of the Act there was refund due to the Assessee, and therefore, penalty should not be Assessment Year 2016-2017 levied. It is the contention of the Assessee that submission/explanation offered by the Assessee were not considered by the Learned CIT(A) in entirely. In this regard, reliance was placed on paragraph 3 of the Assessment Order which reads as under: “3. Analysis of issues involved (issue wise)
3.1 Description of issue: The relevant facts in brief are that The assessee is a partnership firm and has not filed return of income for the Assessment Year 2016-2017. As per the information available, during Financial Year 2015-2016 the assessee had sold immovable property of INR.1,83,15,000/-. In response to notice under Section 148, the assessee filed its return for Assessment Year 2016-2017 on 17/11/2023 declaring total income of INR.5,79,240/-. As the assessee did not file the return of income under Section 139(1) for Assessment Year 2016-2017 despite having taxable income, the penalty proceedings under Section 271F for non filing of return of income has been initiated. 3.2 Synopsis of all submissions of the assessee relating to the issue indicating the dates of submission: In response to the show cause notice issued on 07.03.2024 & 27.05.2024, the assessee submitted his reply on 30.05.2024. The reply is as under We, M/s. SAINATH BUILDERS AND DEVELOPERS have entered into a Development Agreement with the Mulund Navaghar Road Manali Cooperative Society Ltd., aimed at the development of a parcel of land owned by the aforementioned society. This comprehensive agreement encompassed a range of considerations, including the pivotal construction of 8 flats designated for society members. Additionally, it entailed addressing various financial aspects, such as rent agreements, compensatory measures for the prior developer, and more. The firm took on the responsibility of coordinating suppliers and contractors to initiate the construction work, which was promptly commenced as per the terms of the agreement. The outcome of the efforts materialized in the construction of a total of 42 units, comprising a combination of 41 flats and a single shop space. An internal dispute emerged among the partners concerning the acquisition of Flat No. 1502. The intensity of this dispute heightened to the extent that one of the partners initiated legal action against another partner. This unfortunate turn of events had an adverse impact on the project, ultimately leading to a suspension of all ongoing construction work. Furthermore, due to this legal impasse, the bank account associated with the partnership firm has been Assessment Year 2016-2017 frozen, severely affecting the financial operations. The adverse repercussions of this situation extended to the ability to meet the designated deadline for filing the income tax returns. The disruption caused by the dispute and subsequent freeze of financial activities impeded the ability to compile accurate financial information and fulfil the tax obligations within the stipulated timeframe. Regrettably, due to the freeze of financial activities, we find ourselves unable to submit our income tax return beyond the established due date as well. I am enclosing herewith a copy of High Court's Arbitration Appointment Order for your reference vide Annexure-A. Considering the above, we hereby request you to kindly drop the penalty proceedings and oblige.” (Emphasis Supplied) 7. We find that the Assessee had explained that the default in filing the return of income was on account of dispute with the partner, and subsequent freezing of the financial activities. In support, the Assessee had also placed before the authorities below copy of the order passed by the Hon’ble High Court appointing arbitrator for resolution of disputes. Thus, we hold that the Assessee had provided reasonable explanation for failure to file return of income before the due date in terms of Section 273B of the Act. In our view, both, the Assessing Officer and the CIT(A) had failed to appreciate the correct facts. Therefore, we overturn the decision of the Ld. CIT(A) and delete the penalty of INR.5000/- levied by the Assessing Officer under Section 271F of the Act.
In result, the present appeal preferred by the Assessee is allowed.
Order pronounced on 27.05.2025.