H VENKATESH REDDY ,BENGALURU vs. INCOME TAX OFFICER, WARD-4(3)(2), BENGALURU

4.1 However, the Assessing Officer rejected the explanation, asserting that had the proceedings under Section 147 of the Act not been initiated, the assessee would not have disclosed the correct income for taxation. Consequently, the AO by invoking the provisions contained under explanation 3 to section 271(1) of the Act imposed a penalty 100% of the amount of tax sought to be evaded.

9.1 From the above provision, it is transpired that if an assessee who is required to file a return of income under Section 139 of the Act fails, without any reasonable cause, to do so before the expiry of the time limit specified under section 153(1) of the Act, and no notice under section 142(1) or 148 of the Act is issued during that period, then if the AO or the CIT(A) is satisfied that the assessee has taxable income, the assessee shall be deemed to have concealed particulars of income, even . if the income is declared in response to a notice under Section 148 of the Act is filed after the expiry of the time limit prescribed under section 153(1) of the Act. Turning to the facts of the case on hand, the assessment year (AY) in dispute is AY 2015–16, and the time limit under Section 153(1) of the Act for that year (i.e., “21 months from the end of the assessment year 2015–16”) expired on December 31, 2017. The assessee did not file his return of income by December 31, 2017, and no notice under Section 142(1) or section 148 of the Act was issued during that period. In fact, the reopening notice under Section 148 of the Act was issued on March 27, 2021, only after which the assessee filed his return of income, thus bringing him within the scope of Explanation 3 to section 271(1) of the Act. The question that arises, therefore, is whether there was a genuine or reasonable cause preventing the assessee from filing the return of income within the specified time. In this regard, the assessee claimed before the lower authorities that he was severely ill, and due to this illness, he was unable to file the return on time. The lower authorities, in the penalty proceedings under section 271(1)(c) of the Act, did not accept this explanation as reasonable cause. However, from the materials on record, it appears that in the assessment order, the AO has also initiated penalty proceedings under section 271F of the Act for the assessee’s failure to file a return of income under Section 139(1) of the Act. The assessee furnished the same explanation of severe illness during the proceedings under section 271F of the Act, and in that proceeding, the AO accepted that the illness genuinely prevented him from filing his return of income in a timely manner. Consequently, no penalty under section 271F of the Act was levied by the AO holding that the failure to file a return within the stipulated time was due to a .

Page 6 of 7 reasonable cause. The relevant finding of the AO in the order under Section 271F of the Act is extracted below: The assessee submitted his reply enclosing a certificate issued by doctor of Vinayaka General & Maternity Hospital stating that he was suffering from severe ill health repeatedly hospitalized during that period. Assessee also enclosed certificate issued by doctor of Vinayaka General & Maternity Hospital, in medical certificate doctor written that he was suffering from bilateral leg neuropathy and arthrosis fever since 2014-15. The reply of assessee has been accepted as assessee was could not file his return of income as required u/s 139(1) of the Income Tax Act, 1961 due to health conditions. In view of the above, it is clear that there was reasonable cause that prevented the assessee from filing the return of income within due date. Hence, Penalty u/s 271F of Income tax Act, 1961 is not levied in this case."

9.2 Having carefully considered the facts that the AO in the proceedings under section 271F of the Act, unequivocally accepted the assessee’s explanation—namely, that he was suffering from severe illness—as genuine and bona fide, thereby constituting a “reasonable cause” for the delay in filing his return of income. It logically follows that the same explanation cannot be rejected by the AO in the penalty proceedings under Section 271(1)(c) on the grounds that it is not reasonable. When the AO himself acknowledges and accepts the validity of the assessee’s cause in one penalty proceeding, it would be inconsistent and contrary to the principles of natural justice to discredit the very same cause in another proceeding arising out of the same factual matrix. Accordingly, we hold that the penalty under section 271(1)(c) of the Act is not sustainable on the ground that the explanation has already been accepted as reasonable under section 271F of the Act, and we therefore direct the AO to delete of the penalty levied under section 271(1)(c) of the Act. Hence, the ground of appeal of the assessee is hereby allowed.