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Facts
The assessee, a registered charitable trust running a hospital, failed to file its income tax returns for AY 2016-17 and 2018-19 within the prescribed time. The Assessing Officer (AO) levied penalties under Section 272A(2)(e) of the Income Tax Act, 1961, for this failure, which were confirmed by the CIT(A). The assessee contended that its income was exempt and it had incurred losses, leading to a bonafide belief that filing a return was not required.
Held
The Tribunal held that the assessee had a bonafide belief that filing a return was not required due to incurring losses and its income being exempt. The failure to file was considered a technical breach with no loss to the exchequer. The Tribunal found this bonafide belief to be a reasonable cause for waiving the penalty.
Key Issues
Whether the penalty levied under Section 272A(2)(e) for non-filing of return is justified when the assessee claims exemption and incurred losses, leading to a bonafide belief of non-obligation to file, and if such belief constitutes a reasonable cause for penalty waiver.
Sections Cited
272A(2)(e), 250, 147, 143(3), 10(23C)(iiiae), 139(4C), 139(4A), 148, 273B, 12A, 10(22), 11
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI JAGADISH
आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: These appeals filed by the assessee are directed against two orders of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi both dated 15.07.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The orders of the NFAC are arising & 2535/Chny/2025 :- 2 -:
1. out of the orders of the AO imposing penalty u/s.272A(2)(e) of the Act. The relevant Assessment Years are 2016-17 & 2018-19.
2. Common issues are raised in these appeals. Hence, they were heard together and are being disposed off by this consolidated order. The grounds raised
are identical except in variation in figures. The grounds raised for assessment year 2016-17 are as follows:- 1.The Learned CIT(A) has erred in law and on facts in confirming the penalty levied u/s 272A(2)(e) amounting to Rs.2,71,300/-for alleged failure to file return of income within the prescribed time, without appreciating that the appellant is a charitable trust whose income is fully exempt u/s 10(23C)(iiiae) of the Act.
2. The authorities below failed to appreciate that the assessment u/s 147 was completed by accepting the return of income filed by the appellant declaring NIL income and NIL tax liability. and therefore, there was no loss to the Revenue
3. The penalty is unwarranted as the very foundation of section 272A(2)(e) is penal in nature and requires deliberate default, whereas in the appellant's case, the omission was bona fide and occasioned under a bona fide belief that no return was required to be filed in view of complete exemption u/s10(23C)(iiiae).
4. The Learned CIT(A) failed to appreciate that the income of the trust did not exceed the maximum amount which is not chargeable to tax as there was net loss of Rs.6,93,831/-after allowing depreciation, and hence not liable to file the return of income as required by law u/s 139(4C)(e).
5. The Learned CIT(A) has erred in law and on facts in coming to a decision that the trust is required to file Return of income as the Loss is also more than the maximum amount which is not chargeable to tax.
6. The Learned CIT(A) failed to appreciate the reasonable cause that the founder trustee who looked after the accounts was a very senior citizen aged more than 80 years and fell ill health shall also be the reason for failure to file the return of income.
& 2535/Chny/2025 :- 3 -:
Without prejudice, the penalty proceedings are bad in law as the mandatory satisfaction of the AO during the course of assessment is absent/incorrect/not properly recorded.
8. The appellant relies upon several judicial precedents wherein penalty u/s 272A(2)(e) has been deleted in similar circumstances where no tax was payable, including in the case of trusts/institutions whose income is exempt.
9. The penalty is arbitrary, excessive and deserves to be deleted since it defeats the very purpose of granting exemption to charitable institutions under section10(23C)(iiae). 10. The Learned CIT(A) failed to appreciate the fact that the delay in filing return of income was neither intentional nor to derive undue benefit but due to genuine and reasonable cause. 11. The appellant craves leave to add, alter, amend or withdraw any of the above grounds appeal at the time of hearing.
Brief facts are as follows: The assessee is a registered charitable trust. It is engaged in providing medical relief by running a hospital. The assessee for assessment years 2016-17 and 2018-19 did not file the return of income within the prescribed time. Notice u/s.148 of the Act was issued by the AO for the assessment years 2016-17 and 2018-19. In compliance with the said notices, assessee filed ‘nil’ return after claiming exemption u/s.10(23C)(iiiae) of the Act. The AO after duly scrutinizing the details submitted during the course of reassessment proceedings completed the assessments u/s.143(3) r.w.s.147 of the Act, accepting the returned income.
& 2535/Chny/2025 :- 4 -:
4. Thereafter, AO levied penalty u/s.272A(2)(e) of the Act for the failure to file the return of income in time amounting to Rs.2,71,300/- & Rs.1,26,100/- for assessment years 2016-17 & 2018-19 respectively (delay of 2713 & 1216 days in filing return of income for AYs 2016-17 & 2018-19 respectively).
Aggrieved by the penalty imposed under section 272A(2)(e) of the Act, the assessee preferred appeals before the First Appellate Authority (FAA). Before the FAA, the assessee contended that its income was fully exempt under section 10(23C)(iiiae) of the Act. It was submitted that since the assessee had incurred losses after claiming depreciation during the relevant assessment years, it was under a bona fide belief that filing return of income under section 139(4C) of the Act was not required. The assessee emphasized that the said provision mandates filing of return only where the total income exceeds the maximum amount not chargeable to tax. In support of this contention, the assessee relied upon various judicial pronouncements. The FAA, however, rejected the assessee’s submissions and dismissed the appeals, thereby confirming the penalty imposed under section 272A(2)(e) of the Act for AYs 2016-17 & 2018-19.
& 2535/Chny/2025 :- 5 -:
Aggrieved by the orders of the FAA confirming the penalty imposed u/s.272A(2)(e) of the Act, assessee has filed the present appeals before the Tribunal. The assessee has filed two sets of paper-book. In one set of paper book, assessee has enclosed the case laws relied on. In the other set of paper book, assessee has enclosed the notices issued during the course of proceedings before the AO and the FAA. The Ld.AR has filed a written submission which is reproduced below:- The Appellant most humbly prays that the Order dated 15.07.2025 passed by the Ld. Commissioner of Income Tax (Appeals) ("CIT") Impugned in the present appeal ("Impugned Order") deserves to be set aside for the reasons among others set out hereinbelow:
A. The Impugned Order failed to consider that the Appellant was not bound to file returns under Sections 139(4A) and 139(4C) of the Income Tax Act, 1961 due to net loss:
1. The Impugned Order erred in ignoring that the net income of the Appellant for the Assessment Year ("AY") 2018-2019 was a loss of Rs.7,01,685 which stood below the maximum amount not chargeable to tax i.e. Rs.2,50,000 in terms of Paragraph A of the First Schedule of the Finance Act, 2017 in respect of association of persons including registered trusts such as the Appellant.
2. In terms of Sections 139(4A) and 139(4C) of the Income Tax Act, 1961, an assessee is bound to furnish returns only when their income exceeds the maximum amount not chargeable to income tax.
3. Therefore, since the net income of the Appellant did not exceed the maximum amount not chargeable to tax as aforesaid, the Appellant was not required to furnish returns under Sections 139(4A) and 139(4C) of the Income Tax Act, 1961.
& 2535/Chny/2025 :- 6 -:
B. The Impugned Order failed to consider that since there was no failure on part of the Appellant to furnish returns, penalty under Section 272A(2)(e) of the Income Tax Act, 1961 could not be imposed:
1. As demonstrated above, since there was no requirement/mandate on part of the Appellant to furnish returns, there was no failure attributable to the Appellant giving rise to a penalty.
2. Therefore, the penalty provision under Section 272A(2)(e) of the Income Tax Act, 1961 which reads
"(2) If any person fails-
(e) To furnish the return of income which he is required to furnish under sub-section (44) or sub-section (4C) of Section 139 or to furnish it within the time allowed and in the manner required under those sub-sections:
He shall pay by way of penalty a sum [of one hundred rupees), for every day during which the failure continues" (emphasis supplied) does not apply due to the absence of a requirement on part of the Appellant to furnish returns.
3. Accordingly, the Impugned Order gravely erred in upholding the exorbitant penalty of Rs.1.26,100 levied by the assessing officer on the Appellant.
C. The Impugned Order failed to note that the Assessment Order dated 16.03.2024 ("Assessment Order") imposed a penalty on the Appellant in spite of holding that the Appellant's net income was exempt from income tax:
1. It is submitted that the Assessment Order in pages 5 and 6 accepted the following contentions of the Appellant:
i. that the Appellant was a trust registered under Section 12A of the Income Tax Act, 1961. ii. that such registration is renewed under Section 12(1)(ac)(i), & 2535/Chny/2025 :- 7 -: iii. that its income was eligible for exemption under Section 10(23C)(iiiae) of the Income Tax Act, 1961,
2. Further, the Assessment Order in page 6 also concluded without variation that the total as well as the assessed income of the Appellant is indicating that the Appellant's tax liability is nil.
3. However, in spite of such acceptance of the Appellant's contentions as valid and returning a conclusion of nil returns, penalty proceedings were erroneously initiated under Section 272(2)(e) of the Income Tax Act, 1961.
It is submitted that the Impugned Order failed to note such inconsistencies and blindly upheld the penalty imposed on the Appellant by the assessing officer vide the order dated 12.02.2024.
D. The precedent relied on by the Impugned Order is distinguishable on facts and are inapplicable to the present matter:
1. The judgment in Aditanar Educational Institution v. CIT. (1997) 3 SCC 346 relied on the by the Impugned Order concerned yearly evaluation of exemption under Section 10(22) of the Income Tax Act, 1961 granted to an educational institution receiving voluntary contributions.
2. Since Section 10(22) has now been omitted from Income Tax Act, 1961 and the present case neither involves educational institutions nor voluntary contributions, it is humbly submitted that the said judgment may not hold relevance to the present matter.
E. The Impugned Order has failed to consider judicial precedents for matters with similar factual scenario as that of the present matter:
In Dewas Jila Network of Pipul Living with HIV Aids Society v. National Faceless Appeal Centre (NFAC), 2025 SCC OnLine ПАТ 11037, the Indore bench of this Hon'ble Tribunal was pleased to strike down penalty imposed under section 272A(2)(e) of the Income Tax Act, 1961 on a society engaged in charitable purposes in a case where there was net loss in the total income of the assessee and hence the assessee was not bound to file returns.
& 2535/Chny/2025 :- 8 -:
Further, in Motilal Nehru College v. CIT, 2025 SCC OnLine ITAT 1679, the Delhi bench of this Hon'ble Tribunal had struck down penalty imposed by the CIT under section 272A(2)(e) of the Income Tax Act, 1961 where there was substantial compliance on part of the assessee with only a mere technical breach and no loss to the exchequer.
3. The Impugned Order passed ignoring the above two relevant decisions and relying on factually and legally distinguishable judgments deserves to be set aside. 7. The Ld.DR on the other hand has filed two sets of written submissions dated 17.10.2025 and 22.10.2025 and a paper-book enclosing the case laws relied on. The Ld.DR has also placed on record, the return of income, income and expenditure statement and balance sheet of the assessee trust for the assessment years 2016-17 and 2018-19. The gist of the written submission of learned DR are three fold namely, a) Statutory obligation to file return u/s.139(4C) b) Absence of reasonable cause u/s.273B c) Penalty independent of assessment outcome or revenue loss A. Statutory Obligation to File Return Under Section 139(4C) Mandatory Filing Requirement:
The Ld. DR submit that, as per section 139(4C)(e) of the Income Tax Act, 1961, any institution claiming exemption under section 10(23C)(iiiae) is mandatorily required to furnish its return of income, if its total income computed without giving effect to & 2535/Chny/2025 :- 9 -: the provisions of section 10 exceeds the maximum amount not chargeable to income tax. For the relevant Assessment Years 2016-17 and 2018-19, this limit stood at Rs.2,50,000/-. The Ld.DR submitted that in the present case, the assessee’s gross receipts exceeded the prescribed threshold. It was contended that the expression “total income” for the purpose of section 139(4C) refers to the income before allowing any exemptions or deductions under section 10 or Chapter VI-A.
The Ld. DR submits that depreciation is an allowance governed by Chapter IV-D (Profits and Gains of Business or Profession) and does not reduce the “total income” for determining the obligation to file the return under section 139(4C). Hence, the assessee’s contention that its income was below the taxable limit after claiming depreciation is misconceived and legally untenable. The assessee’s plea that it had incurred a net loss of ₹6,93,831/- for assessment year 2016-17 after claiming depreciation has no relevance to the statutory filing requirement. The obligation to file arises on the basis of gross income prior to exemptions or deductions. In support of her contention, the Ld.DR relied on the following case laws:-
& 2535/Chny/2025 :- 10 -: i) Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC): The Hon’ble Supreme Court held that the exemption under section 10(22) (analogous to section 10(23C)) must be examined on a year-to-year basis, which necessarily requires the institution to file a return enabling such examination by the Department. ii) DIT v. Malad Jain Yuvak Mandal Medical Relief Centre (2001) 250 ITR 488 (Bom): The Hon’ble Bombay High Court held that even charitable institutions claiming exemption under section 10(22) are obliged to file a return under section 139(4A) to enable verification of their exemption claim. iii) Himalayan Educational Trust v. CIT ([2018] 101 taxmann.com 113) (Chennai Trib.): The Hon’ble Tribunal held that penalty under section 272A(2)(e) operates independently of the assessment outcome. Once the total income before exemption exceeds the threshold and the return is not filed, the default is complete, attracting the statutory penalty. iv) Lisieux Educational Institutions v. CIT ([2025] 175 taxmann.com 815) (Kerala): The Hon’ble Kerala High Court reiterated that even institutions registered under section 12A must file a return to claim exemption under section 11; non-filing attracts penalty.
The Ld. DR further submits that the filing of the return only after issuance of notice under section 148 does not absolve or cure the default. The statutory obligation to furnish a return within the prescribed time is independent of the assessment or & 2535/Chny/2025 :- 11 -: reassessment proceedings. Hence, the failure to file the return within the prescribed time constitutes a clear contravention of section 139(4C), thereby attracting the penal provisions of section 272A(2)(e).
B. Absence of Reasonable Cause Under Section 273B 11. The Ld. DR submits that penalty under section 272A(2)(e) is leviable at ₹100 per day of default, unless the assessee proves that such failure was due to reasonable cause as contemplated under section 273B. The onus of proving reasonable cause squarely rests on the assessee. The assessee has sought to justify the default on grounds of (i) illness and subsequent death of the founder trustee in 2021, (ii) dependency on him for compliance, and (iii) ignorance of law. The Ld. DR submits that none of these explanations constitute a reasonable cause within the meaning of section 273B, for the following reasons: i. The relevant default relates to AY 2016-17 (FY 2015-16), whereas the trustee’s demise occurred in FY 2020-21, nearly five years later; hence, it has no nexus with the default period. ii. The trust’s operations continued smoothly, as evidenced by substantial gross receipts of ₹81 lakhs, which indicates that other trustees and staff were available to discharge statutory obligations.
& 2535/Chny/2025 :- 12 -: iii. No corroborative evidence such as medical records or affidavits has been furnished to substantiate the claim of illness. iv. Ignorance of law is not a valid excuse. As held in Himalayan Educational Trust (supra), non-awareness of a statutory obligation cannot absolve the assessee of liability. v. A mistake or omission by the assessee cannot be pleaded as a “reasonable cause” for committing a further default under law.
It was stated that the prolonged and unexplained default of 2,713 days in filing the return demonstrates complete disregard for statutory compliance. The assessee has failed to discharge the burden under section 273B. Hence, the Ld. DR submits that the levy of penalty under section 272A(2)(e) is fully justified, being automatic and consequential in nature upon failure to comply with section 139(4C).
We have heard rival submissions and perused the material on record. Admitted facts are, for assessment years 2016-17 & 2018-19, assessee trust did not file the return of income u/s.139(4C) of the Act. The AO issued notice u/s.148 of the Act and in response, assessee filed its return of income. The assessment u/s.143(3) r.w.s147 of the Act was completed for assessment years 2016-17 and 2018-19 accepting the returned & 2535/Chny/2025 :- 13 -: income. Thereafter penalty was imposed u/s.272A(2)(e) of the Act amounting to Rs.2,71,300/- and Rs.1,26,100/- for assessment years 2016-17 and 2018-19 respectively. The assessee trust during the course of penalty proceedings had stated that founding trustee was ill and died on 23.02.2021 and the present trustees and office bearers took up the accounts only after his demise. Before the FAA, assessee contended that since the income is fully exempt u/s.10(23C)(iiiae) of the Act and there was no tax liability, the omission was bonafide. It was thus submitted that there is reasonable cause as mandated u/s.273B of the Act for deletion of penalty.
To adjudicate the issue, it is necessary to extract the relevant provision namely 139(4C)(e) of the Act, which reads as under:- 139(4C) Every— …… …… (e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (iiiab or sub-clause (iiiad) or sub- clause (vi) or any hospital or other medical institution referred to in sub-clause (iiiac) or sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10; ……… ……..
& 2535/Chny/2025 :- 14 -: shall, if the total income in respect of which such research association, news agency, association or institution, person or fund or trust or university or other educational institution or any hospital or other medical institution or trade union or body or authority or Board or Trust or Commission or infrastructure debt fund or Mutual Fund or securitisation trust or venture capital company or venture capital fund is assessable, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).
Reading the above provision, it is clear that if the total income of the assessee without giving effect to the provisions of section 10 of the Act exceeded the maximum amount which is not chargeable to tax, an assessee is required under the statute to file the return of income of the previous year in the prescribed form. In the present case, assessee’s income over expenditure before depreciation for the assessment year 2016-17 was Rs.5,50,872/- and for assessment year 2018-19 was Rs.10,22,801/-. For the relevant assessment years, the maximum amount which was not chargeable to tax was Rs.2,50,000/-. Therefore, assessee was under the statutory mandate to file the return of income u/s.139(4C)(e) of the Act. The assessee had taken up the contention before the FAA and also before us that there was no obligation on the part of the assessee trust to file the return as & 2535/Chny/2025 :- 15 -:
per section 139(4C) of the Act, since subsequent to the depreciation claim, assessee trust was having loss in both the assessment years. It was contended by the Ld.AR that the total income mentioned in section 139(4C) of the Act, means net income i.e., income after depreciation. The contention of the Ld.AR is not legally tenable. The depreciation is application of income subsequent to the determination of the total income for a trust / institution claiming the benefit of section 11 / 10(23C) of the Act. Depreciation is not an automatic deduction but application of income. This is also clear from the dictum laid down by the judicial pronouncement relied on by the Ld.DR. Therefore, this contention of the Ld.AR is rejected.
Further, we have to examine whether there is reasonable cause as mandated u/s.273B of the Act for deletion of penalty imposed u/s.272A(2)(e) of the Act. The reason stated before the AO for not filing the return in time was that the founding trustee was ill and died on 23.02.2021 and the present trustees and office bearers took up the accounts of the assessee trust only after his demise. This reasoning of the assessee before the AO cannot be a reasonable cause as mentioned in section 273B of the Act. The assessee’s Managing Trustee died in the financial year 2020-21 & 2535/Chny/2025 :- 16 -: and the default pertains to assessment years 2016-17 & 2018-19. No evidence is placed on record (medical certificate / affidavit) in support of the illness of the managing trustee during the relevant period.
Before the FAA, assessee had contended that it was not under an obligation to file the return of income since, the net income was a loss and the AO in the reassessment completed had accepted the returned income filed by the assessee for the assessment years 2016-17 and 2018-19. In this context, it is relevant to note that assessee had filed its return of income voluntarily for assessment years 2010-11 to 2015-16. We further note for the aforementioned assessment years no notices were issued by the Department requiring the assessee to furnish its return of income. For the assessment years 2020-21 to 2025-26, the returns of income were filed by the assessee within the due date prescribed u/s.139(4C) of the Act. The copies of acknowledgement receipt for filing returns of income for aforementioned assessment years are placed on record. Therefore, there could be presumption that assessee was under a bonafide belief that it was not required to file the return of income for the impugned assessment years since it was having a loss & 2535/Chny/2025 :- 17 -: after allowing depreciation claim. Pursuant to the notice issued u/s.148 of the Act, assessee had filed its return of income disclosing net loss after depreciation of Rs.6,93,831.26 and Rs.7,01,685/- for assessment years 2016-17 & 2018-19 respectively. The aforesaid returns filed pursuant to the notice issued u/s.148 of the Act has been accepted by the AO without any variation in the impugned assessment years. Therefore, there could have been bonafide belief by the assessee trust that it was not required to file the return of income since it was having a loss after allowing depreciation claimed. This bonafide belief according to us is a “reasonable cause” as mandated u/s.273B of the Act for waiver of penalty. Moreover, there has been substantial compliance by the assessee trust and there was no loss to the exchequer in the instant case. Ultimately the income of the assessee was exempt u/s.10(23C)(iiiab) of the Act, hence, we hold that it is not a fit case for levy of penalty u/s.272A(2)(e) of the Act, as it is only a mere technical venial breach committed by the assessee with no loss to the exchequer. Accordingly, we delete the penalty imposed amounting to Rs.2,71,300/- and Rs.1,26,100/- for assessment years 2016-17 & 2018-19 respectively. It is ordered accordingly.
& 2535/Chny/2025 :- 18 -:
In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open court on 11th November, 2025 at Chennai.