RAGHAVAN,KANCHIPURAM vs. ITO, NCC-22(1), TAMBARAM

The ld. AR Shri Y. Sridhar, F.C.A. submits that the ld. CIT(A) failed to note the fact that there is no under reporting of income. He submits that the assessee had not filed return of income for the year under consideration under the pretext that tax at source is being deducted by the banks for interest on deposits. He submits that on receipt of notice under section 148 of the Act, the assessee filed the return of income and the returned income declared by the assessee has been accepted by the Assessing Officer, that is to say no variation was made to declared taxable income. The ld. AR vehemently argued that the assessee was under bonafide belief that since TDS is being deducted by the banks for interest on deposits and that tax deduction is self-sufficient compliance, there was no malafide intention on the part of the assessee and no adverse inference was drawn in this case. He further argued that there is no question of misreporting/concealment of income when the details of TDS and gross interest is very much available with the Department and at the most, it is only failure to file the return of income under section 139 of the Act as the assessee and prayed to delete the penalty confirmed to the extent of 50% of tax.

The ld. DR Ms. Gouthami Manivasagam, JCIT submits that the proceedings initiated by the Assessing Officer were fair, with multiple opportunities afforded and considered the replies filed by the assessee and thus, there is no violation of natural justice. She further submits that the ld. CIT(A) independently analysed the submissions of the assessee and restricted the penalty levied under section 270A(2)(b) of the Act, which is in line with law, penalty is mandatory for under-reporting were no return is filed voluntarily. She further submits that the penalty in this case is leviable under section 270A(1) r.w (2)(b) to section 270A of the Act as no return of income was filed under section 139 of the Act or prior to issue of notice under section 148 of the Act when the income of the assessee is >2,50,000/- and the income of the assessee is taxable, non-filing of return caused under-reporting. The ld. DR drew our attention to Explanation to section 270A(2) of the Act and argued that when the assessed income of the assessee is ₹.42,11,750/-, non-filing of return clearly tantamount to under-reported under section 270A(2)(b) of the Act and filing of return post-notice under section 148 of the Act does not cure the default. She further argued that the provision of section 270A(2)(b) of the Act squarely applies to the cases with no return or first return under section 148 of the Act and thus, penalty is liable to be levied on under-reported income as assessed under section 147 of the Act. The ld. DR explained that TDS alone is not sufficient and unaware of law is not a bonafide reason under section 270A(6)(A) of the Act. The assessee, being a resident is under obligation to file his return of income under section 139(1) of the Act. TDS does not exempt filing of tax payable exceeds TDS. She argued that acceptance of returned income does not bar levy of penalty, when it confirms the income existed, but, however, unreported initially. She further explains that source explained by the assessee, which was accepted in the assessment does not excuse non-filing of return. She submits that law binds at all and mistaken belief is not a defense and does not prevent the assessee from filing of return under section 139(1) of the Act. She submits that the assessment accepted towards quantum at post-disclosure, but penalty is leviable for under-reporting/misreporting. She vehemently argued that the availability of TDS does not absolve, knowing of income/TDS and not filing of return amounts to suppressing of facts under section 270A(9)(d) of the Act. She also submits that assessment conclusion (no adverse inference) pertains to source verification, but, not reporting of income amounts to assessee is in default and prayed that the penalty restricted by the ld. CIT(A) to an extent of 50% of tax should be confirmed.

We have heard both the parties and perused the material available on record. In this case, the assessee has not filed his return of income under section 139 of the Act and subsequently against the notice issued under section 148 of the Act, the assessee filed his return of income. Admittedly, the Assessing Officer accepted the returned income filed in response to the notice under section 148 of the Act, but, however, the Assessing Officer levied penalty under section 270A of the Act @ 200% of tax for alleged under-reporting of income, which is in consequence of misreporting of income for the AY 2018-19. We find that the ld. CIT(A) partly allowed the appeal by restricting the penalty at 50% of tax on underreported income. We have considered the contention of the assessee that on one hand, the Assessing Officer accepted the returned income filed by the assessee in response to notice under section 148 of the Act, but, on the other hand, levied penalty under section 270A of the Act. The assessee also contended that when the details of TDS and gross interest is very much available with the Department, the question of misreporting/concealment of income does not arise in this case and at the most, it is only failure of compliance with regard to filing of income tax return when the assessee was under the impression that tax deduction is self-sufficient compliance as the assessee was not well-versed with Indian Income Tax Act as he was in service at Oman.

We note that while completing the assessment under section 147 r.w.s. 144B of the Act, the Assessing Officer, after verification of all the details, accepted the returned income and not drawn any adverse inference and no further addition was made. Thus, it becomes clear that it is not at all a case of misreporting of income as the Assessing Officer has not brought on record as to applicability of any of the situations mentioned in sub-clauses (a) to (f) of section 270A(9) of the Act.

Further, we note that the assessee has furnished complete details in the return of income filed in response to the notice under section 148 of the Act and the Assessing Officer accepted the income returned by the assessee by considering the submissions filed by the assessee and the data available on record without drawing any adverse inference in this case. In response to the show-cause notice, from the contents reproduced at page 4 of the penalty order, we note that the assessee was working with M/s. United Finance Company in Muscat, Oman between 1991 to 2009 and upon his retirement moved back to India. Further, the assessee was predominantly working outside India, he was not aware of the tax laws of India, thereby, under bonafide belief that since TDS has been deducted by the banks for interest on deposits and that tax deduction is self-sufficient compliance, we find that there is no malafide intention on the part of the assessee as no adverse inference was drawn by the Assessing Officer.

At para 5 of the impugned order, the ld. CIT(A) has stated that the assessee has not provided any plausible explanation so as to absolve him by applying the provisions of section 270A(6) of the Act. However, we note that in this case, the Assessing Officer issued notice under section 148 of the Act and in response to the said notice, the assessee filed his return of income and the Assessing Officer accepted the returned income. Further, at para 3.2 of the penalty order, the Assessing Officer also observed that considering the submissions of the assessee and on verification of data available on the record, no adverse inference has been drawn in this case. Thus, it makes clear that non-filing of return of income under section 139 of the Act has been explained by the assessee and the explanation offered by the assessee appears to be genuine, thereby, the Assessing Officer has not drawn any adverse inference. Since the assessee has offered explanation to the satisfaction of the Assessing Officer, we are of the considered opinion that clause (6)(a) to section 270A of the Act prevent the assessee from levy of penalty under section 270A of the Act. Accordingly, the penalty levied under section 270A of the Act and confirmed by the ld. CIT(A) stands deleted. Thus, the grounds raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed. Order pronounced on 13th October, 2025 at Chennai.