SUBBALAKSHMAMMA PINNAMA,THUMMALAGUNTA,TIRUPATI vs. INCOME TAX OFFICER, WARD-1(1), TIRUPATI

After considering the relevant submissions of the assessee, the Ld. CIT(A) observed that, the assessee had not filed the return of income under Section 139(1) despite having substantial taxable capital gains for A.Y. 2017-18. He noted that, the assessee offered the income only after issuance of notice under Section 148 and that ,the reasons given by the assessee such as disputes with the developer, uncertainty about her share, applicability of Section 45(5A), and dates of completion of flats, did not justify the failure to file the return within the statutory time. He held that, Section 45(5A) was not applicable for the year and that, the assessee still had adequate time up to 31.03.2018 to file the return. The Ld. CIT(A) further noted that payment of part of the tax before reopening does not cure the default nor prevent levy of penalty for under-reporting. He held that, the case fell squarely under Section 270A(2)(c) of the Act, as the assessee filed the return only after reopening, and none of the exceptions under Section 270A(6) of the Act, were applicable. Accordingly, the Ld. CIT(A) upheld the penalty of Rs.17,55,303/- levied by the Assessing Officer.

Aggrieved with the order of Ld. CIT(A), the assessee is now in appeal before us.

The learned counsel for the assessee Shri E. Phalguna Kumar, C.A. submitted that, the Ld. CIT(A) erred in sustaining penalty levied under Section 270A of the Income-tax Act, 1961, without appreciating the fact that, the assessee’s case falls under sub-section (6) of Section 270A of the Income-tax Act, where the income of the assessee has been determined on an estimation basis, and further the assessee has explained the reasons for not filing the return of income to the satisfaction of the A.O. The learned counsel for the assessee, referring to the income declared by the assessee for the year under consideration, submitted that, the assessee has reported income from long-term capital gains derived from transfer of property in pursuant to the Joint Development Agreement, and said property is owned by the assessee and her son, and the assessee is only a beneficial owner, and the property entirely belongs to the son of the assessee. Further, there is an ambiguity in law in respect of taxability of income derived from capital gains whether to offer in the hands of the assessee or in the hands of her son and due to this, the assessee could not file return of income under Section 139 of the Income-tax Act, 1961. However, she has paid the advance tax of sum of Rs. 16,00,000/- even much before the date when the A.O. has issued notice under Section 148 of the Act. Further, the assessee has also furnished return of income in response to notice u/s 148 and declared capital gains derived from transfer of capital asset and the same has been accepted by the A.O. without any adjustment. From the above, it is very clear that, the assessee was not having any intention to underreport the income and thus, the explanation of the assessee squarely falls under sub-section (6) of Section 270A of the Income-tax Act. Therefore, the A.O. ought not to have levied penalty under Section 270A of the Act. The Ld. CIT(A), without appreciating the relevant facts, simply sustained penalty levied by the A.O. Therefore, he submitted that, the penalty levied by the A.O. should be deleted.

The learned counsel for the Revenue, Dr. Sachin Kumar, Sr. A.R. on the other hand, supporting the order of the Ld. CIT(A), submitted that, it is a clear case of under-reporting of income, which is evident from the facts brought on record by the A.O. while levying penalty under Section 270A of the Act. Further, the assessee has not furnished return of income for the impugned assessment year under Section 139(1) of the Act, and only after issuance of notice under Section 148, she had filed the return of income disclosing the income from Long Term Capital Gains derived on account of the transfer of property in pursuant to Joint Development Agreement. Further, the case of the assessee falls under Section 270A(3) of the Act, where it has been clearly stated that, in a case where the income has been assessed for the first time, where no return of income has been furnished, or the return has been furnished for the first time under Section 148 of the Act, then the amount of under-reported income shall be the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in the preceding year. In the present case, since the assessee has not furnished return of income under Section 139, and for the first time, she has furnished return of income under Section 148, the A.O. has rightly levied penalty for under-reporting of income, and thus, the order of the Ld. CIT(A) sustaining the penalty shall be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered relevant arguments from both sides and the provisions of Section 270A of the Income-tax Act, 1961. The assessee is an individual, did not file return of income for the assessment year under consideration under Section 139(1) of the Income-tax Act, 1961. The assessment has been subsequently reopened under Section 147 of the Act, on the ground that, the assessee was allotted 27 flats in Sri Sai Residency Apartment, Tirupati, in the land given by the assessee to the developer/vendor, but the assessee did not admit any income in respect of said transaction. Admittedly, the assessee has furnished return of income in response to notice issued under Section 148 of the Act, on 27.03.2021, admitting total income of Rs.1,50,68,940/- under the head ‘Income from Long-Term Capital Gains’, and the same has been accepted by the A.O. under order passed under Section 143(3) read with Section 147 of the Act, without any addition. It is also an admitted fact that, the assessee has paid self-assessment tax of Rs. 16,00,000/- on 31.03.2018, 20.05.2018, 18.07.2018, and 31.12.2019, which is much before the date of notice under Section 148 issued by the A.O. on 10.02.2020. The assessee claimed that, there was a confusion in taxability of income derived from capital gains on account of transfer of property in pursuant to the Joint Development Agreement, because, the property was jointly owned by the assessee along with her son and the assessee is only the beneficial owner and the real owner of the property is her son, because the said property has been received by the assessee by gift. Since there is an ambiguity in the taxability of income, the assessee could not furnish return of income on or before the due date provided under Section 139 of the Act, however, paid taxes on the said income much before the date of issuance of notice under Section 148. Further, the assessee could not file return of income after payment of self-assessment tax because the window provided for filing of return of income was not accepting the return of income after due date. The assessee had furnished return of income immediately after receipt of notice under Section 148 and disclosed Capital Gains derived from transfer of property which has been accepted by the A.O. Since the assessee had declared the income and also paid taxes, the explanation given by the assessee should have been accepted and the penalty should not be levied by the A.O.

We find that, although the assessee has not furnished return of income under Section 139 of the Income-tax Act, 1961, but has paid substantial amount of taxes applicable on the said income via self- assessment tax in the A.Y. 2018-19, much before the A.O. issued notice under Section 148 of the Act, on 27.03.2021. The assessee had also furnished return of income in response to notice under Section 148 immediately after issuance of notice under Section 148. From the conduct of the assessee and the sequence of dates and events, it is undisputedly clear that, the explanation of the assessee with regard to non-filing of return of income appears to be bona fide and genuine without any intention of under-reporting of income, arising on account of transfer of property in pursuant to the Joint Development Agreement. Since the assessee has already paid a substantial amount of tax and also filed return of income disclosing the complete income in respect of transfer of property, and the same has been accepted by the A.O., in our considered view, the case of the assessee falls under sub-section (6) of Section 270A of the Act, where it has been clearly stated that, the under-reported income shall not include the amount of income in respect of which the assessee offers an explanation and the A.O. is satisfied that, the explanation is bona fide and the assessee has disclosed all material facts to substantiate the explanation offered.

In the present case, going by the assessment order passed by the A.O. under Section 143(3) r.w.s. 147 of the Act, in our considered view, there is no dispute regarding the explanation offered by the assessee for the income offered towards capital gains derived from the transfer of property. Therefore, the A.O. ought not to have levied the penalty under Section 270A of the Act, for under- reporting of income. The Ld. CIT(A), without appreciating relevant facts, simply sustained the penalty levied by the A.O. Thus, we set aside the order passed by the Ld. CIT(A) and direct the A.O. to delete the penalty levied under Section 270A of the Act.

In the result, the appeal filed by the assessee is allowed.