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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: MS.SUCHITRA R. KAMBLE & SHRI MAKARAND V.MAHADEOKAR
This appeal has been preferred by the assessee against the order dated 20.02.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A), NFAC”] confirming the levy of penalty of Rs.2,23,277/- under section 270A of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] for the Assessment Year 2018–19.
Facts of the Case 2 2. The brief facts of the case, as emanating from the records, are that the assessee is an individual deriving income from salary and other sources, primarily from employment with M/s Tech Mahindra Ltd. for the relevant financial year. It is an admitted position that the assessee did not file his return of income under section 139(1) of the Act for A.Y. 2018-19. Based on information received through the Annual Information Return and Form 26AS, indicating salary income credited and TDS deducted, the Assessing Officer reopened the case by issuing a notice under section 148 of the Act on 29.03.2022. In response to the said notice, the assessee filed his return of income on 03.08.2022, declaring total income of Rs. 20,70,160/-. The assessment was completed under section 147 read with section 144B of the Act by the National Faceless Assessment Centre, Delhi [hereinafter referred to as “Assessing Officer or AO”], vide order dated 11.03.2023, accepting the returned income in toto, without making any variation or disallowance.
Subsequently, the Assessing Officer initiated penalty proceedings under section 270A of the Act by issuance of notice dated 11.03.2023. In response, the assessee submitted that there was no concealment or misreporting of income, and that the omission to file the return under section 139(1) was entirely inadvertent and unintentional, attributable to lack of professional advice and misunderstanding regarding tax compliance, since full TDS had already been deducted. However, not satisfied with the explanation, the AO proceeded to levy penalty under section 270A(2)(b) by treating the income returned as “under-reported income” solely on the ground that no return was filed within the time prescribed under section 139(1), despite income exceeding the maximum amount not chargeable to tax. The AO, in the penalty order dated 20.09.2023, specifically held that since the assessee had not furnished the return 3 of income under section 139, and had filed the return only after notice under section 148, and since the total income assessed exceeded the basic exemption limit, the case squarely fell within the ambit of section 270A(2)(b), thereby warranting penalty for under-reporting of income. The AO levied penalty @50% of the tax payable on the assessed income of Rs.20,70,160/-, amounting to Rs.2,23,277/-.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), NFAC. In the course of appellate proceedings before the Ld. CIT(A), NFAC, the assessee submitted that there was no variation whatsoever in the assessed income as compared to the return of income filed in response to the notice issued under section 148 of the Act. It was further submitted that the entire income had already been subjected to tax deduction at source and was duly reflected in Form No. 26AS, thereby negating any inference of concealment or suppression. The assessee pointed out that the return was filed voluntarily and in compliance with the notice issued under section 148, accompanied by all relevant documentary evidences including Form 16 and salary slips. The omission to file the return of income within the time prescribed under section 139(1) was explained as a bona fide oversight, arising out of a genuine misunderstanding of legal obligations, and not with any intention to under-report or misreport income. It was further submitted that the entire tax and interest demand arising out of the assessment order had been duly paid within the time prescribed. In support of these contentions, the assessee placed reliance on section 270A(6)(a) of the Act, and a series of judicial precedents. The Ld. CIT(A), however, did not accept the assessee’s submissions and confirmed the penalty levied by the Assessing Officer, relying solely on the literal language of clause (b) of sub- section (2) of section 270A. The Ld. CIT(A) held that since the assessee had not furnished the return under section 139 and had filed the 4 return only after issuance of notice under section 148, and since the income exceeded the maximum amount not chargeable to tax, the conditions for invoking section 270A(2)(b) were satisfied.
The assessee is now in appeal before us raising following sole ground:
Whether, on facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the penalty of ₹2,23,277/- levied under section 270A of the Act?
The learned Authorised Representative (AR) for the assessee reiterated the factual background and submitted that the assessee was a salaried individual working with M/s Tech Mahindra Ltd. during the relevant previous year, and the entire income earned by him was fully subjected to tax deduction at source by the employer. The relevant salary details and TDS thereon were duly reflected in Form 26AS, which was available with the Department at all material times. He pointed out that there was no attempt to suppress income or evade tax, and the omission to file return under section 139(1) was an inadvertent and bona fide lapse arising out of a misunderstanding of compliance obligations, particularly because the entire tax had already been deducted at source and the assessee was under the bona fide belief that no further action was required.
The AR submitted that the Assessing Officer had issued notice under section 148 on 29.03.2022 and in response thereto, the assessee promptly and voluntarily filed his return of income on 03.08.2022, declaring total income of ₹20,70,160/-, which was accepted in full without any variation and the entire tax and interest demand as per the said order was paid within the time stipulated. The AR submitted that the penalty proceedings initiated thereafter under section 270A were not justified, as there was no under-reporting of 5 income within the meaning of section 270A(1) and 270A(2), and the mere fact that the return was filed after issuance of notice under section 148 could not, by itself, trigger penalty in the absence of any concealment or misreporting.
The AR further submitted that the case of the assessee was squarely covered under the exception provided in section 270A(6)(a) of the Act, which provides that no penalty shall be levied in cases where the assessee offers a bona fide explanation and has disclosed all material facts. The AR relied upon the decision of the Co-ordinate Mumbai Bench in the case of Archana Achyut Sail Vs. ITA (ITA No. 5277 & 5278/Mum/2024). Where it was held that where there is no disallowance or addition made by Assessing Officer in income as disclosed in pursuance of notice under section 148 of the Act, no penalty can be levied under section 271(1)(c) of the Act. The AR also placed reliance on the decision of Co-ordinate Bench in case of Suresh Rao Vs. ITO (ITA No.1235/Ahd/2024).
The AR further submitted that the assessee filed form 68 post the order of CIT(A), NFAC and even though there was a delay in filing Form No. 68, the payment of tax and compliance with assessment order was complete within time, and therefore, the assessee was entitled to the benefit of immunity under section 270AA. It was submitted that the filing of Form No. 68 is procedural in nature and cannot override the assessee’s substantive right under the statute.
The AR accordingly prayed that the penalty levied under section 270A and confirmed by the CIT(A), NFAC, may be directed to be deleted in the interest of justice and consistent with the settled legal principles on the subject.
6 10. On the other hand, the Learned Departmental Representative (DR) vehemently supported the orders of the Assessing Officer as well as the Ld. CIT(A), NFAC, and submitted that the levy of penalty under section 270A was strictly in accordance with law. The DR submitted that the assessee had failed to file the return of income within the time prescribed under section 139(1), despite the fact that his total income exceeded the maximum amount not chargeable to tax. It was only upon issuance of notice under section 148 that the assessee filed his return of income. Thus, the return was filed only after detection by the Department, and therefore, the condition stipulated in clause (b) of sub-section (2) of section 270A stood satisfied. The DR argued that section 270A(2)(b) clearly provides that under-reported income includes the case where no return of income has been furnished and income assessed is above the basic exemption limit. Accordingly, the DR prayed that the appeal of the assessee deserves to be dismissed, and the penalty as confirmed by the Ld. CIT(A) may be upheld.
We have carefully considered the rival submissions, examined the entire factual record, and perused the authorities cited before us. It is undisputed that the assessee is a salaried individual who had failed to furnish his return of income under section 139(1) for A.Y. 2018–19. However, in response to notice issued under section 148, he filed a return on 03.08.2022 declaring income of ₹20,70,160/-, accompanied by Form 16, bank passbook, and salary slips. The entire income so declared was duly reflected in Form 26AS and subjected to TDS. Importantly, the said return was accepted as such by the Assessing Officer under section 147 r.w.s. 144B without any variation or disallowance. It is also a matter of record that the assessee paid the entire demand raised in the assessment order within the prescribed period. Though Form 68 for immunity under section 270AA was filed with delay, the substantive compliance namely, full 7 payment of taxes, no filing of appeal against the assessment order, and voluntary disclosure was duly satisfied. This fact assumes significance in light of the equitable considerations and judicial recognition of such procedural leniency in cases involving delayed Form 68 filings.
12. The penalty levied under section 270A(2)(b) is premised solely on the fact that the return was not filed under section 139, and that the total income was above the basic exemption limit. In our opinion penalty under section 270A cannot be imposed mechanically merely because the assessee filed the return of income in response to a notice under section 148. The timing of filing, in itself, is not determinative. What is crucial is whether there is any concealment, misreporting, or deliberate non-disclosure of income. Complete disclosure of income in response to a statutory notice, especially where such income is accepted as-is without variation or inquiry, cannot be equated with under-reporting or misreporting, particularly when the same is supported by third-party verifiable documents such as Form 26AS, salary certificates, or bank statements. Failure to file a return under section 139(1), by itself, does not constitute “under-reporting” within the meaning of section 270A(2)(b), unless it is shown that the income offered later was suppressed or misrepresented. The provision must be applied with regard to substance over form. The discretion to levy penalty under section 270A(1) must be exercised judiciously. The provision is not mandatory in nature. The authority must evaluate the assessee’s explanation, conduct, and supporting documents to determine whether the omission was bona fide or contumacious. When income is fully subjected to TDS and reflected in the tax system, and the assessee does not claim any false deduction or exemption, the possibility of tax evasion is inherently neutralised. In such cases,
At this juncture we consider the decision of Co-ordinate Bench in case of Archana Achyut Sail Vs. ITA (supra) where the Bench noted that if there was no disallowance or addition made by the Assessing Officer in the income as disclosed in pursuance of notice under Section 148 of the Act, no penalty can be levied under Section 271(1)(c) of the Act. The relevant paras are reproduced here for the sake of clarity – (assessment year 2016-17) is concerned, reliance is placed on behalf of the appellant on the decision of this Tribunal in Haresh Ghanshyamdas Makhija vs ITO [2024] 206 ITD 149 (Mumbai-Trib.) and the decision of Calcutta High Court in Commissioner of Income Tax, Central-III, Kolkata vs Brijendra Gupta [2015] 234 Taxman 51 (Calcutta) in order to submit that if there was no disallowance or addition made by the Assessing Officer in the income as disclosed in pursuance of notice under Section 148 of the Act, no penalty can be levied under Section 271(1)(c) of the Act.
Insofar as (assessment year 2017-18) is concerned, it is submitted that although the penalty has been levied under Section 270A of the Act, a similar principle (as the penalty under Section 271(1)(c) of the Act) would apply. Alternatively, it is submitted that the authorities below were not justified in treating the case as one falling under the head of “under-reporting of income in consequence of misreporting”.
The Bench also finds that the Assessing officer has the discretion to levy the penalty. The relevant part is also reproduced here for the sake of clarity –
We find that the appeal has to succeed on the ground that the phraseology as used in Section 270 of the Act makes it discretionary/directory for the Assessing Officer to impose the penalty. In CIT vs Dodsal Ltd., 312 ITR 112 (Bombay), which was a case arising out of block assessment in a search case, the Bombay High Court has held that the use of word ‘may’ in Section 158BFA(2) [which is similarly worded to Section 270A(1)] confers discretion on the Assessing Officer to direct payment of penalty. Albeit such a discretion is not arbitrary and has to be guided by well-established principles depending upon 9 the facts and circumstances of each case. In the present case, we find that the appellant-assessee is a retired employee of MTNL and had relied upon TRP to file her return. In the return filed in response to notice under Section 148 of the Act, the appellant has made a voluntary disallowance and paid taxes on the amount of HRA. Considering the overall circumstances, we find that this is a fit case where the Assessing Officer could have exercised the discretion not to impose penalty. At the cost of repetition, we make it clear that the exercise of such discretion would depend upon the facts of each case and there cannot be any straightjacket formula in this regard. In that view of the matter, the appeal deserves to succeed.
Though the factual matrix in the case of Archana Achyut Sail v. ITO (supra) can be distinguished, the principles and ratio can be certainly relied on.
The mere fact that the return was filed in response to notice under section 148 does not ipso facto justify the invocation of section 270A(2)(b), unless there is a demonstrable act of under-reporting in substance. The statute does not intend to penalise delayed but truthful compliance, particularly where no tax loss arises and the income is fully traceable in departmental systems.
In view of the above discussion and respectfully applying the ratio laid down in the judicial precedents referred to hereinabove, we are of the considered opinion that the present case does not warrant the imposition of penalty under section 270A of the Act. The return filed in response to notice under section 148 was complete, truthful, and supported by verifiable evidence. The income was already subjected to tax through TDS, and the assessment was concluded without any addition or disallowance. The omission to file the return under section 139(1), though not condonable, does not constitute under-reporting or misreporting in the statutory sense. The Assessing Officer, in the facts of this case, ought to have exercised his discretion under section 270A(1) judicially, particularly in view of the complete tax compliance, absence of concealment, and voluntary disclosure.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 25TH July, 2025 at Ahmedabad.