ITAT rules in favor of Assessee, cancels penalties under section 271F for delayed tax returns.

The ITAT allowed the Assessee's appeal, ruling in favor of the Assessee and deleting the penalties imposed under section 271F for the Assessment Years 2010-11 to 2012-13. The ITAT held that there was a valid reasonable cause for the delay in filing the returns, which made the penalties legally invalid.

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Issues:
Penalty under section 271F of the Income Tax Act, 1961 for Assessment Years 2010-11 to 2012-13.

Analysis:

Issue 1: Penalty under section 271F

The Assessee, engaged in the business of trading in precious metals, filed Returns of Income for Assessment Years 2010-11 to 2012-13 after a search operation under section 132(1) of the Act. The Assessing Officer (AO) made additions to the returned income and initiated penalty proceedings under section 271F for not filing the returns within the time specified in the notice issued under section 153A. The Assessee contended that section 271F is not applicable as the returns were filed in response to the notice under section 153A, which is a self-contained code for search cases. The Assessee argued that penalty under section 271F can only be imposed if the return is not filed before the end of the relevant assessment year. The AO, however, levied a penalty of Rs. 5,000 for each assessment year. The Assessee appealed against the penalty orders to the Commissioner of Income Tax (Appeals)-11, who confirmed the penalties. The Assessee then appealed to the ITAT, challenging the levy of penalty under section 271F.

Issue 2: Reasonable Cause for Delay

The Assessee argued that there was a reasonable cause for the delay in filing the returns in response to the notice issued under section 153A. The Assessee explained that due to the voluminous seized materials and the complexities of transactions, it took time to check, cross-check, and reconcile the data. The Assessee also opted for settlement with the Income-tax Settlement Commission, which further delayed the filing of returns. The ITAT considered this explanation and held that the delay in filing the returns was due to a valid reasonable cause. The ITAT found that the penalty under section 271F was not valid in this case and consequently deleted the penalties levied for all three assessment years.

Conclusion

The ITAT allowed the Assessee's appeal, ruling in favor of the Assessee and deleting the penalties imposed under section 271F for the Assessment Years 2010-11 to 2012-13. The ITAT held that there was a valid reasonable cause for the delay in filing the returns, which made the penalties legally invalid. The decision was pronounced on 25-01-2023.

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