Penalty under section 271(1)(c) deleted where assessee failed to file return believing TDS exempted filing requirements

ITAT Delhi held that penalty under section 271(1)(c) was not justified where assessee failed to file income tax return despite receiving salary income. The assessee believed that tax deduction at source by employer exempted her from filing requirements. Upon receiving notice under section 148, she promptly filed return disclosing all income. The tribunal found reasonable cause for non-filing, noting no presumption exists that every person knows the law. Penalty was deleted as levy is not automatic when reasonable cause is demonstrated under section 273B.

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Issues Involved:
1. Whether the penalty order is barred by limitation.
2. Whether the penalty initiated vide notice dated 12.12.2019 is illegal, bad in law, and without jurisdiction.
3. Whether the penalty under section 271(1)(c) for Rs. 3,50,361/- should have been levied.
4. Whether the penalty should have been levied on the returned income.

Summary:

Issue 1: Penalty Order Barred by Limitation
The appellant contended that the penalty order is barred by limitation. The assessment order was passed on 12.12.2019, and the notice under section 274 read with section 271(1)(c) was issued on the same day after the closing of assessment proceedings. The appellant argued that the penalty notice issued after the completion of assessment proceedings is illegal, citing ITAT Delhi and ITAT Mumbai precedents.

Issue 2: Legality and Jurisdiction of Penalty Notice
The appellant argued that the penalty notice dated 12.12.2019 is illegal, bad in law, and without jurisdiction. The appellant, a salaried individual, failed to file a return of income under the misconception that tax deducted by the employer negated the need for filing. The appellant filed the return only after receiving a notice under section 148 and paid the due taxes and interest. The appellant cited the ITAT Jaipur decision, stating that penalty provisions for not filing a return are different and should not lead to a penalty under section 271(1)(c).

Issue 3: Levy of Penalty under Section 271(1)(c)
The appellant argued that no penalty under section 271(1)(c) should have been levied as there was no concealment of income or submission of inaccurate particulars. The appellant cited various case laws to support the argument that technical defaults should not attract stringent penalty proceedings. The appellant emphasized that the return was filed promptly upon receiving the notice, and all taxes were paid.

Issue 4: Penalty on Returned Income
The appellant contended that no penalty should have been levied on the returned income. The appellant argued that the non-filing of the return was due to a reasonable cause, as the appellant believed that tax deducted at source by the employer was sufficient compliance. The appellant cited section 273B, which states that no penalty shall be imposed if there is a reasonable cause for the failure.

Tribunal's Decision:
The Tribunal noted that the assessee failed to file the return of income despite receiving salary income from two sources. The Tribunal acknowledged the appellant's argument that the failure to file was due to a misconception of law and that the return was filed upon receiving the notice. The Tribunal emphasized that the levy of penalty is not automatic and should consider whether the default was due to a reasonable cause. Citing section 273B and the Hon'ble Supreme Court's observation that there is no presumption that every person knows the law, the Tribunal found that the appellant demonstrated reasonable cause for the default. Consequently, the Tribunal directed the AO to delete the impugned penalty and allowed the appeal.

Conclusion:
The appeal of the assessee was allowed, and the AO was directed to delete the penalty imposed under section 271(1)(c). The Tribunal recognized the appellant's reasonable cause for the default and held that penalty should not be imposed in such circumstances.

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