2024 (3) TMI 814 - AT - Income Tax

Non-resident assessee's penalty under section 271(1)(c) deleted due to bona fide ignorance and reasonable cause for non-filing return

Farooq Ahmad Versus The DCIT Circle (Int. Tax) Jaipur

ITAT Jaipur deleted penalty u/s 271(1)(c) imposed on non-resident assessee for not filing return despite having taxable interest income. AO erroneously ... Penalty u/s 271(1)(c) - assessee has not filed the original return of income though he had taxable income/Interest income - bonafide belief - AO had information in his possession that the assessee had made investment in FDR and had received interest income - assessee contended before the AO that he was a non-resident not well versed with the income tax law in India and return was not field due to bonafide ignorance of law - penalty order had mentioned that the notice was issued on 16-12-2021 requesting the assessee to furnish reply by 20-12-2021 but no reply was furnished by the assessee. HELD THAT:- Observation of the AO is totally erroneous as the assessee had submitted the reply on the income tax portal on 18-12-2021 (i.e. before the due date) which is evident from the screen shot of the income tax portal and thus penalty levied by the AO is without considering the reply filed by the assessee and it is unjustified and thus deserves to be deleted. It is noted that the assessee before leaving India, was employed in Indian Company and used to live at a rented premises. He had parked his Indian Savings fixed deposits and mutual funds which continued during the year under consideration. The assessee did not file his income tax returns due to bona fide ignorance that tax has already been deducted by the Bank on interest income and due to his stay outside India. Thus the penalty was levied by the AO on interest income on which TDS was deducted which is also reflected in Form No. 26AS. Keeping in view the above facts, circumstances of the case and also the decision of ITAT Ahemdabad in the case Vijaybhai Dashrathbhi Patel [2022 (2) TMI 1429 - ITAT AHMEDABAD] wherein held assessee had earned interest income (being the only source of income for the captioned year), on which taxes had been duly withheld by the payer. Therefore, the assessee is conscious of the fact that the Income Tax Department is aware about his having income, but was of the mistaken view that once taxes have been deducted on this income, the assessee was not required to be filed return of income, thus not a fit case for levy of penalty since the assessee in the instant set of facts had reasonable cause for not filing of return of income - we do not concur with the order of the ld. CIT(A) and thus the appeal of the assessee is allowed. Issues Involved:1. Sustaining penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2011-12.2. Sustaining penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2015-16.Issue 1: Sustaining Penalty for A.Y. 2011-12The assessee did not file a regular return despite having taxable interest income of Rs. 17,39,319/-. The Assessing Officer (AO) reopened the assessment and finalized it under Section 147 r.w.s 144, leading to a total income of Rs. 1,15,39,600/-. Penalty proceedings under Section 271(1)(c) were initiated for concealment of income. The assessee argued that he was a non-resident and ignorant of Indian tax laws, but the AO imposed a penalty of Rs. 1,92,439/-. The CIT(A) confirmed the penalty, stating that ignorance of law is no excuse and that the assessee, being a person of substantial means, cannot claim ignorance of Indian laws. The CIT(A) cited various legal precedents, including the Supreme Court's stance that 'ignorance of law is no excuse' and that penalty can be imposed irrespective of the willful intention to conceal income.Issue 2: Sustaining Penalty for A.Y. 2015-16The facts and arguments were similar to the case for A.Y. 2011-12. The AO imposed a penalty of Rs. 2,53,750/-, which was confirmed by the CIT(A) using the same rationale as for the earlier assessment year. The CIT(A) reiterated that the defense of ignorance of law is not acceptable and that the assessee had substantial means, indicating that he should have been aware of his tax obligations.Tribunal's DecisionThe Tribunal noted that the AO's observation that no reply was furnished by the assessee was erroneous, as the reply was submitted on the income tax portal before the due date. The Tribunal also considered the decision of the ITAT Ahmedabad in the case of Vijaybhai Dashrathbhi Patel vs. ACIT, which supported the proposition that if the assessee demonstrates a reasonable cause for not filing the return, penalty under Section 271(1)(c) should not be levied. The Tribunal found that the assessee had a reasonable cause for not filing the return due to bona fide ignorance and the fact that taxes had been deducted at source.ConclusionThe Tribunal allowed the appeals for both assessment years, concluding that the penalties levied under Section 271(1)(c) were unjustified and should be deleted. The decisions were based on the assessee's bona fide ignorance and the precedent set by the ITAT Ahmedabad.OrderBoth appeals of the assessee were allowed, and the penalties levied were deleted. The order was pronounced in the open court on 13/02/2024.