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

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 claimed assessee failed to reply to penalty notice, but records showed timely response filed on income tax portal. Assessee, employed in India before departure, had parked savings in FDs and mutual funds. Due to bona fide ignorance and belief that TDS deduction exempted return filing requirement, penalty was unjustified. ITAT found reasonable cause existed for non-filing, allowing assessee's appeal and reversing CIT(A) order.

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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. 2011-12

The 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. 2015-16

The 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 Decision

The 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.

Conclusion

The 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.

Order

Both appeals of the assessee were allowed, and the penalties levied were deleted. The order was pronounced in the open court on 13/02/2024.

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