Penalty under Section 272A(2)(e) quashed for delayed income tax return filing due to unreasonable delay in penalty proceedings

The ITAT Bangalore quashed a penalty order under section 272A(2)(e) for delayed filing of income tax return by 851 days for assessment year 2014-15. The assessee filed the return on 31.3.2017 without regular assessment. The penalty proceedings were initiated on 21.12.2020, approximately 45 months after filing. The tribunal held that the penalty order was not passed within reasonable time as required under section 275(1)(c), citing JKD Capital Finlease Ltd. precedent. The appeal was decided in favor of the assessee.

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Issues:
1. Validity of penalty u/s 272A(2)(e) of the Income-tax Act, 1961.
2. Barred by limitation - Initiation of penalty proceedings and order confirmation.
3. Contumacious conduct or deliberate default for penalty levy.
4. Delay in filing return of income and penalty imposition.
5. Suspension of limitation period due to Covid-19.
6. Reasonable time for initiation and completion of penalty proceedings.
7. Judicial precedents on penalty proceedings timelines.
8. Quashing of penalty order due to unreasonable delay.

Analysis:
1. The appeal challenged the order of NFAC confirming the penalty u/s 272A(2)(e) of the Act for the assessment year 2014-15. The main contention was the validity of the penalty order, arguing it was void ab initio without jurisdiction and should be quashed.

2. The delay in filing the return of income led to penalty proceedings initiated by the AO. The penalty was imposed due to an 851-day delay, which was upheld by NFAC. The argument revolved around the limitation period for passing the penalty order.

3. The AR contended that the penalty order passed on 5.3.2022 was time-barred as per section 275(1)(c) of the Act, citing a Tribunal order. However, the DR argued that the Covid-19 period suspended the limitation, making the penalty order within time.

4. The issue of reasonable time for initiating penalty proceedings was raised. The AR argued that the initiation was beyond a reasonable time from the completion of the assessment, citing judicial precedents supporting the need for timely initiation.

5. Referring to the Delhi High Court judgment, the Tribunal concluded that the penalty order was not passed within a reasonable time and quashed it based on the delay in initiation of penalty proceedings.

6. As a result, the penalty order dated 5.3.2022 was quashed, and the appeal of the assessee was allowed, refraining from addressing other grounds raised. The decision was pronounced on 5th Dec, 2023.

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