Penalty for non-filing where tax deduction error was the deductor's fault and income was already reflected in records

Penalty under section 271(1)(c) was treated as unwarranted where the non-resident assessee had not filed a return on the bona fide belief that tax had been duly deducted at source, the income was already reflected in Form 26AS and departmental records, and the short deduction was caused by the deductor's error. The assessee promptly offered the income and paid the balance tax and interest after notice under section 148, which negated concealment and furnishing of inaccurate particulars. The discussion also distinguishes Mak Data on the basis that this was not a case of voluntary surrender after detection of concealment, but of regularisation of a bona fide mistake. The penalty was therefore not sustainable.

---

---

Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable where the assessee, a non-resident, did not file a return on the belief that tax had been duly deducted at source, the short deduction was attributable to the deductor, and the balance tax was paid immediately after notice under section 148.

Analysis: The income and tax deduction details were already available in Form 26AS and the reassessment was triggered on that basis. The assessee was a non-resident earning only investment income, and the case fell within the special regime for non-residents under section 115G. The shortfall arose because the payer deducted tax at 10% instead of the applicable 12.5%, which was an error of the deductor and not of the assessee. Once notice under section 148 was received, the assessee promptly offered the income and paid the balance tax and interest. In these circumstances, the facts did not establish concealment of income or furnishing of inaccurate particulars. The reliance on Mak Data was held misplaced because the present case involved a bona fide mistake and not a voluntary surrender after detection of concealment.

Conclusion: The penalty was not sustainable and had to be deleted.

Final Conclusion: The assessee succeeded because the imposition of penalty was held unjustified on the facts, the short deduction being attributable to the deductor and the assessee having regularised the tax liability immediately upon reopening.

Ratio Decidendi: Penalty under section 271(1)(c) is not exigible where the taxable income was already disclosed in departmental records, the default resulted from a bona fide error attributable to the deductor, and the assessee promptly paid the balance tax on detection.

---