2025 (7) TMI 1755 - AT - Income Tax

Penalty under Section 270A not justified if return filed after notice with full disclosure and no concealment

Ishit Kamleshbhai Sheth C/o. Divyang Shah & Co. o Versus The ITO, Ward-5 (3) (1) Ahmedabad.

The ITAT Ahmedabad held that penalty under section 270A cannot be imposed solely because the return was filed in response to a notice under section 148. ... Levy of penalty u/s 270A - return was not filed u/s 139, and that the total income was above the basic exemption limit - Filing of return in response to notice u/s 148. HELD THAT:- Penalty u/s 270A cannot be imposed mechanically merely because the assessee filed the return of income in response to a notice under section 148. The timing of filing, in itself, is not determinative. Whether there is any concealment, misreporting, or deliberate non-disclosure of income? - Complete disclosure of income in response to a statutory notice, especially where such income is accepted as-is without variation or inquiry, cannot be equated with under-reporting or misreporting, particularly when the same is supported by third-party verifiable documents such as Form 26AS, salary certificates or bank statements. Failure to file a return u/s 139(1), by itself, does not constitute “under-reporting” within the meaning of section 270A(2)(b), unless it is shown that the income offered later was suppressed or misrepresented. The provision must be applied with regard to substance over form. The discretion to levy penalty u/s 270A(1) must be exercised judiciously. The provision is not mandatory in nature. The authority must evaluate the assessee’s explanation, conduct, and supporting documents to determine whether the omission was bona fide or contumacious. When income is fully subjected to TDS and reflected in the tax system, and the assessee does not claim any false deduction or exemption, the possibility of tax evasion is inherently neutralised. In such cases, penal consequences are not justified in the absence of revenue loss or fraudulent intent. We consider the decision in case of Archana Achyut Sail [2025 (4) TMI 206 - ITAT MUMBAI] where the Bench noted that if there was no disallowance or addition made by the AO in the income as disclosed in pursuance of notice u/s 148 of the Act, no penalty can be levied u/s 271(1)(c). The mere fact that the return was filed in response to notice under section 148 does not ipso facto justify the invocation of section 270A(2)(b), unless there is a demonstrable act of under-reporting in substance. The statute does not intend to penalise delayed but truthful compliance, particularly where no tax loss arises and the income is fully traceable in departmental systems. We are of the considered opinion that the present case does not warrant the imposition of penalty u/s 270A. The return filed in response to notice u/s 148 was complete, truthful, and supported by verifiable evidence. The income was already subjected to tax through TDS, and the assessment was concluded without any addition or disallowance. The omission to file the return u/s 139(1), though not condonable, does not constitute under-reporting or misreporting in the statutory sense - AO, in the facts of this case, ought to have exercised his discretion under section 270A(1) judicially, particularly in view of the complete tax compliance, absence of concealment, and voluntary disclosure. Appeal of the assessee is allowed. ISSUES: Whether penalty under section 270A(2)(b) of the Income-tax Act, 1961 can be levied solely on the ground that the return of income was not filed within the time prescribed under section 139(1), despite income exceeding the basic exemption limit.Whether filing of return in response to notice under section 148, without any variation or disallowance in assessed income, amounts to 'under-reporting' or 'misreporting' under section 270A.Whether penalty under section 270A is mandatory upon non-filing of return under section 139(1) or whether the Assessing Officer has discretion to consider bona fide explanations and exercise judicial discretion.Whether the exception under section 270A(6)(a) applies to cases where the assessee offers a bona fide explanation and discloses all material facts.Whether delayed filing of Form No. 68 affects entitlement to immunity under section 270AA when substantive compliance such as payment of tax and acceptance of assessment is timely. RULINGS / HOLDINGS: Penalty under section 270A(2)(b) cannot be imposed mechanically merely because the return was filed after the prescribed time under section 139(1); the timing of filing alone is not determinative of 'under-reporting.'Complete disclosure of income in response to a statutory notice under section 148, accepted without any variation or disallowance, and supported by third-party verifiable documents such as Form 26AS and Form 16, does not constitute concealment or misreporting within the meaning of section 270A.The discretion to levy penalty under section 270A(1) is not mandatory but must be exercised judiciously, considering the assessee's explanation, conduct, and absence of fraudulent intent.The exception in section 270A(6)(a) applies where the assessee offers a bona fide explanation and discloses all material facts, thereby precluding penalty.Delayed filing of Form No. 68 does not override the assessee's substantive right to immunity under section 270AA when full payment of tax and interest is made within the prescribed time and no appeal is filed against the assessment order.Penalty of Rs. 2,23,277/- levied under section 270A is deleted as the facts do not warrant imposition of penalty in the absence of concealment, misreporting, or tax loss. RATIONALE: The Court applied the statutory provisions of sections 139(1), 147, 148, 270A, and 270AA of the Income-tax Act, 1961, and examined relevant judicial precedents emphasizing the discretionary nature of penalty imposition under section 270A.The Court relied on the principle that penalty provisions are to be applied with regard to substance over form, and that mere delay in filing return does not ipso facto constitute under-reporting unless there is demonstrable concealment or misreporting.Judicial precedents were cited which held that no penalty can be levied if the income disclosed in the return filed in response to notice under section 148 is accepted without any addition or disallowance, and that the Assessing Officer's discretion to levy penalty must be exercised judiciously and not arbitrarily.The Court noted the equitable considerations and procedural leniency recognized by judicial authorities regarding delayed filing of Form No. 68 for immunity under section 270AA, provided substantive compliance is complete.The decision reflects a doctrinal emphasis on protecting taxpayers who make bona fide disclosures and comply with tax obligations, even if delayed, thereby preventing penal consequences in absence of fraudulent intent or revenue loss.