Penalty under section 271(1)(c) unsustainable where belated return filed on notice is accepted and reasonable cause is shown.

Penalty under section 271(1)(c) is unsustainable where a belated return filed only after a section 148 notice is accepted in reassessment and no independent detection of undisclosed income occurs; Explanation 3's deeming fiction applies only when failure is without reasonable cause and must not be applied mechanically. Surrounding facts - timely tax audit, audited financials on record, pre-filing computation and tax payment, prompt response to notice - negate intent to conceal and indicate inadvertence or negligence. Operative effect: penalty deleted and appeal allowed in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 is sustainable where the return for the assessment year was filed only in response to notice under section 148, the returned income was accepted in reassessment (no addition made), and the assessee alleges reasonable cause for delay in filing.

Analysis: The appeal concerns levy of penalty under section 271(1)(c) where the reassessment under sections 147/148 culminated in acceptance of the income declared in the belated return and no independent detection of undisclosed income was made. Explanation 3 to section 271(1)(c) operates only when failure to file return is "without reasonable cause"; it creates a deeming fiction but is not to be applied mechanically. The assessee filed the tax audit report under section 44AB within the extended due date, the audited financial statements were on record, a computation of income was prepared and tax (net of TDS) was paid prior to filing the belated return, and the assessee promptly responded to the section 148 notice with computation and payment. These surrounding facts and conduct are inconsistent with an intention to conceal and point to inadvertence or negligence rather than deliberate suppression. Penalty proceedings being quasi criminal require clear satisfaction as to the precise charge; where the assessment accepts the returned income and does not record specific findings of concealment or inaccurate particulars linked to any addition, invoking section 271(1)(c) solely because the return was not filed within time is unsustainable.

Conclusion: Penalty under section 271(1)(c) is not sustainable; the assessee has shown reasonable cause for delay and the penalty of Rs. 12,51,564/- is deleted, and the appeal is allowed in favour of the assessee.

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