Return filed in response to reopening notice, even if assessed de hors any variation, warrant imposition of penalty u/s 271(1)(c)

While hearing an appeal against imposition of penalty under Section 271(1)(c) of the Income Tax Act 1962, the Pune Income Tax Appellate Tribunal observed that joint reading of Explanations I & III entails that addition/disallowance is sine qua non for imposition of penalty u/s 271(1)(c) – Only exception is where ITR only after receiving notice under Section 148.

A Division Bench of Mr R S Syal, Vice President & Mr. Partha Sarathi Chaudhury, Member (Judicial) considered the Explanation to Section 271(1)(c) and clarified that if return is not furnished in time, the AO would issue notice under Section 148, in which case, the assessee would file its return declaring certain income. Then, the income declared in the return, even if assessed de hors any variation, would warrant the imposition of penalty under Section 271(1)(c) of the Act.

The Appellant-Assessee was represented by Mr. Kishor B Phadke, Advocate, whereas the Respondent-Revenue was represented by Mr. Ramnath P Murkunde, Advocate.

Briefly, the Assessee is an association for Oral Maxillofacial surgeons of India, which was set up several years ago having registered office in Pune. The return for the year under consideration was not furnished. The AO, on getting information about the assessee having made FDR of Rs 5 lakh with State Bank of India, issued notice under Section 148 of the Income Tax Act.

In response, the assessee filed return declaring total income at Rs.7,99,352/-, claiming that it was engaged in promotion of research in Oral and maxillofacial surgery. In the absence of any registration under Section 12A of the Act, no benefit of exemption under Section 11 was claimed. The assessment was completed at the returned income.

Thereafter, penalty proceedings were initiated u/s.271(1)(c) of the Act. The AO observed that the assessee was not granted registration u/s.12A of the Act on the date of his passing the order. He, therefore, imposed penalty amounting to Rs.2,46,999/-. The CIT(A) invoked Explanation 3 to section 271(1)(c) of the Act and upheld the penalty.

On hearing the contentions of both parties, the Bench observed that from a conjoint reading of the Explanations 1 and 3, it emerged that the making of an addition or disallowance is sine qua non for imposition of penalty under Section 271(1)(c) except, where the assessee, not having filed return earlier, files it only pursuant to notice under Section 148. In the cases falling in the exception, even the income declared in the return, sans any addition or disallowance, also gives a foundation for imposition of penalty.

In the present case, the Bench observed that in principle, the Explanation 3 is applicable which has expressly been invoked by the CIT(A) as well, as per the mandate of which, the amount of income assessed is deemed as concealment for the purposes of section 271(1)(c) of the Act. As the assessee admittedly did not file any return earlier for the year under consideration, it’s case would be covered within the scope of the Explanation 3.

The Bench further noted in the present case that due to regular shifting of the operations of the assessee-trust from one station to another and the resultant confusion about the correct person responsible for filing return, i.e. whether from the station where the operations were going on and records were kept or the registered office in Pune, the returns could not be filed for any of the assessment years prior to the A.Y. 2019-20.

The Bench opined that this was reasonable cause for which the return for the year under consideration could not be filed within the time prescribed as per Section 153 of the Act. Taking a holistic view of the factual panorama of the case and the circumstances in which the return for the year could not be filed within the stipulated time, the Bench was satisfied that this being a reasonable cause, brought the case out of the purview of Explanation 3.

Therefore, the Bench directed that the penalty be set aside.

Cause Title: Association of Oral Maxillofacial Surgeons of India vs ITO [ITA No. 274/PUN/2023 / 2023-Enterslice-26-ITAT-Pune]

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