ITAT Delhi: Penalty Under Section 271(1)(c) Restricted to Tax Unpaid Prior to Notice

The Delhi Bench of the Income Tax Appellate Tribunal has partly allowed the appeal filed by Niripraj Singh Sohal for the Assessment Year 2015–16, reducing the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, from ₹8.56 lakh to ₹85,992.

Background

The assessee had not filed his return of income for AY 2015–16 despite having salary and interest income reflected on the Department’s Insight portal. Consequently, the Assessing Officer issued a notice under Section 148, in response to which the assessee filed a return declaring income of ₹33.56 lakh. The reassessment was completed at the same returned income. However, the Assessing Officer initiated penalty proceedings and imposed a penalty of ₹8.56 lakh, being 100% of the tax sought to be evaded, treating the case as one of concealment under Section 271(1)(c). The NFAC upheld the penalty, prompting the assessee to approach the Tribunal.

Tribunal’s ruling

The Tribunal rejected the assessee’s primary contention that no penalty could be levied since the assessed income was the same as the returned income. It observed that the case squarely fell within Explanation 3 to Section 271, which deems non-filing of return to be a case of concealment, even if the return is later filed in response to a notice under Section 148.

However, the Bench accepted the alternative plea on computation of penalty. Referring to Explanation 4(c) to Section 271, the Tribunal held that where Explanation 3 applies, the tax sought to be evaded must be reduced by advance tax, TDS and self-assessment tax paid before issuance of notice under Section 148.

In the present case, the assessee had already paid:

1. ₹7.09 lakh as TDS, and
2. ₹60,900 as self-assessment tax prior to the reassessment notice.

After excluding these amounts, the Tribunal held that the tax sought to be evaded was only ₹85,992, and accordingly directed the Assessing Officer to restrict the penalty to that amount.

The appeal was thus partly allowed, upholding the levy of penalty in principle but substantially reducing its quantum.