Section 270A IT Act | Penalty for Delayed Return Filing Requires Judicial Discretion, Not Mechanical Imposition: ITAT Patna

The Income Tax Appellate Tribunal (ITAT), Patna Bench, has clarified that penalty under Section 270A of the Income Tax Act, 1961 cannot be imposed mechanically merely because an assessee files a return of income in response to a notice under Section 148 of the Act. The Tribunal held that when income is fully disclosed, subjected to tax deduction at source (TDS), and no revenue loss occurs, penal consequences are unjustified in the absence of fraudulent intent or deliberate misreporting. This ruling reinforces the principle that substance must prevail over form in penalty proceedings, offering relief to taxpayers who face genuine difficulties in compliance.

Background & Facts

The Dispute

The appellant, Vikash Krishna, an individual taxpayer, was subjected to penalty proceedings under Section 270A of the Income Tax Act for the Assessment Year (A.Y.) 2020-21. The Department alleged under-reporting of income under Section 270A(2)(b) on the ground that the appellant filed his return of income for the first time in response to a notice issued under Section 148 of the Act, despite having substantial taxable income.

Key Facts

• The appellant received salary income of Rs. 60,82,953/- during the financial year 2019-20 (A.Y. 2020-21)
• He purchased immovable property worth Rs. 99,43,125/- during the same period
• Despite having taxable income, the appellant did not file his return of income under Section 139(1) of the Act
• The Department initiated proceedings under Section 148A on the basis of information suggesting escapement of income
• An order under Section 148A(d) was passed on 14.02.2024, holding that income of Rs. 1,60,26,078/- had escaped assessment
• Notice under Section 148 was issued on 14.02.2024
• In response, the appellant filed a return declaring total income of Rs. 60,28,154/-
• The assessment was completed under Section 147 read with Section 144B on 17.12.2024 at the returned income without any variations
• Penalty proceedings under Section 270A were initiated for alleged under-reporting of income
• The appellant cited COVID-19 pandemic and medical treatment for accident-related injuries as reasons for the delay in filing the return

Procedural History

• 14.02.2024: Order under Section 148A(d) passed, holding escapement of income
• 14.02.2024: Notice under Section 148 issued
• 17.12.2024: Assessment completed under Section 147 r.w.s. 144B at returned income of Rs. 60,28,154/-
• 18.06.2025: Assessing Officer (AO) imposed penalty of Rs. 8,62,333/- under Section 270A for under-reporting of income
• 28.01.2026: Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appellant’s appeal
• 25.06.2026: ITAT Patna Bench heard the appeal
• 30.06.2026: ITAT allowed the appeal and deleted the penalty

The Parties' Positions

For the Appellant

• The appellant contended that he had bona fide reasons for not filing the original return of income
• He met with a road accident on 11.02.2020, resulting in serious orthopaedic injuries to his right hand and foot
• He underwent prolonged medical treatment at Manipal Hospitals, Bangalore, followed by the COVID-19 pandemic, which prevented him from filing the return
• The appellant submitted medical documents and photographs to substantiate his claims
• He argued that there was no escapement of income as the assessment was concluded at the returned income without any variations
• The appellant relied on judicial precedents, including Sekhon Jagtar Singh v. ITO and Santhosh Abraham v. ITO, to argue that penalty under Section 270A cannot be imposed mechanically
• He highlighted that he was a regular taxpayer who had filed returns voluntarily for A.Ys. 2017-18, 2018-19, and 2019-20 without any default

For the Respondent

• The Department relied on the orders of the lower authorities
• It contended that the appellant’s return was filed for the first time in response to a notice under Section 148, which attracted the provisions of Section 270A(2)(b) for under-reporting of income
• The Department argued that the mere delay in filing the return justified the imposition of penalty, regardless of the appellant’s explanations

Relief Sought

The appellant sought deletion of the penalty of Rs. 8,62,333/- imposed under Section 270A of the Act and prayed for the appeal to be allowed.

The Legal Issue

The central question before the ITAT was whether penalty under Section 270A of the Income Tax Act can be imposed mechanically merely because the assessee filed the return of income for the first time in response to a notice under Section 148, in the absence of any escapement of income, revenue loss, or fraudulent intent, and where the assessee had bona fide reasons for the delay.

Arguments Presented

For the Appellant

• The appellant argued that penalty under Section 270A cannot be imposed mechanically merely because the return was filed in response to a notice under Section 148
• He relied on Section 270A(6)(a), which provides that there shall be no under-reporting of income if the assessee furnishes a bona fide explanation and discloses all material facts
• The appellant contended that his income was fully subjected to TDS, and the same was reflected in the Department’s records, leaving no scope for revenue loss
• He cited judicial precedents, including Sekhon Jagtar Singh v. ITO, Santhosh Abraham v. ITO, and Ishit Kamleshbhai Sheth v. ITO, to support his case
• The appellant emphasized that he had no intention to under-report income and that his conduct was bona fide

For the Respondent

• The Department contended that the mere fact of filing the return in response to a notice under Section 148 attracted the provisions of Section 270A(2)(b)
• It argued that the delay in filing the return justified the imposition of penalty, regardless of the appellant’s explanations
• The Department relied on the orders of the AO and CIT(A), which upheld the penalty

The Court's Analysis

The ITAT Patna Bench undertook a detailed analysis of the provisions of Section 270A and the judicial precedents cited by the appellant. The Tribunal observed the following:

1. No Escapement of Income: The assessment was concluded under Section 147 read with Section 144B at the returned income of Rs. 60,28,154/-, without any variations. This indicated that there was no escapement of income by the appellant.

2. TDS Compliance: The appellant’s income consisted entirely of salary income, on which TDS had been deducted by the employer and deposited with the government. The income was fully traceable in the Department’s records, and there was no revenue loss.

3. Bona Fide Reasons: The appellant had bona fide reasons for not filing the return under Section 139(1). He met with a road accident on 11.02.2020, underwent prolonged medical treatment, and was subsequently affected by the COVID-19 pandemic. The Tribunal accepted the medical documents and photographs submitted by the appellant as evidence of his genuine difficulties.

4. Judicial Precedents: The Tribunal relied on several coordinate bench decisions to support its reasoning:

   • In Sekhon Jagtar Singh v. ITO, the ITAT Bangalore Bench held that penalty under Section 270A cannot be imposed when the income is fully subjected to TDS and reflected in the Department’s records. The Tribunal emphasized that Section 270A(6)(a) provides immunity from penalty if the assessee furnishes a bona fide explanation.

   • In Santhosh Abraham v. ITO, the ITAT Chennai Bench deleted the penalty, holding that the assessee’s explanation of being prevented from filing the return due to COVID-19 was bona fide and covered under Section 270A(6)(a).

   • In Ishit Kamleshbhai Sheth v. ITO, the ITAT Ahmedabad Bench held that penalty under Section 270A cannot be imposed mechanically merely because the return was filed in response to a notice under Section 148. The Tribunal emphasized that what is crucial is whether there is any concealment, misreporting, or deliberate non-disclosure of income. The mere timing of filing the return is not determinative.

"The provisions of clause (a) of subsection 6 of section 270A of the Act provides that there will not be any under reporting of income if the assessee furnish explanation with respect to the income and discloses all the material facts regarding such income and the AO is satisfied that the explanation offered is bona fide. In the present case, the income of the assessee was subject to TDS and almost entire tax liability was already paid by way of TDS and the same was duly reflecting in the record of the department. Hence there was no reason for the assessee to underreport his income by not furnishing return of income."

"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."

1. Substance Over Form: The Tribunal emphasized that penalty provisions must be applied with regard to substance over form. The discretion to levy penalty under Section 270A(1) must be exercised judiciously, taking into account the assessee’s explanation, conduct, and supporting documents. The Tribunal held that 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.

2. No Fraudulent Intent: The Tribunal found that the appellant had no fraudulent intent and that his omission to file the return was not contumacious. The appellant was a regular taxpayer who had filed returns voluntarily for previous assessment years without any default.

The Verdict

The ITAT Patna Bench allowed the appeal and deleted the penalty of Rs. 8,62,333/- imposed under Section 270A of the Income Tax Act. The Tribunal held that the appellant’s explanation for the delay in filing the return was bona fide, and there was no escapement of income or revenue loss. The assessment was concluded at the returned income without any variations, and the appellant’s income was fully subjected to TDS. The Tribunal directed the deletion of the penalty and allowed the appeal in favour of the appellant.

What This Means For Similar Cases

Penalty Under Section 270A Cannot Be Imposed Mechanically

• Substance Over Form: The ruling reinforces that penalty under Section 270A cannot be imposed mechanically merely because the return was filed in response to a notice under Section 148. The timing of filing the return is not determinative; what matters is whether there is any concealment, misreporting, or deliberate non-disclosure of income.
• Bona Fide Explanations: Assessees who provide bona fide explanations for delayed filing, such as medical emergencies, COVID-19 pandemic, or other genuine difficulties, are likely to succeed in getting penalties deleted, provided there is no escapement of income or revenue loss.
• TDS Compliance: Where the assessee’s income is fully subjected to TDS and reflected in the Department’s records, the possibility of tax evasion is neutralised, and penalty under Section 270A is unjustified.

Judicial Discretion Must Be Exercised Judiciously

• No Mandatory Penalty: The Tribunal clarified that Section 270A(1) 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.
• Complete Disclosure: If the assessee fully discloses income in response to a statutory notice and the same is accepted without variation, penalty under Section 270A(2)(b) cannot be imposed.
• Third-Party Verification: The Tribunal emphasized the importance of third-party verifiable documents such as Form 26AS, salary certificates, and bank statements to substantiate the assessee’s claims.

Implications for Taxpayers and Practitioners

• Regular Compliance: Taxpayers who have a history of regular compliance and file returns voluntarily for previous years are more likely to succeed in penalty appeals, as their conduct indicates no fraudulent intent.
• Documentary Evidence: Assessees must preserve and submit documentary evidence (e.g., medical records, accident reports, COVID-19-related documents) to substantiate their bona fide explanations for delayed filing.
• Judicial Precedents: Practitioners can rely on the coordinate bench decisions cited in this judgment to argue against mechanical imposition of penalties under Section 270A.
• Revenue Loss Test: The Tribunal’s ruling establishes that penalty under Section 270A is unjustified in the absence of revenue loss or fraudulent intent, even if the return is filed in response to a notice under Section 148.