ITAT Ahmedabad Rules Out Penalty Under Section 271(1)(c) When Reassessment Accepts Section 148 Return In Full

Background of the Dispute

In Sarojben Urmishbhai Shah Vs ITO (ITAT Ahmedabad), the assessee challenged the levy of penalty under Section 271(1)(c) of the Income Tax Act 1961, as upheld by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The order of the CIT(A) was dated 12.01.2026.

The matter related to Assessment Year 2016-17 as stated in the opening part of the order, though a later paragraph refers to Assessment Year 2015-16. The Tribunal recorded this internal inconsistency but proceeded on the facts as appearing in the order.

Key factual sequence:

  • The assessee did not originally file a return of income under Section 139.
  • A notice under Section 148 was subsequently issued.
  • In response, the assessee furnished a return declaring total income of Rs. 6,45,230/-.
  • The reassessment was completed under Section 147 r.w.s. 143(3) & 144B, accepting the returned income in full, with no addition or disallowance.
  • Despite there being no variation between returned and assessed income, penalty under Section 271(1)(c) amounting to Rs. 55,870/- was imposed and later confirmed by the CIT(A).

The central issue before the ITAT was whether such penalty could be sustained when:

  1. The return filed in response to Section 148 was accepted without modification; and
  2. The assessee claimed a reasonable cause for not filing the original return under Section 139.

Grounds Raised in the Appeal

The assessee’s appeal before ITAT attacked the penalty order and the CIT(A)’s confirmation broadly on the following themes:

  • The penalty of Rs. 55,870/- under Section 271(1)(c) was argued to be legally unsustainable and factually unjustified.
  • The reassessment under Section 147 had been completed at the same income as voluntarily offered in the return filed in response to Section 148, and there was no concealment or furnishing of inaccurate particulars.
  • It was urged that filing a return in response to Section 148 by itself does not trigger Section 271(1)(c) when no addition is made.
  • The assessee relied on a bona fide explanation: non-filing of the original return was attributed to circumstances beyond her control and alleged professional default of the earlier consultant.
  • It was also contended that the penalty order lacked clarity as to whether it was for “concealment of income” or for “furnishing inaccurate particulars”, thereby vitiating the validity of the penalty proceedings.
  • Reliance was placed on judicial precedents holding that where the reassessment accepts the returned income without addition, penalty under Section 271(1)(c) is not attracted.
  • The assessee stressed that all relevant details were fully disclosed during the reassessment and due tax was duly discharged.

CIT(A)’s View: Failure to File Original Return Attracts Penalty

The CIT(A) upheld the Assessing Officer’s (AO’s) action. The reasoning, as captured in paragraph 5 of the appellate order, can be summarised as follows:

  • The assessee had a taxable income of Rs. 6,45,230/- for the relevant year and was required to file a return under Section 139, but failed to do so.
  • A return disclosing income of Rs. 6,45,230/- was filed only after a notice under Section 148 was issued, and therefore this was not treated as voluntary compliance.
  • According to the CIT(A), had the Section 148 notice not been issued, the income would have escaped assessment and tax would not have reached the Government.
  • The CIT(A) concluded that non-filing of the return, despite the existence of taxable income, and the consequent non-payment of tax, squarely fell within the ambit of Section 271(1)(c).
  • On this basis, the CIT(A) confirmed the penalty and dismissed the assessee’s appeal.