ITAT Bangalore Sets Aside Penalty for Delayed SFT Filing – Technical and Administrative Challenges Accepted

Case Background and Factual Matrix

In a significant ruling bearing ITA No.2312/Bang/2025 concerning Assessment Year 2021-22, the Income Tax Appellate Tribunal (ITAT), Bangalore addressed the imposition of penalty on a governmental entity tasked with reporting financial transactions. The appellant, functioning as Senior Sub-Registrar under the State Government of Karnataka, operates as a designated reporting authority under Section 285BA of the Income Tax Act.

The registrar's office is mandated by law to submit comprehensive details of all property registrations exceeding Rs. 30 lakhs through Statement of Financial Transactions using Form 61A. During the financial year 2020-21 (corresponding to Assessment Year 2021-22), the office faced substantial challenges in complying with these reporting requirements within prescribed timelines.

The taxation authority levied a penalty amounting to Rs. 50,000 under Section 271FAA following the registrar's inability to submit corrected statements rectifying defects identified in the originally filed Form 61A. The penalty was contested before the Commissioner of Income Tax (Appeals), who rejected the appeal in limine by declining to excuse a filing delay of 102 days.

Timeline of Events Leading to Penalty

The governmental reporting entity was required to file Form 61A by June 30, 2021. The initial submission occurred on July 26, 2021, exhibiting a delay of approximately one month. Upon examination, the Income Tax Department classified this submission as defective and issued formal communication under Section 285BA(4) on March 9, 2022, directing rectification.

Subsequently, multiple notices were dispatched:

  • Communication dated February 13, 2024
  • Follow-up notice dated January 31, 2025
  • Show cause notice issued on February 14, 2025

Despite these repeated communications, the registrar's office encountered persistent technical obstacles preventing generation of the Data Quality Report (DQR), which is essential for identifying and rectifying defects. The office submitted detailed correspondence on February 21, 2025 and February 25, 2025, elaborating on the multifaceted difficulties impeding compliance.

The Joint/Additional Director of Income Tax acknowledged receipt of the February 25, 2025 letter and granted a limited extension of ten days. However, before adequate time could be provided for resolving the technical impediments, penalty proceedings culminated in the imposition of Rs. 50,000 on March 14, 2025.

Grounds of Appeal Before ITAT

The appellant challenged both the penalty order and the appellate dismissal, raising several substantive grounds:

  1. The National Faceless Assessment Centre (NFAC), Delhi order dated August 31, 2025 was contrary to statutory provisions, natural justice principles, and case-specific facts
  2. The appellate authority committed an error by refusing to condone the 102-day delay despite genuine and bonafide reasons being demonstrated
  3. Dismissal in limine occurred without adjudicating substantive merits or providing opportunity for detailed submissions
  4. The penalty levy under Section 271FAA failed to appreciate the factual circumstances and technical challenges faced by the governmental entity
  5. Various technical glitches and administrative difficulties constituted reasonable cause under the statute, warranting deletion of penalty
  6. The appellate authority failed to consider that absence of willful default should preclude punitive action

Technical and Administrative Challenges Documented

The registrar's office provided comprehensive documentation of systemic obstacles encountered during the reporting process:

Data Conversion and Language Barriers

Property registration particulars are initially recorded in Index II Register maintained in Kannada language. For uploading Statement of Financial Transactions, this information requires translation into English and conversion into Excel format. Many required data fields are not captured in the Index II Register, necessitating compilation from multiple sources.

The clerical workforce and temporary employees engaged on daily wages typically possess basic educational qualifications without specialized knowledge of income tax requirements. This results in numerous typographical errors including incorrect PAN entries, misspelled names, incomplete addresses, wrong dates of birth, invalid telephone numbers and email addresses, and gender misclassification.

Multi-Stage Technical Process Requirements

The filing process involves several sequential technical steps:

  1. Data validation and conversion from Excel to XML format using offline Reporting Portal Utility
  2. Transformation of XML file into TAR file format
  3. Online upload of TAR file through Reporting Portal
  4. Generation of acknowledgment receipt
  5. DQR generation occurring 48 hours post-upload
  6. Analysis of DQR to identify specific defects
  7. Compilation of corrected information
  8. Re-submission of correction statement