ITAT Jodhpur Deletes Section 271C Penalty Where Seller Disclosed Full Sale Consideration in ITR
Case Overview
Case Name: Jagadish Panchal Vs ADIT (TDS) (ITAT Jodhpur)
Assessment Year: 2016-17
Forum: Income Tax Appellate Tribunal, Jodhpur Bench
The Income Tax Appellate Tribunal (ITAT), Jodhpur Bench, recently ruled in favour of an assessee who had failed to deduct tax at source under Section 194-IA of the Income Tax Act, 1961 while jointly purchasing immovable property. The Tribunal deleted the penalty of ₹1,12,500 that had been levied under Section 271C of the Income Tax Act, 1961, holding that there was no tax evasion in the underlying transaction and that reasonable cause existed for the default.
Background and Facts of the Case
The assessee, Jagadish Panchal, along with his wife as a co-purchaser, acquired an immovable property on 25 June 2015 for a total consideration of ₹2,25,00,000 from Shri Daljeet Singh Bhandari. As per the provisions of Section 194-IA of the Income Tax Act, 1961, the assessee was required to deduct TDS amounting to ₹1,12,500 at the time of making payment for the property purchase. However, the assessee failed to comply with this obligation.
Following the non-deduction of TDS, penalty proceedings were initiated, and the Assessing Officer imposed a penalty equivalent to the TDS amount — ₹1,12,500 — under Section 271C of the Income Tax Act, 1961. The assessee's submissions were duly considered but were not found sufficient by the Assessing Officer to warrant waiver of the penalty.
Aggrieved by the penalty order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi. The CIT(A), however, confirmed the levy of penalty under Section 271C of the Act, prompting the assessee to approach the ITAT, Jodhpur.
Condonation of Delay: 329-Day Delay Condoned
Assessee's Explanation
Before proceeding to the merits of the case, the Tribunal had to address a procedural issue — the appeal before the ITAT had been filed with a delay of 329 days. The assessee submitted a notarised affidavit explaining the following circumstances:
- He is a non-resident individual who was residing outside India for business purposes during the relevant period.
- The property had been purchased jointly with his wife, and the same property transaction had been the subject matter of a separate appeal filed by the wife.
- The CIT(A), vide order dated 31.03.2023, had allowed the wife's appeal and deleted the penalty imposed on her.
- Since the co-owner's (wife's) appeal had already been decided favourably, the assessee initially believed that filing a separate individual appeal was unnecessary.
- Subsequently, on consultation with his Chartered Accountant, the assessee learned that filing an independent appeal was mandatory even in his own case, leading to the delayed filing.
Tribunal's Finding on Delay
The ITAT found that the explanation offered by the assessee through the notarised affidavit constituted reasonable cause for the delay. Accordingly, the Tribunal condoned the delay of 329 days and admitted the appeal for consideration on merits.
The Tribunal's condonation underscores the principle that a reasonable and bona fide explanation, particularly from a non-resident assessee unfamiliar with procedural nuances, can justify delay in filing appeals before tax authorities.
Merits of the Case: Grounds of Appeal
The assessee raised the following grounds before the ITAT:
"The AO has passed an order and imposed the penalty after mentioning that 'Ignorance of law is not an excuse for contravention of law'. The learned AO has not considered facts and circumstances of the case which is totally in favour of assessee. Although there is a general presumption that ignorance of law is not an excuse but there is no presumption in law that every individual knows all the law. There is no prejudice is caused to Revenue, as the seller has declared the capital gains on sale of plot of land in the return of income filed with Revenue and paid due taxes to Government. The learned Additional Commissioner of Income Tax Range-TDS, Udaipur and Commissioner (Appeals) has erred in imposing and confirming the penalty of Rs.112500/- u/s 271(c) r.w.s. 274 of the I.T. Act. The action of the learned officer is illegal, wrong and against the facts and circumstances of the case and therefore needs to be quashed. The appellant reserve his right to add, amend or alter the grounds."