Penalty Under Section 270A Remanded for Fresh Adjudication on Reasonable Cause
Issue
Whether the levy of penalty under Section 270A for “under-reporting of income” (due to non-filing of regular return) is justified when the assessee claims the Managing Partner was abroad for medical treatment, and whether the penalty notice was vague.
Facts
Assessee: A partnership firm receiving insurance commission.
Assessment Years: 2018-19, 2019-20, and 2020-21.
The Default: The assessee did not file its regular return of income under Section 139(1) despite earning substantial insurance commission (approx. Rs. 65.38 Lakhs in AY 2018-19) on which TDS was deducted.
Reopening: The AO reopened the case. The assessee then filed a return declaring income (e.g., Rs. 35.37 Lakhs for AY 2018-19), which was accepted by the AO.
Penalty: Since no original return was filed, the AO levied a penalty under Section 270A for under-reporting of income.
Assessee’s Defense:
Reasonable Cause: The Managing Partner was undergoing serious medical treatment in Canada, preventing the filing of the return.
Legal Plea: The show-cause notice was vague and did not specify the exact limb of the penalty provision applicable.
No New Business: The firm did not undertake new business, only received renewal commissions.
Decision
1. Finding on Facts:
The Tribunal noted that the assessee is a firm, and even if one partner was ill, the existence of another partner to manage affairs could not be ruled out. The assessee had not yet fully substantiated the “reasonable cause” with cogent evidence.
2. Remand for Adjudication:
However, considering the specific plea regarding the adverse medical condition of the Managing Partner and the legal arguments raised by the Authorized Representative (AR), the Tribunal decided to give the assessee another chance.
Action: The appeals for all three years were restored to the file of the CIT(A) (Commissioner of Income Tax – Appeals).
Direction: The CIT(A) must re-adjudicate the matter afresh. The assessee is directed to prove the reasonable cause for non-filing the regular return with evidence. [Matter Remanded]
Key Takeaways
Reasonable Cause Defense: While Section 270A is stricter than the old Section 271(1)(c), proving a “reasonable cause” (under Section 273B) like severe illness of the key person can still save a taxpayer from penalty if documented properly.
Partnership Responsibility: In a partnership firm, the illness of one partner is often not enough justification for non-compliance if other partners exist. The assessee will need to prove why the other partners could not file the return.
Statistical Allowance: “Allowed for statistical purposes” means the case is sent back for a re-decision, and for record-keeping, it is treated as a disposal, though the final liability is not yet determined.
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, CHANDIGARH
M/s Unique Insurance Company
Vs.
ITO, Ward-6(1)
Aaykar Bhawan,
Ludhiana (Punjab) – 142029
Date of Pronouncement : 08-01-2026
ITA No.1147/1148/1149CHANDI/2025
Source :- Judgement