No Penalty Under Section 270A for Return Accepted Without Addition Filed Pursuant to Section 148 Notice

ORDER

Sandeep Singh Karhail, Judicial Member. – The assessee has filed the present appeal against the impugned order dated 09/02/2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2019-20.

2. The solitary grievance of the assessee is against the levy of penalty under section 270A of the Act.

3. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is a company incorporated under the Companies Act, 1956, and is engaged in various activities such as promoting and developing ingenious and exotic breeds of Sheep and Goats through scientific breeding. Further, all subscribers to the Memorandum of Association of the assessee are representatives of the Government of Karnataka and hold shares on behalf of the Governor, Government of Karnataka. Thus, the assessee is a Government Company owned by the Government of Karnataka.

4. For the year under consideration, the assessee could not file its return of income under section 139(1) of the Act. Subsequently, on the basis of the information available with the Revenue that the assessee has made time deposit of INR 1,00,78,632 in the State Bank of India and also earned interest other than interest on securities under section 194A of the Act of INR 81,39,683 in the State Bank of India and INR 3,66,840 in IDBI Bank Ltd., proceedings under section 148A of the Act were completed and notice under section 148 of the Act was issued on 22/03/2023. In response to the said notice, the assessee filed its return of income on 20/04/2023, declaring total income of INR 1,11,02,410.

5. During the assessment proceedings, in response to the statutory notices, the assessee filed its response along with documentary evidence. The assessee submitted that the grants received from the Government of Karnataka were deposited as time deposits in the bank account. In support of its contention, the assessee furnished its bank statement reflecting the grant received, which was further invested as a time deposit in the bank. Accordingly, the Assessing Officer (“AO”), vide order dated 11/01/2024, passed under section 147 read with section 144B of the Act, accepted the submissions of the assessee and drew no adverse inference, as the assessee fully explained the source of investment.

6. As regards the interest income earned during the year, the assessee submitted that it earned total interest income of Rs. 85,06,523 (Rs.81,39,683/- in State Bank of India and Rs. 3,66,840/- in IDBI Bank Limited) during the year under consideration. In its return of income and computation of income, the assessee has shown net interest income of Rs. 38,12,551/- (Rs. 85,06,523 – Rs. 46,93,972). As per the assessee, an expense/deduction of Rs. 46,93,972/- was claimed during the year, as the said amount was remitted to the Government of Karnataka as per the instructions. In support of the claim, the assessee provided a copy of the bank interest repayment letter, a copy of the challan, a copy of the bank statement reflecting the interest amount repaid to the Government, Computation of Income, and a circular from the Government of Karnataka dated 27.08.2019 with regard to remitting back interest on FD. After perusing the assessee’s response and the material placed on record, the AO concluded that the issue has been properly explained by the assessee and thus requires no addition/disallowance. Accordingly, assessment was completed at the returned income of INR 1,11,02,408.

7. Since the assessee did not file its original return of income for the year under consideration and the income remains undisclosed on the part of the assessee till filing of return of income pursuant to the notice issued under section 148 of the Act, the AO recorded the satisfaction for initiation of penalty proceedings under section 270A of the Act for under-reporting of income, which was disclosed only after issuance of notice under section 148 of the Act.

8. Accordingly, vide order dated 02/07/2024 passed under section 270A of the Act, the AO levied a penalty of INR 18,53,214 for under-reporting of income under section 270A of the Act.

9. The learned CIT(A), vide impugned order, upheld the penalty levied under section 270A of the Act, and the assessee’s submission that, being a Government Company, it can only file its return after completion of statutory audit by CAG, which was delayed, was rejected by treating it as a general explanation. Being aggrieved, the assessee is in appeal before us.

10. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee is a Company owned by the Government of Karnataka and the audit of accounts has to be performed by the statutory auditor appointed by the Comptroller and Auditor General of India under section 139(5) of the Companies Act, 2013. Later, a supplementary audit has to be carried out independently by the Comptroller and Auditor General under section 143(6)(a) of the Companies Act, 2013. It was submitted that the statutory audit of the company was completed on 16/11/2022, and the final clearance with Nil comments from the Comptroller and Auditor General was received on 20/01/2023. The annual accounts were finally adopted at the annual general meeting held on 07/02/2023. The learned AR submitted that by this time, the time provided to file the income tax return under the Act had expired. As a result, the company could not file the income tax return for the year under consideration. It was further submitted that, as the assessee is a Government Company, there is no intention of nondisclosure of any income, and that only due to a delay in clearing the backlog of previous years’ accounts and audit, there was a delay in finalisation of the 2018-19 accounts, which resulted in non-filing of the income tax return. The learned AR submitted that the assessee decided to make an application under section 119(2)(b) for condonation of delay in filing of return for assessment year 2018-19. However, by this time the assessee received the notice under section 148 of the Act for reassessment, and pursuant thereto the assessee filed the return. In order to support its contention, the assessee has placed on record the copy of the minutes of the AGM and clearance of accounts by the Comptroller and Auditor General (C & AG).

11. On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.

12. Having considered the submissions of both sides and perused the material available on record, we find that in the present case there is no dispute regarding the fact that the assessee is a Government Company owned by the Government of Karnataka. Therefore, the assessee is subject to mandatory statutory audit requirements under the Companies Act, 2013. In this regard, it is relevant to note the provisions of section 139(5) of the Companies Act, 2013, which specifically mandates that the appointment of the statutory auditor be made by the Comptroller and Auditor General of India. Further, as per the provisions of section 143(6)(a) of the Companies Act, 2013, the supplementary audit has to be carried out independently by the C&AG. From the documents placed on record, we find that the final clearance with Nil comments from the C&AG was issued on 20/01/2023. As per the assessee, the annual accounts were only thereafter finally adopted at the AGM held on 07/02/2023, a copy of which has been placed on record by the assessee. Thus, we agree with the submissions of the assessee that due to delay in completing the audit, which was beyond its control, the original return of income under section 139(1) of the Act could not be filed by the assessee.

13. Further, it is evident from the record that notice under section 148 of the Act was issued on 22/03/2023. Thus, we agree with the submissions of the assessee that by the time its annual accounts were finally adopted, the notice under section 148 of the Act was issued, and thereafter, the assessee filed its return of income declaring a total income of INR 1,11,02,410. It is further pertinent to note that the AO, vide its order passed under section 147 read with section 144B of the Act, after perusing the documents filed by the assessee, agreed with the explanation that the time deposit made in the bank account was pursuant to the grant received from the Government of Karnataka. Further, the AO made no addition on account of interest earned by the assessee from the time deposits. Therefore, in the present case, the return of income filed by the assessee pursuant to notice under section 148 of the Act was accepted, and its income was assessed at the returned income. However, subsequently the AO levied the penalty under section 270A of the Act for under-reporting of income.

14. At this stage, it is pertinent to note the provisions of section 270(6)(a) of the Act, which reads as follows: –

“(6) The under-reported income, for the purposes of this section, shall not include the following, namely:—

(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;“

15. Therefore, in view of the facts and circumstances of the present case, we are of the considered view that the instant case squarely falls within the purview of the provisions of section 270(6)(a) of the Act, as the assessee has duly explained the circumstances which resulted in the delay in filing its original return of income. We find that a similar explanation was made by the assessee before the learned CIT(A). However, the same was rejected on the basis that the same is general in nature and unsupported by any provision of law permitting postponement of filing of return merely because audit is pending. As noted in the foregoing paragraph, the assessee, being a Government Company, can only file its return of income after finalisation of its accounts pursuant to the audit by the C&AG. Therefore, even though there is no provision of law which permits postponement of the filing of return, the fact that in the present case the C&AG audit was delayed supports the contention of the assessee in not filing the original return of income under section 139(1) of the Act. Further, in the present case, it is evident that by the time the entire statutory procedure was completed, the notice under section 148 of the Act was issued, pursuant to which the assessee filed its return of income, which was accepted by the AO and the assessment was concluded without making any addition. Therefore, we are of the considered view that the instant case falls within the ambit of the provisions of section 270(6)(a) and the income declared by the assessee in its return pursuant to notice under section 148 of the Act cannot be considered as under-reported income. Thus, the impugned penalty levied under section 270A of the Act is quashed. As a result, the grounds raised by the assessee are allowed.

16. In the result, the appeal by the assessee is allowed.

17. Since the appeal by the assessee has been allowed, the stay application filed by the assessee, being S.A. No.64/Bang/2026, for the year under consideration, has become infructuous and therefore is dismissed.

18. To sum up, the appeal by the assessee is allowed, while the stay application is dismissed as infructuous.