The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that ‘Reasonable Cause’ needs to be substantiated for failure of filing of return in order to claim exemption to penalty under Section 271F of the Income Tax Act 1961 and ignorance that the income earned from the partnership firm is liable to tax is not a reasonable cause for late filing of Income Tax Returns (ITR).
The assessee Ashwin Liladhar Shah is an individual engaged in the legal profession and also works as a partner at a law firm S. Ashwinkumar & Co.
The Assessing Officer (A.O) observed that the assessee has not filed his return of income for A.Y. 2012-13 and also sold an immovable property for consideration of Rs.75 lacs as per the Individual Transaction Statement (ITS) under the Assessment Information System (AST).
The A.O reopened the assessee’s case under Section 147 of the Income Tax Act by issuing notice under Section 148 of the Income Tax Act and assessee filed his return of income in response to notice.
The A.O also initiated the penalty proceeding under Section 271F of the Income Tax Act for failing to comply with the provision of Section 139(1)/139(4) of the Income Tax Act and levied a penalty of Rs.5, 000/- on the ground that the assessee has not substantiated his failure to file his return with reasonable cause.
The assessee filed an appeal before the Commissioner of Income Tax (Appeal) [CIT (A)] challenging the impugned penalty levied by the A.O. The CIT (A) confirmed the penalty imposed by the A.O. under Section 271F of the Income Tax Act. Aggrieved by the order, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT).
The Authorised Representative for the assessee contended that the assessee was on a belief that partnership firms were exempted from tax and that the assessee is said to have earned substantial income from the partnership firm.
The counsel also claimed the failure to file returns for the contested year was due to the assessee’s accountant quitting his job.
The Departmental Representative for the Revenue stated that the assessee himself being an Advocate cannot be ignorant of the prevailing law of the land and further asserted that the assessee has not substantiated his failure in non filing of the returns by any reasonable cause.
The bench comprising of Shri Prashant Maharishi , (Accountant Member) and Ms. Kavitha Rajagopal , (Judicial Member) , observed that the assessee’s claim that the financial crisis and the resignation of the accountant were the only reasons for not filing returns which could not be considered as an adequate justification.
Further, pertaining to the fact that the assessee bonafidely believed partnership firm is exempted from tax, is an unacceptable contention that cannot be relied upon by a person practicing advocacy.
The Tribunal stated that Ignorantia juris non excusat which means “ignorance of law is no excuse” holds applicable not only to a common man but also to a person who has to hold the integrity of the law of land.
ITAT drew the inference that the reason stated by the assessee for the failure in filing the ITR is not a ‘reasonable cause’ nor is it sufficient to delete the impugned penalty levied by the A.O. and confirmed by the CIT (A), hence the assessee is liable to pay the penalty.
Suggested Keywords- Partnership, ITR, Penalty, ITAT, Penalty, income earned, tax, ignorance, reasonable cause Income tax return
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