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Judgment
O R D E R
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 12.12.2025 of the Ld. National Faceless Appeal Centre (NFAC) Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) DIN & Order No: ITBA/NFAC/S/250/2025-26/1083639451(1) arising out of the penalty order dated 26.09.2022 u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the Income Tax Department for AY: 2016-17.
Heard and perused the records. On hearing both the sides we find that the limited issue in this appeal is the challenge of penalty levied u/s 271(1)(c) on allegation that it was only upon notice u/s 148 the return was filed and thus there was concealment of income by the assesse.
Ld. AR contended that the assessee had deposited entire tax but failed to file ITR within time limit u/s 139 of the Act. However, subsequently, the ITR was filed in response to notice u/s 148 and the assessment was completed at the returned income without any variation.
It was submitted that the delay in filing of ITR was due to dispute between the directors and the taxes were paid after seeking permission and direction from the Hon'ble Delhi High Court.
The tax payment details are as under:
| Mode of tax payment | Amount (In Rs.) | Total |
|---|---|---|
| TDS | 3,12,249 | 3,12,249 |
| Advance tax: | ||
| 12.06.2015 | 15,00,000 | |
| 11.09.2016 | 40,00,000 | |
| 08.12.2016 | 1,00,00,000 | |
| 15.03.2016 | 1,80,00,000 | 3,35,00,000 |
| Self Assessment Tax | ||
| 16.06.2016 | 30,00,000 | |
| 28.03.2018 | 75,00,000 | 1,05,00,000 |
| Total | 4,43,12,249/- |
Ld. DR has however, supported the order and submitted that as assesse was non-filer that apparently makes a case of concealment.
We find that the notice u/s 148 of the Act was issued on 31/03/2021 in response to which the appellant had filed ITR on 03/04/2021 declaring income of Rs. 12,85,31,878/-resulting in income tax liability of Rs. 4,31,62,284/-. The assessment wascompleted vide order u/s 147 dated 29/03/2022 after accepting returned income without any variation. Thus the assessee had discharged the entire tax liability well before the issuance of notice u/s 148 dated 31.03.2021. Thus Explanation 4(c) to Section 271(1)(c) of the Act becomes relevant and same is reproduced below:
Explanation 3.-Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause © of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.
Explanation 4.—For the purposes of clause (iii) of this sub-section,—
(a)..
(b)..
(c)where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148.”
Thus what is material is that the penalty u/s 271(1)(c) is leviable in respect of tax sought to be evaded. Now, when we read Explanation 4(c), it is clear that in case the assessee has deposited the entire tax before issue of notice u/s 148 and hence the tax sought to be evaded would be NIL. Thus eliminating the applicability of section 271(1)(c) of the Act.The legal position to this effect is supported from the decision of in the case of Sh. Niripraj Singh Sohal v. ITO (ITA No. 6276/Del/25 vide order dated 19.01.2026, wherein the co-ordinate bench has held as under:
6.We have heard the rival submissions and perused the material available on record. We note that the assessee, despite hearing substantial income, did not file his return for A.Y. 2015-16. It was only after a notice u/s 148 was issued on 06.04.2022 that the return in response was filed on 05.05.2022, declaring total income of Rs. 33,56, 130/-, Hence, Ld. AO has rightly held that the income would have escaped assessment if the reassessment proceedings had not been initiated and therefore, the assessee's argument that since assessed income in the same as returned income and therefore no penalty u/s 271(1)(c) can be levied is without any basis. In this regard, various judicial citations relied upon by the assessee are clearly distinguishable. We note that the assessee's case is squarely covered by the provisions of Explanation 3 to section 271 as per which a case of non-filing of return of income is deemed to be a case of concealment notwithstanding that such person furnishes return of his income in pursuance to notice u/s 148.
6.1However, the alternative plea of the assessee that the tax sought to be evaded has to be computed after excluding the taxes paid by way of TDS, advance tax and self-assessment tax has merit. In this regard, the relevant provisions of Explanation 4 clause (c) are reproduced below:Section 271(1) Explanation 4.- For the purposes of clause (it) of this sub-section,-(c) where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by an amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148.
6.2We note that in the assessee's case, TDS of Rs. 7,09,902/- has been deducted as per Form 26AS and this amount is eligible for exclusion while computing the tax sought to be evaded in view of above Explanation. Further, the assessee has paid a sum of Rs. 60,900/- by way of self-assessment tax on 25.01.2018 even though no return was filed. We are of the considered view that the penalty has to be levied on the amount of tax sought to be evaded which is to be computed after reducing the TDS of Rs.7,09,902/-and self-assessment tax of Rs.60,900/-. Accordingly, Ld. AO is directed to reduce the penalty levied to Rs.85,992/-.
In the light of aforesaid we find no substance in the contentions of ld. DR and the findings of ld. CIT(A). The grounds are sustained and appeal is allowed. The impugned penalty is deleted.
Order pronounced in the open court on 05.06.2026