My client (the assessee) was issued a 148/147 notice citing escape of income tax for purchasing a joint property with spouse. This was for a prior AY before 2020. It took a year of back and forth submitting proofs and submitting ITR1 in retrospect showing income of <10K for that prior AY for the assessee. Finally, the NFAC closed the order with 0 demand. They were satisfied that the property was purchased completely by the funds from the spouse and not the assessee. The assessee had an immaculate trail of funds transferred to the builder which really helped (learning). However, the NFAC has issued 271F penalty for late filing of the ITR1 returns for that prior AY. My assessee had income less than 10K in that prior AY. We still filed the ITR1 to help bring closure to the 148/147 case. Technically, we believe the assessee did not have to file the ITR1 for that prior AY. Question: Should we contest the 271F penalty show cause notice OR should we pay it and be done with the case? Can someone please help us with what the law says? Appreciate the guidance. We are worried that if we pay the penalty for late ITR1 filing via the 271F notice, it may mean we accepted wrong doings in the 147/148 case (which is not correct as the case was closed with 0 demand).
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147 dismissed with 0 demand but with 271F penalty for ITR1 with less than 10K income - pay/not pay?
First of all, congratulations for getting this order for your client. reassessment proceedings generally tend to be very adverserial. So getting a nil demand order is worth celebration.
In case you decide to challenge 271F demand, you may refer to cases like ITA No 3273/DEL/2023 where once primary case is set aside, 271F has been automatically removed.
However, once you have the 148 order without any penalty, the best course of action is to pay 271F penalty with a letter stating that you are paying the penalty just to bring closure to the proceedings and not as an admission of fault/guilt.
From assessee's perspective, thats the course of action in terms of costs. We just did the same in one of our case where we continue to challenge the 148 order but closed 271F proceedings.
Thank you @ Nikhil Kaushik sir, will check on the reference and also mostly heed to your advise. Very much appreciate your crisp reply.
Updating the end result of this case.
The IT Dept dropped the 271F penalty as well with this comment :
Dropping of Penalty Proceedings u/s 271F of Income Tax Act 1961.
Since the assessee was not required to furnish a return of his income for the reason their total income did not exceed the maximum amount which is not chargeable to income tax, it is satisfied that the assessee is not liable to be imposed any
penalty u/s 271F of the Act for the relevant Assessment Year.
Big relief!
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