An NRI Sold a Property and Filed No Return. ITAT Chennai Deleted the 200% Penalty, Because the Notice Named No Charge

On 6 October 2026 the Income Tax Appellate Tribunal in Chennai deleted a ₹16,34,312 penalty on a non-resident who sold a property for ₹1,02,00,000 and did not file a return. The capital gains tax was assessed and paid, and the Tribunal left that alone. It struck down the penalty because the notice never told the seller which form of misreporting he was accused of.

The case

The order is ITA No. 981/CHNY/2026, Kous Khan Mahaboob Khan v. Income Tax Officer, International Taxation Ward, Tuticorin, assessment year 2018-19. The 'A' Bench heard it: SS Viswanethra Ravi, Judicial Member, and Padmavathy S., Accountant Member, who wrote the order. The hearing closed on 23 September 2026 and the order was pronounced on 6 October 2026. It runs to 9 pages.

What happened

The order records that the seller "is an individual and a Non-Resident" (para 2). He did not file a return for assessment year 2018-19. The tax officer received information that he had sold an immovable property for ₹1,02,00,000. The order does not say where the property is or what kind it is.

Because no return was filed, the officer passed an order under section 148A(d) of the Income-tax Act, 1961 and reopened the assessment with a section 148 notice. He assessed long-term capital gain of ₹39,66,774. The seller paid the tax on it.

The officer then levied a penalty under section 270A for misreporting, at 200% of the tax, ₹16,34,312. The seller told the Commissioner (Appeals) that he accepted the gain and had paid the tax, and asked that no penalty be levied. The Commissioner (Appeals), Chennai-16, confirmed the penalty on 17 December 2025, on the ground that not filing a return meant under-reporting by misreporting.

What the Tribunal did

At the Tribunal his representative raised one point: the penalty notices never stated which limb of section 270A(9) applied. That sub-section lists several distinct kinds of misreporting. The department's representative replied that the point was never raised below and that the penalty order itself named clause (a), misrepresentation or suppression of facts (para 5).

The Tribunal followed an earlier Chennai bench decision, DCIT v. Ethirajulu Vajravel Kumaran, [2025] 180 taxmann.com 11, which relied on two Delhi High Court rulings, Prem Brothers Infrastructure LLP and Schneider Electric South East Asia (HQ) Pte. Ltd. (para 6). It found the notice in this case did not state the specific limb, "which is identical to the issue considered by the coordinate bench" (para 7). It held that "the penalty proceedings are void-ab-initio and the penalty levied therein is liable to be deleted" (para 7), and allowed the appeal (para 8).

Why it matters if you sell in India from abroad

Read what the order does not do. It does not excuse the missing return and it does not touch the tax. The seller paid capital gains tax on ₹39,66,774 after the case was reopened. The penalty fell for one reason: a defect in the notice. A notice that names the clause would not have failed on this ground.

The sequence in this case: a sale reaches the department, no return follows, and the case is reopened. On 28 and 29 September 2026 ITAT Chennai and ITAT Jodhpur ruled on TDS shortfalls on property sold by or to a non-resident.

This is a report of one order, not tax advice. How capital gains are taxed on a sale is in our guide on capital gains tax for NRIs selling property, and the return side is in claiming a TDS refund and filing the ITR after a sale.

FAQ

Did the NRI have to pay tax on the sale? Yes. The order records that the officer assessed long-term capital gain of ₹39,66,774 and that the seller paid the tax on it. Only the penalty was deleted.

Why was the penalty deleted? The penalty notice did not state which limb of section 270A(9) the seller was charged under. Following an earlier Chennai bench decision, the Tribunal held on 6 October 2026 that such a notice makes the penalty proceedings void from the start.

How large was the penalty? ₹16,34,312, levied at 200% of the tax on the capital gain, for under-reporting in consequence of misreporting.

Does this mean an NRI who does not file a return escapes penalty? The order does not say that. It turns on a defect in this notice. The Tribunal did not decide whether skipping the return was misreporting.

What did the department argue? That the seller replied to the penalty notice without raising the point, that he never raised it before the lower authorities, and that the penalty order named clause (a) of section 270A(9). The Tribunal went by the notice.

66 MG Road newsdesk

Sources

• Income Tax Appellate Tribunal, Chennai 'A' Bench, Kous Khan Mahaboob Khan v. ITO, International Taxation Ward, Tuticorin, ITA No. 981/CHNY/2026, AY 2018-19, pronounced 6 October 2026, full text: https://indiankanoon.org/doc/100582494/