2014 (1) TMI 1713 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - In the case of Hindustan Steel vs. State of Orissa in 1969 (8) TMI 31 - SUPREME Court held that that An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. - Thus penalty deleted - Decided in favour of assessee

Summary

Issues:
Challenge to penalty u/s. 271(1)(b) of the Income Tax Act for non-compliance of notice u/s. 142(1) and questionnaire - Adequacy of opportunity granted to the assessee.

Analysis:
The appeals before the ITAT Delhi were against the order of the Ld. CIT(A) for assessment years 2005-06 to 2011-12, concerning the confirmation of penalty u/s. 271(1)(b) of the Income Tax Act. The main issue raised was the alleged lack of reasonable opportunity granted to the assessee during the assessment proceedings. The AO had imposed the penalty for non-compliance with a notice u/s. 142(1) and questionnaire issued on 19.11.2012, with the case scheduled for 26.11.2012. The Ld. CIT(A) upheld the penalty, leading to the assessee's appeal before the ITAT.

During the proceedings, the assessee argued that the AO had provided inadequate time for compliance, merely giving a 7-day notice and seeking responses on 36 issues. The counsel referred to a Tribunal decision where subsequent compliance was considered good compliance, and penalties were not imposed for such defaults. The DR, however, supported the Ld. CIT(A)'s order.

The ITAT, after considering the submissions and records, noted that the AO had asked for explanations on 36 questions but allowed only 7 days for response, deeming it an inadequate opportunity. Citing a previous case, the ITAT highlighted that insufficient time for compliance cannot justify penalty imposition under section 271(1)(b). Additionally, the completion of assessment under section 143(3) implied that subsequent compliance was considered satisfactory. Referring to a Supreme Court decision in Hindustan Steel vs. State of Orissa, the ITAT emphasized that penalties should not be imposed for technical breaches or bonafide beliefs.

Consequently, the ITAT set aside the Ld. CIT(A)'s orders and deleted the penalty levied on the assessee. All appeals filed by the assessee were allowed, and the decision was pronounced in open court on 30/1/2014.