2016 (2) TMI 1086 - AT - Income Tax

Imposition of penalty u/s 271(1)(b)- non complying with the notice u/s 143(2) - Held that - The assessee failed to comply with the notices u/s 143(2) dated 07.10.2014, thereafter, the notices u/s 142(1) of the Act dated 21.10.2011, 09.11.2011 & 21.11.2011 and the AO has also issued the notice u/s 142(2A) of the Act dated 28.12.2011. The assessee did not comply to the notices, but the assessee has requested the AO to keep the penalty proceedings in abeyance till the decision of the ld. CIT(A), but the AO has imposed the penalty. AO has given several notices under various sections, but the penalty has been levied only for the assessment u/s 153A read with Section 143(3) of the Act and it was completed on 13.8.2012. As find that during the assessment proceedings, the penalty cannot be imposed for each default, but the penalty can be imposed only for the first default. Therefore, in these cases if the assessee failed to comply with the notices, the remedy with the AO was to frame best judgement assessment u/s 144 and not to impose penalty u/s 271(1)(b) again and again. Therefore, we modify the order of AO and CIT(A) and restrict the penalty for the first default of the assessee in not complying with the notice u/s 143(2). - Decided partly in favour of assessee.

Summary

Issues:
- Imposition of penalty u/s 271(1)(b) of the Income-tax Act, 1961 for assessment years 2004-05 to 2010-11.
- Compliance with statutory notices by the assessee.
- Appeal against the order of CIT(A)-I, Bhopal.
- Interpretation of penalty provisions under Section 271(1)(b) of the Act.

Analysis:
1. Imposition of Penalty: The seven appeals filed by the assessee were against the penalty imposed under Section 271(1)(b) of the Income-tax Act, 1961 for the assessment years 2004-05 to 2010-11. The AO held that the assessee had committed default within the meaning of the provisions of Section 271(1)(b) for non-compliance with statutory notices. The AO concluded that the assessee failed to comply without reasonable cause and imposed penalties for each failure of non-compliance of various notices issued.

2. Compliance with Statutory Notices: The assessee argued that there was a reasonable cause for non-compliance, as they had requested to keep the penalty proceedings in abeyance and needed time to prepare replies due to the volume of documentation. The authorized representative cited precedents where penalties were not upheld, emphasizing the need for a rational approach in imposing penalties. The AO had issued multiple notices, but the penalty was levied only for the first default, leading to the contention that penalties should not be imposed repeatedly for the same non-compliance.

3. Appeal Against CIT(A) Order: The matter was taken to the CIT(A) who dismissed the appeals, prompting the assessee to appeal further. During the appeal hearing, arguments were presented regarding the nature of subsequent compliance being treated as non-compliance, and the need for penalties to be restricted to the first default rather than for each non-compliance instance.

4. Interpretation of Penalty Provisions: The Tribunal analyzed the issue in light of the decision of the Delhi Tribunal in a similar case. It was held that penalties under Section 271(1)(b) should not be imposed for each notice of non-compliance, as it would defeat the legislative intent and the provision's deterrent nature. The Tribunal restricted the penalty to the first default, emphasizing that penalties should not be imposed repeatedly for the same non-compliance, especially when the AO has the option to resort to "best judgment assessment" under Section 144 instead of imposing penalties.

In conclusion, the Tribunal partly allowed the appeals, modifying the penalty imposition by restricting it to the first default of the assessee in not complying with the notice u/s 143(2), reducing the penalty amount significantly. The decision was based on the principle that penalties should be reasonable and not imposed repeatedly for the same non-compliance, aligning with the interpretation of penalty provisions under Section 271(1)(b) of the Income-tax Act, 1961.