2014 (2) TMI 558 - AT - Income Tax

Penalty u/s 271(1)(b) of the Act Held that - The decision in Hindustan Steel vs. State of Orissa 1969 (8) TMI 31 - SUPREME Court followed - An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings - 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, the penalty orders quashed Decided in favour of Assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(b) of the Income Tax Act, 1961.
2. Non-compliance with notices under Section 142(1) and 153A.
3. Validity of penalty due to procedural and jurisdictional grounds.
4. Adequacy of opportunity provided to the assessee for compliance.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(b) of the Income Tax Act, 1961:
The appeals were filed by the assessee against the order of the CIT(A) confirming the penalty imposed by the AO under Section 271(1)(b) of the Income Tax Act, 1961, amounting to Rs. 10,000/- for each of the assessment years 2007-08 to 2011-12. The penalty was imposed due to the assessee's failure to comply with notices issued under Section 142(1) during the assessment proceedings following a search and seizure operation.

2. Non-compliance with Notices under Section 142(1) and 153A:
The AO issued a notice under Section 153A on 07/03/2012, directing the assessee to file an income tax return, which remained uncomplied. Subsequently, a notice under Section 271(1)(b) was issued on 03/04/2012, and a show-cause notice along with a notice under Section 142(1) was issued on 25/04/2012. The assessee did not respond to these notices, leading to the imposition of penalties.

3. Validity of Penalty due to Procedural and Jurisdictional Grounds:
The assessee argued that the notices were not served at the registered or administrative office but at an incorrect address. Additionally, the assessee contended that the cases were not fully centralized, and the counsel from Nagpur was cooperating with the department. The CIT(A), however, did not accept these explanations, stating that these reasons did not justify total non-compliance with statutory notices.

4. Adequacy of Opportunity Provided to the Assessee for Compliance:
The Tribunal observed that the AO provided very little time for the assessee to comply with the notices and offer explanations. It was noted that the returned income was accepted under Section 153A read with Section 143(3) for each year, indicating that subsequent compliance in the assessment proceedings was considered satisfactory. The Tribunal referenced the decision in the case of Akhil Bhartiya Prathmik Shikshak Sang Bhawan Trust vs. ACIT, where it was held that assessment under Section 143(3) implies good compliance, and earlier defaults were ignored.

The Tribunal further noted that the show-cause notice did not mention the specific non-compliance, and the time given for compliance was insufficient. Citing the Supreme Court's decision in Hindustan Steel Ltd. vs. State of Orissa, the Tribunal emphasized that penalty should not be imposed unless there was deliberate defiance of law or contumacious conduct. The Tribunal concluded that the penalty orders deserved to be quashed due to the lack of proper opportunity and the subsequent compliance by the assessee.

Conclusion:
In view of the detailed reasoning on facts and law, the Tribunal quashed the penalty imposed for each of the years under consideration. The appeals of the assessee were allowed, and the order was pronounced in the open court on 06th February 2014.