2025 (1) TMI 764 - AT - Income Tax

Penalty levied u/sec. 271(1)(b) - assessee could not respond to the statutory notice issued by the CIT(A) - Whether there was a reasonable cause for the assessee's non-compliance with the statutory notices, thereby warranting relief under Section 273B? - AO in the order passed u/sec.144 r.w.s.264 determined the income HELD THAT - As admitted fact that the two statutory notices u/sec.142(1) were issued by the AO which were during the Covid period, for which, the assessee has a reasonable cause for not appearing before the AO. We find due to non submission to the statutory notice issued by the CIT(A), he passed an ex-parte order sustaining the addition made by the AO. It is the submission of Assessee that adequate opportunity of hearing was not granted by the CIT(A) and since the e- portal was not functioning, therefore, the assessee could not respond to the statutory notice issued by the CIT(A). It is also the submission of Assessee that the assessee, who worked as a Major General in Indian Army, is no more and is being represented by his wife Mrs. Balbir Kaur Birdie and the penalty so levied by the AO and confirmed by the Ld. CIT(A) should be deleted. We find some force in the above arguments of the Learned Counsel for the Assessee. It is an admitted fact that Mr. Sandeep Singh Birdie was a Major General in the Indian Army serving for 34 years. As admitted fact that the assessee has participated in the original assessment proceedings and the AO has passed the order u/sec.143(3). It is also an admitted fact the order u/sec.144 r.w.s.264 of the Act was passed assessing the same income which was determined by the Assessing Officer in the order passed u/sec.143(3) of the Act. Since the two statutory notices u/sec.142(1) were issued during the Covid period and since the assessee was posted in a far-off place and such area was not having proper telephone and internet facility, therefore, under these circumstances, we are of the considered opinion that there was a reasonable cause on the part of the assessee for such non-compliance to the statutory notices issued by the AO. Levy of penalty u/sec.271(1)(b) of the Act is not justified. Appeal of the Assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

Whether the penalty levied under Section 271(1)(b) of the Income Tax Act, 1961, for non-compliance with notices issued under Section 142(1), was justified.
Whether there was a "reasonable cause" for the assessee's non-compliance with the statutory notices, thereby warranting relief under Section 273B of the Act.
Whether the ex-parte order passed by the CIT(A) sustaining the penalty was appropriate given the circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Penalty under Section 271(1)(b)

Relevant Legal Framework and Precedents: Section 271(1)(b) of the Income Tax Act, 1961, provides for a penalty in case of non-compliance with notices issued under Section 142(1). The penalty is imposed for each default.
Court's Interpretation and Reasoning: The Tribunal acknowledged the non-compliance with the statutory notices but considered the context and circumstances under which the non-compliance occurred.
Key Evidence and Findings: The notices were issued during the Covid period, and the assessee was posted in a remote area with inadequate communication facilities. Additionally, the assessee had a distinguished service record in the Indian Army.
Application of Law to Facts: The Tribunal found that the circumstances provided a "reasonable cause" for the non-compliance, which should exempt the assessee from penalty under Section 273B.
Treatment of Competing Arguments: The Tribunal considered the arguments regarding the non-functioning e-portal and lack of adequate opportunity for the assessee to present their case.
Conclusions: The penalty under Section 271(1)(b) was deemed unjustified due to the reasonable cause for non-compliance.

Issue 2: Reasonable Cause under Section 273B

Relevant Legal Framework and Precedents: Section 273B provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure to comply with the statutory requirements.
Court's Interpretation and Reasoning: The Tribunal emphasized the importance of considering the unique circumstances that led to non-compliance, particularly the impact of the Covid pandemic and the assessee's service conditions.
Key Evidence and Findings: The Tribunal accepted the argument that the Covid pandemic and the remote posting of the assessee constituted a reasonable cause for non-compliance.
Application of Law to Facts: The Tribunal applied Section 273B to exempt the assessee from the penalty, recognizing the reasonable cause presented.
Treatment of Competing Arguments: The Tribunal acknowledged the Revenue's position but found the assessee's explanations and circumstances compelling enough to warrant relief.
Conclusions: The Tribunal concluded that the reasonable cause justified the non-imposition of penalty under Section 273B.

Issue 3: Appropriateness of the Ex-parte Order by CIT(A)

Relevant Legal Framework and Precedents: The ex-parte order was passed due to the assessee's non-response to the notice during the appellate proceedings.
Court's Interpretation and Reasoning: The Tribunal recognized the challenges faced by the assessee in responding to the notice due to technological and logistical issues during the pandemic.
Key Evidence and Findings: The Tribunal noted the non-functioning of the e-portal and the lack of adequate opportunity for the assessee to present their case.
Application of Law to Facts: The Tribunal found that the ex-parte order did not adequately consider the reasonable cause for non-compliance.
Treatment of Competing Arguments: The Tribunal considered the arguments regarding the need for adequate opportunity and procedural fairness.
Conclusions: The Tribunal set aside the ex-parte order, finding it inappropriate under the circumstances.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Considering the totality of the facts and peculiar circumstances of the case... we are of the considered opinion that the levy of penalty u/sec.271(1)(b) of the Act is not justified."
Core Principles Established: The Tribunal emphasized the importance of considering reasonable cause and the unique circumstances of each case when imposing penalties under the Income Tax Act.
Final Determinations on Each Issue: The Tribunal concluded that the penalty under Section 271(1)(b) was not justified due to the reasonable cause for non-compliance and directed the cancellation of the penalty.

The judgment underscores the necessity of evaluating the context and circumstances surrounding non-compliance with statutory notices, particularly during extraordinary situations such as the Covid pandemic. The Tribunal's decision to set aside the penalty and the ex-parte order reflects a commitment to fairness and justice in tax proceedings.

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