2025 (3) TMI 598 - AT - Income Tax

Penalty u/s. 271(1)(b) - default on the part of the assessee in responding to notices issued u/s. 142(1) - HELD THAT - Although the provision of Section 271(1)(b) is of deterrent nature and not for earning revenue. Any other view taken shall lead to the imposition of penalty for any number of times (without limits) for the same default. This does not seem to be the intention of the legislature in enacting the provisions of Section 271(1)(b) of the Act. In case of failure of the assessee to comply with the notice u/s. 142(1) of the Act the remedy with the AO lies with framing of best judgement assessment under the provisions of Section 144 of the Act as has been rightly done in the instant case but not to impose penalty u/s. 271(1)(b) of the Act again and again for the same default. We hold that the authorities below were not justified in levying penalty for each default in not responding to the notices issued u/s. 142(1) of the Act. We therefore set aside the order of CIT(A) and restrict the penalty levied u/s. 271(1)(b) of the Act to the first default of the assessee in not complying with the notice u/s. 142(1)

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this appeal was whether the authorities were justified in levying a penalty under section 271(1)(b) of the Income-tax Act, 1961, for the assessee's failure to comply with notices issued under section 142(1) of the Act. The Tribunal also considered whether there was reasonable cause for the non-compliance that could exempt the assessee from the penalty under section 273B of the Act.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 271(1)(b) of the Income-tax Act provides for penalties in cases where an individual fails to comply with notices issued under the Act. However, section 273B provides relief from such penalties if the individual can demonstrate a reasonable cause for the failure.

Court's Interpretation and Reasoning

The Tribunal examined the applicability of section 271(1)(b) in conjunction with section 273B. It was noted that while section 271(1)(b) is intended to act as a deterrent, it should not lead to penalties being imposed multiple times for the same default, especially when the failure is due to a reasonable cause.

Key Evidence and Findings

The assessee argued that the email ID registered on the income-tax portal did not belong to her, and the entire assessment process was managed by her consultant. She also claimed to have been unaware of the notices and submitted responses after the due dates. Despite these contentions, the CIT(A) did not find sufficient grounds to waive the penalty, as the notices were sent to the registered email address, which was a matter between the assessee and her consultant.

Application of Law to Facts

The Tribunal considered the facts and noted that the assessee did eventually respond to the notices, albeit belatedly. It was recognized that section 273B allows for the waiver of penalties if a reasonable cause is proven. The Tribunal concluded that while there was a default, imposing a penalty for each instance of non-compliance was not justified.

Treatment of Competing Arguments

The Tribunal balanced the arguments from both sides. While the Departmental Representative supported the penalty, the assessee's counsel argued against the justification of multiple penalties for the same failure. The Tribunal found merit in the latter argument, emphasizing the deterrent nature of section 271(1)(b) and the provision for reasonable cause under section 273B.

Conclusions

The Tribunal concluded that a penalty should only be imposed for the first instance of non-compliance, reducing the penalty from Rs. 30,000/- to Rs. 10,000/-. This decision was based on the understanding that the legislative intent was not to impose unlimited penalties for the same default.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

"Although the provision of Section 271(1)(b) is of deterrent nature and not for earning revenue. Any other view taken shall lead to the imposition of penalty for any number of times (without limits) for the same default. This does not seem to be the intention of the legislature in enacting the provisions of Section 271(1)(b) of the Act."

Core Principles Established

The Tribunal established the principle that penalties under section 271(1)(b) should not be imposed repeatedly for the same default, particularly when there is a reasonable cause for non-compliance as per section 273B.

Final Determinations on Each Issue

The Tribunal determined that the authorities were not justified in levying penalties for each instance of non-compliance. The penalty was restricted to the first default, with the amount reduced to Rs. 10,000/-. The appeal was thus partly allowed, aligning with the principle of fairness and legislative intent.