2017 (9) TMI 313 - AT - Income Tax

Levy of penalty u/s 271(l)(b) - failure to comply with the statutory notices - Held that - Failure to comply with certain statutory notices on a particular date was due to reasonable cause as highlighted by the assessee not only during the course of the assessment proceedings but also before the AO and Ld. CIT(Appeals) in the impugned penalty proceedings and hence penalty cannot be levied in such circumstances. Accordingly, the appeal of the assessee deserves to be allowed.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(b) of the Income-tax Act.
2. Validity of initiation of penalty proceedings.
3. Reasonable cause for non-compliance with statutory notices.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(b) of the Income-tax Act:

The assessees challenged the penalties imposed by the Assessing Officer (AO) under Section 271(1)(b) for failing to comply with statutory notices. The penalties were sustained by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalties were imposed due to non-compliance with notices fixing the hearing date on 30.11.2012. The ITAT considered similar penalties in other group cases and referenced the decision in Jwala Prasad Aggarwal vs. DCIT, where penalties were cancelled under identical circumstances.

2. Validity of Initiation of Penalty Proceedings:

The assessees argued that the penalty notices were vague, as they did not specify the particular notice or date of non-compliance. The ITAT found that the penalty notices lacked specificity, which is crucial for the assessee to understand the charge and provide a specific rebuttal. Such vagueness was deemed fatal to the initiation of the penalty proceedings.

3. Reasonable Cause for Non-compliance with Statutory Notices:

The assessees provided several reasons for non-compliance:
- The main controlling person, Shri Gopal Kumar Goyal, was in judicial custody, which hindered the collection of information and compliance.
- Over 300 group assessments were conducted within a short span, making it difficult to comply with all notices on the appointed dates.
- The assessees eventually complied with all notices, albeit belatedly, by submitting replies through the dak counter or registered/speed post.

The ITAT accepted these reasons as constituting a reasonable cause under Section 273B. The overall conduct of the assessees, including the eventual compliance and the challenging circumstances, was considered. The ITAT noted that the demand in the quantum proceedings was reduced to "nil" after giving effect to the first appellate order, indicating no substantive non-compliance.

Conclusion:

The ITAT found that the penalties imposed under Section 271(1)(b) were unsustainable due to the reasonable cause for non-compliance and the vagueness of the penalty notices. The penalties were directed to be deleted, and the appeals of the assessees were allowed. The findings in ITA No. 4610/Del./2015 applied mutatis mutandis to all other appeals, resulting in the allowance of all remaining appeals. The order was pronounced in the open court on 31.08.2017.