2017 (11) TMI 188 - AT - Income Tax

Penalty u/s 271(1)(b) - failure of the assessee s counsel to attend the assessment proceedings - reasonable cause - Held that - Referring to the submission that assessment proceedings before the AO were earlier being taken care of by the tax counsel, who, however, stopped attending the proceedings without intimating the assessee as differences had developed between the assessee and the counsel. An affidavit to this effect has also been placed on record which has not been contested by the Ld. Senior Departmental Representative. It is our considered opinion that the failure of the assessee s counsel to attend the assessment proceedings without informing the assessee was a reasonable cause which would fall within the exception as provided in section 273B and, therefore, under the circumstances the penalty imposed under section 271(1)(b) deserves to be deleted. Accordingly, we set aside the order of the Ld. CIT (Appeals) and direct the AO to delete the penalty imposed under section 271(1)(b) - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Imposition of penalty under Section 271(1)(b) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The core issue pertains to the confirmation of a penalty amounting to ?2,60,420/- imposed under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied due to the assessee's failure to furnish PAN numbers of two creditors, expenses on donations, and audit fees being debited twice. The assessee argued that the penalty was unjustified as there was no deliberate concealment or furnishing of inaccurate particulars of income. The tax auditor had inadvertently stated the method of accounting as "cash" instead of "mercantile," leading to the additions. The ITAT noted that penalty proceedings are distinct from assessment proceedings and require independent satisfaction that the assessee has concealed income or furnished inaccurate particulars. The tribunal emphasized that the penalty cannot be imposed automatically based on the quantum addition sustained. The ITAT found that the authorities below did not establish how the furnishing of inaccurate particulars was proven and concluded that the penalty was imposed as an automatic outcome of the quantum addition confirmation. Consequently, the ITAT set aside the order of the CIT (Appeals) and directed the AO to delete the penalty under Section 271(1)(c).

2. Imposition of Penalty under Section 271(1)(b):
The second issue involved the confirmation of a penalty amounting to ?40,000/- under Section 271(1)(b) for non-compliance with notices issued under Sections 143(2) and 142(1). The assessee contended that the non-compliance was due to a reasonable cause, as differences had developed between the assessee and the tax counsel, who stopped attending the proceedings without informing the assessee. The ITAT referred to Section 273B, which provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure. The tribunal acknowledged the affidavit submitted by the assessee, which was uncontested by the Departmental Representative, and accepted that the failure of the counsel to attend proceedings without informing the assessee constituted a reasonable cause. The ITAT concluded that the penalty under Section 271(1)(b) deserved to be deleted and set aside the order of the CIT (Appeals), directing the AO to delete the penalty.

Final Judgment:
Both the appeals of the assessee were allowed, and the penalties under Sections 271(1)(c) and 271(1)(b) of the Income Tax Act, 1961, were deleted. The order was pronounced in the open court on 31st October 2017.