2021 (4) TMI 90 - AT - Income Tax

Levy of penalty u/s 271(1)(b) - no compliance of notices u/s 142(1) issued on 30.08.2018 05.10.2018 and the AO was forced to issue penalty notices on -07.09.2018 09.11.2018 apart from the prosecution notice on 19.11.2018 to elicit response from the appellant, which was first made on 07.12.2018 - HELD THAT - Although the assessee in the instant case has not complied to the statutory notice issued by the AO on 5th October, 2016 fixing the case for hearing on 25th October, 2018 which is the basis for levy of penalty u/s 271(1)(b) of the Act, however, ultimately the order has been passed u/s 143(3). Coordinate Benches of the Tribunal in a number of decisions have held that where the assessment order was finally passed u/s 143(3) and not u/s 144 of the Act due to subsequent compliance during the assessment proceedings, that would be considered as good compliance and the defaults committed earlier should be ignored and taking a lenient view the penalty u/s 271(1)(b) of the I.T. Act 1961 should not be levied. Since the assessment in the instant case has ultimately been completed u/s 143(3) of the Act on the basis of various details filed by the assessee before the AO, therefore, considering the totality of the facts of the case and relying on the decision of the Tribunal in the case in SMT. NEETU NAYYAR AND SMT. MEENA NAYYAR VERSUS ACIT, CENTRAL CIRCLE-20 NEW DELHI 2020 (12) TMI 1221 - ITAT DELHI it is not a fit case for levy of penalty u/s 271(1)(b) of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(b) of the Income Tax Act, 1961 for non-compliance with statutory notices.
2. Validity of penalty when the assessment is completed under Section 143(3) of the Income Tax Act, 1961.
3. Adequacy of time provided for compliance with the notice under Section 142(1).

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(b) for Non-compliance with Statutory Notices:
The assessee challenged the order of the CIT(A) confirming the levy of penalty of ?10,000/- for each assessment year (2011-12 to 2016-17) under Section 271(1)(b) of the Income Tax Act, 1961. The Assessing Officer (AO) had issued multiple notices under Sections 153A, 143(2), and 142(1), which the assessee failed to comply with adequately. Specifically, the AO issued a show cause notice for penalty under Section 271(1)(b) on 07.09.2018 and subsequently levied the penalty on 06.12.2018 due to non-compliance. The CIT(A) confirmed the penalty, observing that the assessee had deliberately defaulted without "reasonable cause" and had not sought adjournments or provided necessary details in a timely manner, thus hampering the assessment proceedings.

2. Validity of Penalty when Assessment is Completed under Section 143(3):
The assessee argued that since the assessment was ultimately completed under Section 143(3) of the Act, the penalty under Section 271(1)(b) should not be levied merely on technical grounds. The CIT(A) rejected this argument, stating that the AO had faced continuous non-compliance without any reasonable cause, which prejudiced the assessment process. However, the Tribunal found merit in the assessee's argument, noting that the assessment was completed under Section 143(3) due to subsequent compliance. The Tribunal referred to its previous decisions, including those in the cases of Smt. Neetu Nayyar and Smt. Meena Nayyar, where penalties under similar circumstances were deleted. The Tribunal concluded that since the assessment was completed under Section 143(3) and not under Section 144, the earlier defaults should be ignored, and a lenient view should be taken.

3. Adequacy of Time Provided for Compliance with the Notice under Section 142(1):
The assessee contended that the notice under Section 142(1) dated 05.10.2018, which required compliance by 25.10.2018, did not provide sufficient time to compile the exhaustive details requested. The CIT(A) noted discrepancies in the dates mentioned in the notices but clarified that the questionnaire was dispatched on 16.10.2018. The CIT(A) rejected the assessee's plea, stating that there was no compliance even to earlier notices and no adjournment requests were made. The Tribunal, however, acknowledged the assessee's argument regarding the short time frame and the subsequent compliance, ultimately deciding to cancel the penalty based on the totality of facts and previous Tribunal decisions.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to cancel the penalties levied under Section 271(1)(b) for all six years. The Tribunal emphasized that since the assessment was completed under Section 143(3) and considering the subsequent compliance by the assessee, the penalties should not be sustained. All six appeals filed by the assessee were allowed.