2023 (2) TMI 418 - AT - Income Tax

Levy of penalty u/s 271(1)(b) - non-compliance of the notices issued u/s. 142(1) - Penalty u/s 271F - non-filing of the Return of Income - HELD THAT - Parliament has used the words may and not shall , thereby making their intention clear in as much as that levy of Penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act namely Penalty not to be imposed in certain cases . A careful reading of Section 273B encompasses that certain penalties shall not be imposed in cases where reasonable cause is successfully pleaded. In the facts of the present case, it is seen that the explanation offered by the assessee have been ignored by the A.O. as well as the Ld. CIT(A)-NFAC but confirmed the levy of penalties u/s. 271(1)(b) and u/s. 271F of the Act without considering u/s. 273B - Applying the provisions of Section 273B we have no hesitation in deleting the penalties levied u/s. 271(1)(b) and u/s. 271F of the Act since reasonable cause is clearly demonstrated by the assessee. Therefore the penalties levied u/s. 271(1)(b) and u/s. 271F are deleted. - Appeal of assessee allowed.

Summary

Issues:
Appeals against penalty orders under sections 271(1)(b) and 271F of the Income Tax Act, 1961 for A.Y 2011-12.

Analysis:

Issue 1: Penalty under section 271(1)(b) for non-compliance with notices
The assessee, an individual earning commission income, did not file a Return of Income despite cash deposits in the bank. The Assessing Officer issued notices under sections 148 and 142(1), which were not responded to. An ex-parte assessment determined the income. The assessee explained the non-filing due to low income and the Accountant's illness. The AO levied a penalty of Rs. 10,000 under section 271(1)(b). The CIT(A) confirmed the penalty, disregarding the explanations. The ITAT noted penalties under this section are discretionary. Section 273B allows for no penalty if a "reasonable cause" is shown. As the assessee demonstrated a reasonable cause, the penalties under section 271(1)(b) were deleted.

Issue 2: Penalty under section 271F for non-filing of Return of Income
Similarly, a penalty under section 271F was imposed for non-filing of the return. The assessee's explanation of low income was rejected, and a penalty of Rs. 5,000 was levied. The CIT(A) upheld this penalty as well. However, the ITAT found that penalties under section 271F are discretionary, and no penalty shall be imposed if a reasonable cause is proven. As the assessee demonstrated a reasonable cause, the penalty under section 271F was also deleted.

Conclusion:
The ITAT allowed the appeals, deleting the penalties under sections 271(1)(b) and 271F. The judgment emphasized the discretionary nature of penalties and the requirement to establish a reasonable cause for non-compliance. The decision was based on the provisions of Section 273B of the Act, highlighting the legislative intent to waive penalties in cases of a valid reasonable cause.