2025 (6) TMI 1938 - AT - Income Tax

Penalty levied u/s. 271(1)(b) - as per notice u/s. 142(1) assessee failed to furnish certain documents to the department - appropriate application of mind or not? HELD THAT - The assessee had filed reply through e-portal dated 17.07.2018 and submitted that the requisite information as sought for by the department was not possible to file in a short span of time and at the same time there is no intention on the part of the assessee to avoid the proceedings. That without considering the fairness of the submissions of the assessee or any merit in the grievance brought out by the assessee without any such verification on the next date i.e. 18.07.2018 the A.O passed order levying penalty u/s. 271(1)(b) of the Act. As examined first of all the CIT(Appeals)/NFAC had made perverse order by stating wrong facts regarding quantum of penalty and secondly there was no examination conducted in terms with Section 273B of the Act. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

- Whether penalty under Section 271(1)(b) of the Income Tax Act, 1961 can be levied on the assessee for failure to comply with the notice issued under Section 142(1) of the Act, when the assessee failed to furnish the required documents within the stipulated time.

- Whether the assessee's explanation, that the information sought was voluminous and could not be furnished within the short time granted, constitutes a reasonable cause sufficient to exempt the penalty under Section 271(1)(b) read with Section 273B of the Act.

- Whether the appellate authority erred in upholding the penalty without proper application of mind, including the failure to consider the provisions of Section 273B regarding reasonable cause for non-compliance.

- Whether the penalty amount as stated by the appellate authority was correctly recorded and applied.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Penalty under Section 271(1)(b) for Non-compliance with Notice under Section 142(1)

Relevant legal framework and precedents: Section 271(1)(b) of the Income Tax Act imposes a penalty on any person who fails to comply with a notice issued under Section 142(1), 143(2), or direction under Section 142(2A). The penalty amount prescribed is Rs. 10,000 for each such default. However, Section 273B of the Act provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure.

Court's interpretation and reasoning: The Assessing Officer (AO) levied penalty of Rs. 10,000 on the ground that the assessee failed to comply with the notice dated 25.06.2018 issued under Section 142(1) requiring submission of documents by 29.06.2018. Despite an adjournment granted till 09.07.2018, the assessee did not furnish the documents nor provide any explanation. The AO issued a show cause notice on 13.07.2018, which also went unanswered. The AO concluded that there was no reasonable cause for non-compliance and imposed penalty accordingly.

The CIT(Appeals)/NFAC upheld the penalty, noting the assessee's failure to provide any valid reason or material evidence to justify the delay or non-compliance. The appellate authority emphasized that the penalty is for non-compliance with statutory notices and is independent of the merits of the assessment proceedings.

Key evidence and findings: The record showed that the assessee requested an adjournment but ultimately did not furnish the documents by the rescheduled date. The assessee's only submission during penalty proceedings was that the assessment order was under appeal and requested the penalty be kept in abeyance. No specific reasonable cause was furnished.

Application of law to facts: The AO and CIT(Appeals) applied the statutory provisions correctly by focusing on non-compliance with the notice and the absence of a reasonable cause. The penalty under Section 271(1)(b) is triggered by failure to comply with the notice, and the assessee's failure to respond justified the penalty.

Treatment of competing arguments: The assessee argued that the information sought was voluminous and could not be furnished within the short time frame, and that there was no intention to avoid proceedings. However, these arguments were not supported by material evidence or timely submissions. The appellate authority rejected these contentions for lack of substantiation.

Conclusions: The penalty was rightly levied for non-compliance with the statutory notice, as the assessee failed to furnish documents or provide a reasonable cause within the prescribed time.

Issue 2: Whether the penalty amount was correctly recorded and applied

Relevant legal framework and precedents: Section 271(1)(b) prescribes a penalty of Rs. 10,000 for each default. The penalty amount must be clearly stated and consistent in orders.

Court's interpretation and reasoning: The AO's order levied penalty of Rs. 10,000. However, the CIT(Appeals) in its order erroneously referred to a penalty of Rs. 20,000, indicating a factual and clerical error. This discrepancy was noted as a failure to apply mind properly by the appellate authority.

Key evidence and findings: The penalty order and show cause notices consistently indicated Rs. 10,000 penalty. The appellate order incorrectly stated Rs. 20,000.

Application of law to facts: The appellate authority's misstatement of penalty amount reflected negligence and lack of proper fact appreciation, which undermined the credibility of the appellate findings.

Treatment of competing arguments: The assessee highlighted this inconsistency to challenge the appellate order's correctness and thoroughness.

Conclusions: The appellate authority erred in recording the penalty amount, evidencing a lack of proper application of mind.

Issue 3: Consideration of Reasonable Cause under Section 273B

Relevant legal framework and precedents: Section 273B of the Income Tax Act provides that no penalty shall be imposed if the assessee can prove that there was a reasonable cause for failure to comply with statutory notices.

Court's interpretation and reasoning: The AO and CIT(Appeals) did not consider the assessee's submission that the information sought was voluminous and could not be furnished within the short time, as a reasonable cause under Section 273B. The appellate order failed to examine this aspect, which is a mandatory consideration before imposing penalty.

Key evidence and findings: The assessee filed a reply on 17.07.2018 stating that due to the voluminous nature of the information, it was not possible to furnish it within the short time, and asserted no intention to avoid proceedings. This submission was not given due weight.

Application of law to facts: The failure to consider reasonable cause as per Section 273B amounts to non-application of mind and procedural irregularity. The penalty order should have been examined in light of this provision.

Treatment of competing arguments: The Revenue contended that no valid reason was furnished, while the assessee argued that the time allowed was insufficient. The appellate authority failed to reconcile these competing contentions with the statutory mandate of Section 273B.

Conclusions: The absence of examination of reasonable cause under Section 273B renders the penalty order unsustainable.

Issue 4: Overall correctness and propriety of the appellate order

Court's interpretation and reasoning: The appellate order was found to be perverse and lacking proper application of mind, both in factual appreciation (penalty amount discrepancy) and legal consideration (failure to consider Section 273B). The Tribunal noted that the penalty is not mandatory and must be imposed only after considering reasonable cause.

Key evidence and findings: The Tribunal observed that the assessee's submissions were not adequately considered and the appellate authority incorrectly upheld the penalty without proper scrutiny.

Application of law to facts: The Tribunal set aside the appellate order and directed the AO to delete the penalty, emphasizing the need for proper application of mind and adherence to statutory provisions.

Conclusions: The appellate order was quashed and the penalty deleted, allowing the assessee's appeal.

3. SIGNIFICANT HOLDINGS

"The penalty imposable for violation of Section 271 of the Act is not mandatory and if such failure to comply with the said provision is due to some reasonable cause as explained by the assessee then as per Section 273B of the Act, the said penalty may not be imposable."

"While upholding the order of penalty by the Ld. CIT(Appeals)/NFAC, there has been no application of mind and even the facts have been mentioned in wrong manner by it."

"The action of the AO needs no intervention from the appellate authorities and the same is upheld" was the appellate authority's view, which was found to be erroneous due to failure to consider reasonable cause and penalty quantum discrepancy.

"Considering the totality of the facts and circumstances, we set-aside the order of the Ld. CIT(Appeals)/NFAC and direct the A.O to delete penalty from the hands of the assessee."

Core principles established include that penalty under Section 271(1)(b) is discretionary and contingent upon absence of reasonable cause, which must be duly considered under Section 273B before imposition. Additionally, appellate authorities must apply mind correctly to facts and law, including penalty quantum and procedural fairness.

Final determinations:

- Penalty under Section 271(1)(b) was improperly upheld without consideration of reasonable cause.

- The appellate authority erred in factually misrecording penalty amount and failing to apply mind.

- The penalty order is set aside and the penalty deleted.