2025 (7) TMI 1033 - AT - Income Tax

Penalty levied u/s 272A(1)(d) - non-compliance with the notice issued u/s 142(1) - whether the assessee filling an adjournment application can be considered as non- compliance to the notice issued by the ld. AO? - HELD THAT - As we note that the assessee replied to the notice issued seeking time. We do not find any evidence that the said request was denied by passing a speaking order. Thus when the impugned notice was attended by the assessee by filling the reply it cannot be a non-compliance. The bench also noted that when the matter carried before the ld. CIT(A) he merely confirmed the penalty stating that the assessee has not filed the details called for and deliberately avoided making compliance but has not discussed the fact the assessee s request was not considered by the ld. AO or by him so far as the compliance made by filling the adjournment application. Thus it cannot be pleaded by the revenue that the assessee has not made any compliance to the notice issued on 11.10.2023 and since the notice was replied seeking time we are of the considered view that there cannot be a non-compliance on the part of the assessee. Ergo we direct to delete the penalty levied against the assessee. Assessee appeal allowed.

Summary

The core legal questions considered in this appeal relate to the imposition of penalty under Section 272A(1)(d) of the Income Tax Act, 1961, specifically:

1. Whether the penalty for alleged non-compliance with the notice dated 11.10.2023 under Section 142(1) of the Act was rightly imposed despite the assessee subsequently submitting a detailed reply and cooperating in the assessment proceedings.

2. Whether the delay in compliance with the said notice was due to a reasonable cause as contemplated under Section 273B of the Act, particularly considering the appellant's explanation of unavoidable personal circumstances and a proactive request for extension.

3. Whether the provisions of Section 272A(1)(d) are absolute or subject to the reasonable cause exception under Section 273B, and if the latter, whether the appellant's explanation was improperly disregarded, thereby violating principles of natural justice.

4. Whether the penalty imposed was excessive and arbitrary in view of the appellant's overall compliance with other statutory notices and submissions during the assessment proceedings.

Issue 1: Validity of Penalty Imposed for Non-Compliance with Notice dated 11.10.2023

The legal framework involves Section 272A(1)(d) of the Income Tax Act, which penalizes failure to comply with notices issued under Sections 142(1) or 143(2) of the Act. The Assessing Officer (AO) levied a penalty of Rs. 10,000/- for the alleged non-compliance with the notice dated 11.10.2023, which called for certain information. The AO noted that the reply was not submitted within the prescribed time, leading to initiation of penalty proceedings.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty, observing that despite multiple notices and show cause notices, the assessee failed to furnish complete replies timely, and the explanation offered was not found satisfactory. The CIT(A) emphasized that the assessee did not discharge the primary onus of proving reasonable cause for delay and highlighted the legal maxim "Vigilantibus Non Dormientibus Jura Subveniunt" to stress the duty of the assessee to be vigilant and comply with notices.

However, the Tribunal noted that the assessee had submitted an adjournment request citing illness in the family and sought extension until 15.11.2023, which was not denied by the AO. The reply was eventually filed on 05.11.2023, within the requested extension period. The Tribunal held that filing an adjournment application in response to the notice constitutes compliance and cannot be construed as non-compliance under Section 272A(1)(d). The Tribunal found no material indicating that the extension request was rejected by the AO or that the assessee deliberately avoided compliance.

In applying the law to the facts, the Tribunal observed that the penalty was premised on the assumption of deliberate non-compliance, which was not substantiated. The assessee's conduct showed cooperation and timely compliance with subsequent notices. The Tribunal concluded that the penalty was not justified on the ground of non-compliance with the notice dated 11.10.2023.

Issue 2: Applicability of Reasonable Cause under Section 273B

Section 273B of the Income Tax Act provides that no penalty shall be imposed if the assessee proves reasonable cause for failure to comply with statutory requirements. The assessee contended that the delay was due to genuine and unavoidable personal circumstances, specifically illness in the family, and that an extension was proactively sought and granted in effect.

The CIT(A) rejected this plea, holding that the explanation was generic and unsupported by documentary evidence, and thus did not constitute reasonable cause. The assessee argued that the CIT(A) failed to apply Section 273B properly and ignored the bona fide reasons without adequate reasoning, thereby violating principles of natural justice.

The Tribunal, after examining the facts and submissions, found that the request for extension was made in writing, the delay was limited to a single notice, and all other notices were complied with promptly. The Tribunal also noted that the assessee resided abroad, which added to the difficulty in timely submission due to time zone differences and access to documents. These factors were recognized as reasonable causes under Section 273B.

Further, the Tribunal cited judicial precedents supporting the proposition that penalty under Section 272A(1)(d) is not absolute and is subject to the reasonable cause exception under Section 273B. The Tribunal held that the CIT(A) erred in not appreciating the reasonable cause and failing to provide proper reasoning for rejecting the explanation.

Issue 3: Nature of Penalty under Section 272A(1)(d) and Principles of Natural Justice

The penalty under Section 272A(1)(d) is not absolute but subject to the reasonable cause defense under Section 273B. The Tribunal emphasized that the CIT(A) did not adequately consider this aspect and ignored the explanation without proper reasoning. This omission was held to be a violation of principles of natural justice, which require that the assessee's explanation be duly considered and reasons be recorded for rejection.

The Tribunal underscored that the penalty order and appellate order lacked a speaking order on the request for extension and the bona fide nature of the delay, which is essential for just adjudication.

Issue 4: Excessiveness and Arbitrary Nature of Penalty

The assessee contended that the penalty was excessive and arbitrary, given the overall compliance with other statutory notices and the cooperative conduct during assessment proceedings. The Tribunal noted that the delay was isolated and justified, and that the penalty was disproportionate to the circumstances.

Judicial precedents were cited wherein penalties were deleted when the assessee ultimately complied with notices and demonstrated reasonable cause for delay, especially in the context of transition to digital modes of communication and assessment proceedings.

The Tribunal agreed with these principles and found the penalty imposed in this case to be unjustified and excessive.

Significant Holdings

The Tribunal held:

"When the impugned notice was attended by the assessee by filing the reply seeking time, it cannot be a non-compliance."

"The penalty under Section 272A(1)(d) is not absolute and is subject to reasonable cause as contemplated under Section 273B of the Act."

"The CIT(A) erred in not appreciating the bona fide and reasonable cause explanation and in failing to provide proper reasoning, thereby violating principles of natural justice."

"The levy of penalty of Rs. 10,000/- under Section 272A(1)(d) for non-compliance with notice dated 11.10.2023 is hereby deleted."

The Tribunal relied on precedents such as Sudhakar Reddy Mettu v. ACIT, Hanuman Prasad & Sons v. DCIT, and others, which establish that belated compliance with notices before completion of assessment negates the basis for penalty under Section 272A(1)(d). The principle that reasonable cause excuses delay and that penalty provisions are not absolute was reaffirmed.

In conclusion, the Tribunal allowed the appeal and quashed the penalty imposed under Section 272A(1)(d), finding that the assessee had complied with the notice by filing a request for extension and subsequent reply within the extended time, supported by reasonable cause under Section 273B, and that the penalty was imposed without proper appreciation of these facts and legal provisions.