Penalty U/s 271(1)(b) Deleted – Non-compliance Excused Due to Reasonable Cause (Ignorance & Cash-based Livelihood

Gaddeppa Santhosh Vs ITO (ITAT Bangalore )

Bangalore ITAT deleted a penalty of ₹30,000 levied under Section 271(1)(b) for non-compliance with notices. The assessee, a pujari and astrologer with largely cash-based income, had failed to respond to multiple notices during reassessment proceedings initiated due to substantial cash deposits.

The Tribunal observed that the assessee was not a regular taxpayer, lacked awareness of income tax procedures, and became aware of proceedings only after receiving a substantial demand. It also noted that the quantum addition itself had been restored to the AO by CIT(A), indicating the matter was still unsettled.

Accepting the explanation as a “reasonable cause” under Section 273B, the ITAT held that mere non-appearance without deliberate defiance does not justify penalty. Accordingly, the penalty of ₹30,000 (₹10,000 per default) was deleted in full.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. ITA No. 2534/Bang/2025 is filed by Gaddeppa Santhosh (the assessee/appellant) against the appellate order passed by the National Faceless Appeal Centre, Delhi for assessment year 2015-16 dated 31^stOctober 2025 wherein the assessee filed an appeal against the penalty order passed under Section 271(1)(b) of the Income Tax Act, 1961 (the Act) passed by the Assessment Unit Income Tax Department on 21^stAugust 2023 was dismissed.

2. The only grievance of the assessee is that assessee has been penalized by Rs. 30,000/- for non-appearance before the learned Assessing Officer. Briefly stated the facts of the case shows that the assessee is an individual who did not file his Return of Income, but information was available that as assessee has made a cash deposit of Rs. 78,72,635/-. Accordingly, the re-opening proceedings were initiated and notice under Section 148 of the Act was issued on 31^stMarch 2022. The assessee did not comply with the notices and therefore it resulted into re-assessment order wherein total income of the assessee was determined at Rs. 78,72,635/- being the amount of cash deposit added under Section 69A of the Act read with Section 115BBE of the Act.

3. During assessment proceedings the Assessing Officer noted that on three occasions, that is 21^stSeptember 2022, 19^th October 2023 and 1st November 2022, the assessee did not comply with the notices issued under Section 142(1) of the Act. Therefore, the show cause notices were issued on 22^nd February 2023 and 27^th March 2023 along with the reminder on 18^th April 2023 for levy of penalty u/s 271(1)(b) of the Act. The assessee did not reply to the same, however, on the virtual hearing on 9^th August 2023 the assessee submitted that he has filed an appeal before the learned CIT (Appeal) against the assessment order, so penalty may not be levied.

4. The learned Assessing Officer noted that in the appeal before the learned CIT (Appeal) against the quantum proceedings assessee has not contested or raised the grounds about the initiation of penalty proceedings under Section 271(1)(b) of the Act. Further no information was also submitted of any reasonable cause under Section 273B of the Act was shown therefore the learned Assessing Officer levied penalty of Rs. 30,000/- being Rs. 10,000/- for each failure by an order dated 21^st August 2023.

5. The assessee approached the learned CIT (the Appeal) wherein the assessee explained several reasons for non-appearance before the learned Assessing Officer and stated that there was a reasonable cause for failure to appear before him. The learned CIT (appeal) rejected all the contentions and confirmed the order of the learned AO.

6. Shri. Guruswamy, AR appeared and submitted a written statement containing three pages. The learned DR Sri. N. Balusamy supported the order of the learned revenue authorities.

7. We have carefully considered the rival contention and find that assessee was not a taxpayer and therefore he was not aware of the various notices issued and the assessment completed. The assessee came to know about the ex parte assessment order when he was saddled with the demand of Rs. 64,19,151/-. The assessee is in fact a pujari providing the services of traditional rituals as well as Poojas, Homas, Hawanas and Yagnas, he is also an astrologer. The assessee provides services to his various clients and receives the money in cash which is deposited into the bank account and for incurring the expenditure he is also withdrawing the cash. Therefore, it is his claim that most of his businessis cash. To meet the expenses also such as provision of salary etc. to his other pujari or team members he is also paying them in cash. As the assessee was not a taxpayer, he did not know anything about the income tax proceedings, was not having any access to the portal, he could not respond to the notices issued by the learned AO. On the merits when he preferred appeal before the learned CIT (Appeal) the issue was restored back to the file of the learned Assessing Officer in terms of the provisions of Section 251(1)(a) of the Act. In view of the above facts, we find that there is a reasonable cause for not responding to three notices issued by the ld. AO and therefore by virtue of Section 273B of the Act,the penalty under Section 271(1)(b) of the Act could not have been levied on the assessee.

8. In view of the above facts the appeal of the assessee is allowed the AO is directed to delete the penalty of Rs. 30,000/- under Section 271(1)(b) of the Act.

9. In the result, appeal of the assessee is allowed

Order pronounced in the open court on 24^th April 2026.