Penalty u/s 271(1)(b) not leviable if reasonable cause shown by Assessee

Nirav J. Ravani Sanghavi Vs DCIT (ITAT Rajkot)

ITAT Rajkot held that as notices were served to e-mail ID of old income tax practitioner of the assessee, assessee was not aware of the issuance of the same and hence didn’t replied. Held that penalty u/s 271(1)(b) of the Income Tax Act cannot be imposed when assessee proves that there was reasonable cause for the failure.

Facts- The main issue here is that AO initiated penalty proceedings u/s 271(1)(b) of the Income Tax Act against the assessee for non-compliance of 142(1) notice.

The assessee contended that all the notices of hearing were emailed to “gvsitrefiling@gmail.com” which email account pertain to the former Authorized Representative and Income Tax Practitioner (ITP) of the assessee namely Mr. Divyesh Doshi, in whose place the assessee had appointed another Tax Professional for all the assessment proceedings. The assessee, however, by oversight failed to update the email address of the newly appointed Tax Consultant to the Assessing Officer.

CIT(A) confirmed the levy of penalty u/s 271(1)(b) and dismissed the appeals filed by the assessee. Being aggrieved, the present appeal is filed.

Conclusion- Section 273B as noted further throws light on the legislative intent, as it specifically provides that no penalty “shall” be imposed, if the assessee proves “that there was reasonable cause for the said failure”.

In our considered opinion, the assessee could not said to be in default, when the assessee was not served with the notices. The assessee also pleaded that he is not aware of the faceless assessment proceedings and the ITBA portal of the Income Tax Department which has resulted in filing statutory appeals before the CIT(A) with a delay of 96 days. Thus, without proper service of notices to the assessee, the assessee cannot be levied with penalty under Section 271(1)(b) for non-compliance of such notices. For the above reasons we hold that the levy of penalty under Section 271(1)(b) is unjustified and therefore, the same are deleted.

FULL TEXT OF THE ORDER OF ITAT RAJKOT

These seven appeals are filed by the assessee as against separate appellate orders all dated 09.06.2022 passed by the Commissioner of Income Tax (Appeals)-11, Ahmedabad confirming the levy of penalty under Section 271(1)(b) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2013-14 to 2019-20.

2. The brief facts of the case is the assessee is an individual who derives income from a partnership firm and investments. The assessee filed its regular Return of Income under Section 139 of the Act for all the Assessment years. On 26.09.2018 a search action under Section 132 of the Act was carried out in the premises of Shri Himanshi Riyani who is one of the key persons/accountant in Aryan Arcade Ltd. which developed the Om Decora Square Nine, Rajkot. During the course of search, documents containing information related to or pertained to this assessee was seized. Therefore, proceeding under Section 153C of the Act was initiated on 26.10.2020. The assessee was duly served upon a notice under Section 153C on the registered email, requiring the assessee to file a Return of Income in response to the notice. As there was no response from the assessee, a detailed questionnaire under Section 142(1) was issued on 17.02.2021 by the Assessing Officer. As there was no response to this notice, a final show-cause notice under Section 144 r.w.s 153C was issued on 28.02.2021. Even of these notices as there was no response from the assessee, therefore, the Assessing Officer compelled to pass best judgment assessment order under Section 144 on 25.03.2021. The details of assessment are as follows:

It is thereafter the Assessing Officer initiated penalty proceeding under Section 271(1)(b) of the Act, for non-compliance of the 142(1) notices dated 17.02.2021 and 28.02.2021 for all the Assessment Years 2013-14 to 2019-20. It is seen from the penalty order a show-cause notice for initiating penalty proceeding under Section 271(1)(b) were served on the assessee to the email address, however, as there was no response or reply from the assessee, the Ld. Assessing Officer imposed a penalty of Rs. 10,000/- each under Section 271(1)(b) for all the Assessment Years 2013-14 to 2019-20.

3. Aggrieved against the penalty orders the assessee filed seven appeals before the Commissioner of Income Tax (Appeals) with a delay of 96 days. The assessee contended that all the notices of hearing were emailed to “gvsitrefiling@gmail.com” which email account pertain to the former Authorized Representative and Income Tax Practitioner (ITP) of the assessee namely Mr. Divyesh Doshi, in whose place the assessee had appointed another Tax Professional for all the assessment proceedings. The assessee, however, by oversight failed to update the email address of the newly appointed Tax Consultant to the Assessing Officer. As there was no information and hearing notices from the old I.T.P., whatever the notices issued by the Assessing Officer to the assessee calling for details under 142(1), initiation of penalty under Section 271(1)(b) of the Act, the same were not communicated to the assessee, thus, the assessee could not attend the assessment proceedings as well as penalty proceedings which result in best judgment assessments. During the appellate proceedings before the Ld. CIT(A), the assessee sought for an adjournment application vide his Authorized Representative letter dated 28.05.2022 as follows:

“To,
The CIT(A),
Ahmedabad,

Sir,

Reg.: NIRAV JITENDRABHAI RAVAIMI A.Y. 2013-14

Ref.: Notice u/s 250 dated 19.05.2022 bearing DIN No. ITBA/APL/F/APL_1/2022-23/1043081236(1) giving final opportunity to file submissions by 25.05.2022

Ref.: Adjournment application filed on 28.05.2022
Sub.: Receiving notices on incorrect email address.

In furtherance to our adjournment application, the appellant begs to submit that the email address duly updated on his profile as also in the Form 35 as efiled is : max.toolsin@yahoo.com . The appeal notices till date have however been sent on gvsitrefjling@q mail.com, which e-mail id is not in use by the appellant and hence the said notices were missed out for compliance by the appellant. Considering the facts as mentioned above, Your Honour is requested to kindly grant the adjournment as requested and also email all further notices to max.toolsin@yahoo.com. The appellant sincerely regrets the non compliance.”

Thus, the assessee pleaded before the Ld. CIT(A) the genuine mistake in the communication email address, which has resulted in ex-parte assessment orders as well as penalty orders and requested to delete the levy of penalties. The Assessee also submitted that pursuant to 153C Notice for the Assessment Year 2013-14 to 2019-20, the original Return of Income filed by the assessee under Section 139 of the Act, were accepted for all the years except for the Assessment Year 2016-17 and 2017-18, wherein additions were been made by the Assessing Officer based on some seized materials. Thus, the assessee claimed its bonafideness in not appearing before the Assessing Officer pursuant to the notices issued to an email address which is no more relating to the assessee concerned.

4. The Ld. CIT(A) have taken up the appeals on record by condoning the delay of 96 days in filing the appeals, however, on merits confirmed the levy of penalty under 271(1)(b) for non­compliance of notices issued by the Assessing Officer. The Ld. CIT(A) relied upon Coordinate Bench judgment in the case of M/s. Raj Enterprise in ITA No. 958/Ahd/2011 dated 04.03.2015 wherein it was held that the assessment was completed under Section 143(3) not under Section 144 of the Act. Therefore, the Tribunal held that no case of levy of penalty under Section 271(1)(b) was leviable. However, in the present cases before the CIT(A), the assessment has been completed under Section 144 of the Act, thereby confirmed the levy of penalty under Section 271(1)(b). The Ld. CIT(A) also relied upon Hon’ble Patna High Court judgment in the case of CIT vs. Standard Mercantile Company (1986) 160 ITR 613 (PAT.), wherein the assessee failed to produce the books of account, which were being taken to residence of one of its partners and lost the same while travelling in taxi, which plea was rejected by the Assessing Officer and levied penalty under Section 271(1)(b) of the Act. Thus, Ld. CIT(A) confirm levy of penalty under Section 271(1)(b) of the Act for all the Assessment Years 2013-14 to 2019-20 and thereby dismissed the appeals filed by the assessee.

5. Aggrieved against the same the assessee is in appeal before us raising a solitary ground namely the Ld. CIT(A) grievously erred in confirm the levy of penalty of Rs. 10,000/- under Section 271(1)(b) of the Act.

6. Ld. A.R. Mr. Gaurang R. Sanghavi appearing for the assessee submitted a small Paper Book consisting of written submission; as well as ex-parte assessment order passed by the Assessing Officer for the Assessment Years 2013-14 to 2019-20; as well as letter dated 28.05.2022 written to the CIT(A). The Ld. Counsel reiterating the submission made before the lower authorities contended that having the email notices sent to old ITP’s email address, the assessee could not participate neither in the assessment proceedings nor in the penalty proceedings, which are resulted these multiple proceedings. Taking note of the genuineness and reasonable cause in the case of the assessee, the Ld. A.R. pleaded the penalty levied under Section 271B is required to be deleted. The Ld. Counsel further submitted that as against the quantum appeals for the Assessment Year 2016­17 and 2017-18 the same are pending before the First Appellate Authority namely of CIT(A). However, the penalty appeals filed by the assessee were disposed of by the Ld. CIT(A), by the above impugned orders dated 09.06.2022. The Ld. Counsel also further submitted that out of seven Assessment Years only in two Assessment Years additions have been made by the Assessing Officer, thus, the original returned income under Section 139 of the Act is being accepted by the Assessing Officer while framing the so-called ex-parte assessment orders. Therefore, taking into overall circumstances and facts of the case, penalty levied under Section 271(1)(b) is liable to be deleted and allow the appeals in favour of the assessee.

7. Per contra, the Ld. Sr. D.R. Shri O. P. Chaudhary appearing for the Revenue seriously objected that the assessee is a habitual defaulter in not responding to the notices issued by the Assessing Officer which resulted in passing ex-parte assessment orders and as well as during the penalty proceedings. The assessee was not bother to give the correct email address to the Assessing Officer, to have given proper notices to the assessee. Thus, the Ld. CIT(A) following the Coordinate Bench judgment in the case of M/s. Raj Enterprises and Patna High Court judgment in the case of Standard Mercantile Company confirmed the levy of penalty for all assessment years, which does not require any interference and the same are liable to be sustained and the appeals filed by the assessee are to be dismissed.

8. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. It is the case of the assessee, that the email address namely “gvsitrefiling@gmail.com” does not belong to the assessee but related to his former Tax Consultant. The statutory notices under Section 153C of the Act were been set to have served on the assessee, in the old email address only, during the faceless assessment proceedings. The Ld. D.R. could not produce before us that any physical notices, calling upon the assessee to reply to the 142(1) notices or furnish documents as required for finalizing assessment. As all the above notices were said to have been served in the old email address, the assessee could not reply to the notices and unnecessarily invited seven ex-parte assessment orders for all the Assessment Years 2013-14 to 2019-20. It is further seen that the so-called penalty proceedings initiated under Section 271(1)(b) are also served on the old email address, thereby the assessee could not reply to the penalty notices, wherein penalty of Rs. 10,000/-each were levied by the Assessing Officer for non-compliance of notices. It is further seen from Page No. 29 of the Paper Book that during the appellate proceedings, all hearings notices were been sent to the old email address namely “gvsitrefiling@gmail.com” therefore, the assessee requested to send all notices to the new email namely “max.toolsin@yahoo.com” as shown in the Form No. 35. Thus, the grievance made out by the assessee is found to be genuine and reasonable. In the above circumstances the levy of penalty under Section 271(1)(b) in our considered opinion is unwarranted. For better understanding Section 271(1)(b) and 273B are extracted below:

“271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person—

(b) has failed to comply with a notice under sub-section (2) of  section 115WD or under sub-section (2) of  section 115WE or under sub-section (1) of  section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of  section 142, or

he may direct that such person shall pay by way of penalty,—

(i) [***]

(ii) in the cases referred to in clause (b), in addition to tax, if any, payable by him, a sum of ten thousand rupees for each such failure ;

Penalty not to be imposed in certain cases:

273B. Notwithstanding anything contained in the provisions of  clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section 271D, section 271E, section 271F, section 271FA, section 271FAB, section 271FB, section 271G, section 271GA, section 271GB, section 271H, section 271-I, section 271J, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or sub­section (1) or sub-section (1A) of section 272BB or sub-section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub­section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.”

9. A perusal of the above provisions makes it clear inasmuch as that levy of penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act. A careful reading of Section 273B encompasses that certain penalties “shall” not be imposed in cases where “reasonable cause” is successfully pleaded. It is seen that penalty imposable under Section 271(1)(b) is also included one among the exclusions. By the said provisions, the Parliament has unambiguously made it clear that no penalty “shall be” imposed, if the assessee “proves that there was a reasonable cause for the said failure”. As noticed, if the statutory provision shows that the word “shall” has been used in Section 271(1)(b), then the imposition of penalty would have been mandatory. Section 273B as noted further throws light on the legislative intent, as it specifically provides that no penalty “shall” be imposed, if the assessee proves “that there was reasonable cause for the said failure”.

10. In the facts of the present case, it is clearly demonstrated that the hearing notices were been sent to the email “gvsitrefiling@gmail.com” which was belong to the former Tax Consultant of the assessee. Further, no physical notices were been served upon the assessee, thereby even to comply to the 153C notices itself by the assessee. Further perusal of the ex-parte assessment orders make it clear that the assessee has never filed Return of Income in response to 153C notices, however, the Assessing Officer concluded the 153C assessments based on the original returns filed under Section 139(1) of the Act by the assessee for five Assessment Years and made additions only two Assessment Years 2016-17 and 2017-18 based on some seized materials. In our considered opinion, the assessee could not said to be in default, when the assessee was not served with the notices. The assessee also pleaded that he is not aware of the faceless assessment proceedings and the ITBA portal of the Income Tax Department which has resulted in filing statutory appeals before the CIT(A) with a delay of 96 days. Thus, without proper service of notices to the assessee, the assessee cannot be levied with penalty under Section 271(1)(b) for non-compliance of such notices. For the above reasons we hold that the levy of penalty under Section 271(1)(b) is unjustified and therefore, the same are deleted.

11. In the result, all the appeals filed by the assessee are hereby allowed.

Order pronounced in the Court on 09.12.2022 at Ahmedabad.