S.271(1)(b) Penalty not for mere technical non-compliance but for actual or habitual defaulters

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4 Before us, the learned AR submitted that the notice u/s 142(1) was issued to all the four persons viz. Shri Kaushal M, Sangeetaben K Khanna, Madanlal M Khanna and Swarnabcn M Khanna for AY 2006-07 only. However, in addition to this, the Id. AO had issued letters on 14-8-07 in some cases also on 17-8-07 requiring these assessees to furnish detailed information for all the six assessment years and such notice was required to be complied with by 27-8-07. However, in the letter so issued in the case of Shri Kaushal M Khanna, it was mentioned that this letter be treated as notice u/s 142(1). However, in the case of Sangeetaben M Khanna the letter issued on 17-8-07 did not mention that the above letter is a notice u/s 142(1). Even in the notice u/s 142(1) issued for the AY 2006-07 it was not mentioned that a separate letter for compliance is being issued. In fact, the notice did not mention as to what requirement the assessee was requiring to comply. In the case of Madanlal M Khanna and Smt. Swarnaben M Khanna the notice u/s 142(1) was issued only for AY 2006-07 and not for any other years like in the case of Shri Kaushal M Khanna and Sangeetaben K Khanna. The letter issued by the AO requiring the detailed information on 14-8-07 did not mention that above letter is notice u/s 142(1). Notice u/s 142(1) for AY 2006-07 was issued on 17-8-07 and did not refer to any compliance as per letter already issued on 14-8-07. Thus there are serious defects in the issuance of the notice. Further, the learned AR submitted that no proper time was given for making compliance in respect of such detailed information. Shri Kaushal Khanna on behalf of all the other family members went to the be made u/s 142(1). Before levying penalty u/s 271(1)(b) there must be specific notice to the assessee for specific assessment year with specific requirements to be complied with. The compliance must have relevance to the assessment year in question and it must have apparent nexus with the assessment for that assessment year to be framed. General information sought may not be relevant for any particular assessment year. In addition, adequate time should be given to the assessee for making compliance. The notices were issued on 14-8-07 in some cases and compliance were required to be made by 24-8-07. Thereafter the AO proceeded to initiate the penalty proceedings. In our considered view, it is against the principles of natural justice as no reasonable opportunity is given to them for making compliance of the information sought. For the sake of convenience, we refer to the compliance sought by the AO vide letter dated 14-8-07 containing five pages from Shri Kaushal M Khanna as similar compliance was sought by him from others as well. If there is apparent impossibility of compliance or compliance could take naturally long time, then the AO is expected to give adequate time to the assessees before he infers that they are tending to non-compliance and avoiding to furnish information. The statutory provision for levy of penalty is not for mere technical non-compliance but for actual or habitual defaulters. On the face of present facts where the AO has hastily proceeded to initiate penalty proceedings in all the cases, it is difficult to infer that these assessees were intending to make non compliance, information sought by the AO is very detailed and requires assistance from professionals like Advocate or Chartered Accountant. An affidavit has been filed from Shri Kaushal M Khanna before the Ld. CIT(A) i.e. erstwhile Chartered Accountant who was handling his tax matters, has left all these assessees and the family is in search of new counsel for making compliance made by the Income-tax Department. It shows that these assessees had really intended to comply with the notices and therefore it should not be inferred that there was a default which could invite penalty u/s 271(l)(b). The ITAT Delhi Bench-G in the case of Akhil Bhartiya Prathmik Shikshak Sangh Bhawan Trust vs. Assistant Director of Income-tax (2008) 115 TTJ (Delhi) 419 has held that if assessment order is passed u/s 143(3), and not u/s 144 then non-compliance is deemed to have been waived.