Kamal Kishor Patil Vs ITO (ITAT Pune)
When the Addition Disappears, Technical Penalty Should Not Survive: CA’s Failure Constituted Reasonable Cause u/s 273B
Summary: The Pune Bench of the ITAT has held that penalty u/s 272A(1)(d) for non-compliance with notices u/s 142(1) is not automatic. Where the assessee was a homemaker, entirely dependent upon professional advice, could not immediately collect the extensive documents demanded and the concerned CA failed to seek an adjournment or respond to the notices, the circumstances constituted a “reasonable cause” u/s 273B. The penalty of ₹20,000 was accordingly deleted. TaxGuru has also discussed reasonable-cause relief in the context of section 272A(1)(d) and section 142(1).
The assessee had not originally filed a return of income for AY 2019-20. Information available with the Department indicated that during FY 2018-19 she had purchased debentures of ₹10 lakh each issued by Muthoot Finance Ltd., Shriram Transport Finance Co. Ltd., Dewan Housing Finance Corporation Ltd., DHFL Vysya Housing Finance Ltd. & Tata Finance Services Ltd. The total investment appearing against the assessee’s PAN was ₹50 lakh.
Based upon this information, the AO reopened the assessment and issued a notice u/s 148. In response, the assessee filed her return of income on 05-01-2024 declaring a nominal income of ₹11,870.
During the reassessment proceedings, the AO issued statutory notices u/s 142(1) on 14-09-2023 & 03-10-2023, requiring the assessee to explain the source and nature of the investments. The assessee did not comply with either notice. In the absence of an explanation, the AO completed the assessment by treating the entire investment of ₹50 lakh as unexplained investment u/s 69.
Apart from making the quantum addition, the AO initiated separate penalty proceedings u/s 272A(1)(d) for failure to comply with the two notices. The prescribed penalty of ₹10,000 was imposed for each default, resulting in a total penalty of ₹20,000.
The CIT(A)/NFAC sustained the penalty. The assessee therefore approached the Tribunal and explained the circumstances which had led to the default.
The assessee submitted that she was a homemaker and had not filed income-tax returns in any of the preceding years because her income remained below the maximum amount not chargeable to tax. She was unfamiliar with assessment proceedings and was completely dependent upon the advice and assistance of her Chartered Accountant.
After receipt of the departmental notices, the concerned CA asked the assessee to collect and furnish a series of documents connected with the investments. Those records were not readily available and could not be gathered within the limited time. The CA neither furnished a partial response nor sought an adjournment from the AO. As a result, the statutory notices remained unanswered and the addition was made.
The assessee supported the explanation through an affidavit and contended that the non-compliance was neither deliberate nor intended to obstruct the proceedings. It arose from her dependence on professional assistance and the consultant’s failure to take timely procedural steps.
A significant subsequent development also supported the assessee’s explanation. During the quantum appellate proceedings, the relevant details and documents were furnished. The matter was restored for examination and, in the subsequent proceedings, the AO accepted the explanation and did not sustain any addition. Thus, the original addition of ₹50 lakh u/s 69 was ultimately deleted and the returned income was accepted.
The Revenue nevertheless argued that the assessee had admittedly failed to respond to two statutory notices and that the penalty confirmed by the CIT(A) should be sustained.
The Tribunal examined section 273B, which provides an exception from penalties under specified provisions, including section 272A(1)(d). Under this provision, no penalty is imposable if the assessee proves that there was a reasonable cause for the relevant failure. TaxGuru’s penalty reference material likewise records the reasonable-cause protection available under section 273B for failures covered by section 272A(1)(d).
The expression “reasonable cause” requires the authority to examine why the default occurred. The mere fact of non-compliance may establish the initial ingredients of section 272A(1)(d), but it does not conclude the penalty issue. Once the assessee furnishes a credible explanation, the authority must consider whether the failure was deliberate or arose from circumstances beyond the assessee’s effective control.
On the facts, the ITAT accepted that the assessee was entirely dependent upon her CA. The documents sought were not readily available, and the consultant failed to seek an adjournment or otherwise respond. The Tribunal considered this a reasonable explanation for non-appearance on the two appointed dates.
The subsequent deletion of the entire quantum addition was also relevant. It demonstrated that the underlying investments were capable of being explained once the necessary documents were placed before the AO. The case was therefore not one where an assessee withheld information to conceal unexplained income and later sought to take advantage of her own default.
Considering the totality of circumstances and the protection available u/s 273B, the ITAT held that there was a reasonable cause for the non-compliance. The penalty of ₹20,000 levied u/s 272A(1)(d) and confirmed by the CIT(A) was directed to be deleted. The assessee’s appeal was allowed.
Author’s Comments
The decision reiterates the distinction between an assessment addition and a procedural penalty. Section 272A(1)(d) is not intended to penalise every technical or accidental failure. Its application remains subject to section 273B, which protects an assessee who demonstrates a genuine and reasonable cause.
Dependence on a tax professional is not an all-purpose defence. An assessee cannot simply appoint a consultant, ignore every notice and automatically escape penalty by blaming the adviser. Relief depends upon surrounding circumstances—the assessee’s background, nature of information sought, efforts made to collect it, conduct after discovering the default & eventual explanation of the transaction.
Here, the assessee was a homemaker with no earlier return-filing history, the documents were not immediately available and the CA failed even to request time. Most importantly, when the evidence was ultimately produced, the entire ₹50-lakh addition was deleted. This lent credibility to the claim that the earlier default was procedural rather than a device to conceal income.
The ruling also contains a useful practical lesson. If complete details cannot be filed within time, the representative should at least upload a preliminary response, explain the difficulty and seek an adjournment. Silence creates additions; communication preserves remedies. Nevertheless, where the lapse is genuine and the transaction is ultimately explained, section 273B ensures that penalty law does not punish an assessee merely for an adviser’s procedural failure.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 25.02.2026 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2019-20.
2. The grounds raised by the assessee are as under:
1. The Hon’ble CIT(A) erred in confirming the action of AO in levying penalty of Rs.20,000/- u/s 272A(1)(d) of the Act for non-compliance of notices issued u/s 142(1) of the Act during the course of assessment proceeding.
The Appellant submit that there was a reasonable cause for non-compliance of the notice issued u/s 142(1) of the Act, hence the penalty levied by the AO and confirmed by the CIT(A) shall be deleted.
The Appellant craves leave to add, amend, and alter the above grounds of appeal.
3. Facts of the case, in brief, are that the assessee is an individual and has not filed her return of income for the impugned assessment year. The case of the assessee was reopened on the ground that the assessee has purchased debentures of Rs.10,00,000/- each issued by Muthoot Finance Ltd., Shri Ram Transport Finance Company Ltd., Dewan Housing Finance Corporation Ltd., DHFL VYSYA Housing finance Ltd and TATA Finance Services Ltd during the financial year 2018-19, all totaling to Rs.50,00,000/-. Accordingly, the case of the assessee was reopened and a notice u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served on the assessee in response to which the assessee filed her ITR on 05.01.2024 showing total income of Rs.11,870/-. The Assessing Officer completed the assessment by making addition of Rs.50,00,000/- u/s 69 of the Act. Since the assessee during the course of assessment proceedings did not comply to the statutory notices issued u/s 142(1) of the Act on 03.10.2023 and 14.09.2023, therefore, the Assessing Officer initiated penalty proceedings u/s 272A(1)(d) of the Act and levied penalty of Rs.20,000/- being the penalty of Rs.10,000/- for each default.
4. In appeal, the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under:
4. I have carefully considered the penalty order, the submissions made by the appellant, and the material available on record. It is observed that the impugned penalty of Rs.20,000/- has been levied by the Assessing Officer for failure of the appellant to comply with statutory notices issued u/s. 142(1) of the Act during the course of assessment proceedings, as clearly emanating from the penalty order. The records show that the appellant failed to respond to notices dated 03.10.2023 and 14.09.2023, resulting in two instances of default attracting penalty.
4.1. The appellant has contended that the quantum assessment was set aside by the appellate authority and in the consequent assessment proceedings, the Assessing Officer has accepted the returned income and no addition has been made, as brought on record in the written submissions. It is further submitted that the details called for in the original notices were subsequently furnished during the fresh assessment proceedings.
4.2. While the above contention has been duly considered, it is noted that the levy of penalty u/s. 272A(1)(d) arises from the failure to comply with statutory notices during the original assessment proceedings. Such default is independent and technical in nature and is not contingent upon the outcome of the quantum proceedings. The subsequent furnishing of details during the fresh assessment proceedings may regularize the assessment but does not obliterate the earlier default committed by the appellant.
4.3. It is further observed that the appellant has not demonstrated any reasonable or sufficient cause for failure to comply with the notices issued u/s. 142(1) during the original assessment proceedings. The explanation that the details were furnished at a later stage does not constitute a reasonable cause within the meaning of section 273B of the Act. In the absence of any cogent explanation, the appellant is not entitled to immunity under section 273B.
4.4. The provisions of section 272A(1)(d) clearly mandate levy of penalty for each instance of non-compliance with statutory notices. In the present case, there are two instances of default, and the Assessing Officer has rightly levied penalty of Rs.10,000/- for each default, aggregating to Rs.20,000/-.
5. In view of the above facts and circumstances, I am of the considered opinion that the Assessing Officer was justified in levying the penalty. Accordingly, the penalty of Rs.20,000/- imposed u/s. 272A(1)(d) is hereby confirmed, and the ground of appeal is dismissed.
5. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.
6. The Ld. Counsel for the assessee submitted that the assessee is a homemaker and she was completely dependent on the advice of her CA. The concerned CA asked for series of documents which could not be supplied in time as these were not readily available for which the Assessing Officer made the addition. However, when the assessee furnished all the details before the Ld. CIT(A) / NFAC he set aside the issue to the file of the Assessing Officer and the Assessing Officer in the set aside assessment order deleted the addition, meaning thereby the returned income has been accepted. He submitted that non-appearance before the Assessing Officer during the course of assessment proceedings was beyond the control of the assessee.
7. Referring to the affidavit filed by the assessee, the Ld. Counsel for the assessee drew the attention of the Bench to the same and submitted that the assessee has not filed income tax return in any preceding years as her total income did not exceed the maximum limit which is not chargeable to tax. After getting the notice from the department the assessee filed the return and was completely dependent upon the CA. He submitted that the concerned CA did not bother to seek adjournment of the case. Therefore, the Assessing Officer proceeded to complete the assessment by making addition of Rs.50 lakhs. He accordingly submitted that the penalty levied by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC should be deleted.
8. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.
9. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the assessee did not comply to the 2 statutory notices issued by the Assessing Officer u/s 142(1) i.e. on 03.10.2023 and 14.09.2023. It is also an admitted fact that during the quantum appeal proceedings the Ld. CIT(A) / NFAC restored the matter to the file of the Assessing Officer and the Assessing Officer in the subsequent proceedings has not made any addition. It is the submission of the Ld. Counsel for the assessee that the default in non-appearance before the Assessing Officer was due to the failure of the concerned CA and there was a reasonable cause on the part of the assessee for non-appearance before the Assessing Officer on both the occasions.
10. We find the provisions of section 273B of the Act read as under:
“Penalty not to be imposed in certain cases
273B. Notwithstanding anything contained in the provisions of 53[clause (b) of sub-section (1) of] 54 [section 271, section 271A, section 271B, 55 [section 271BB,] section 271C, section 271D, section 271E, 56[section 271F,] clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA] or 57 [sub-section (1) of section 272BB or] clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (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.]”
11. In our opinion, there was a reasonable cause on the part of the assessee for such non-appearance on the appointed dates before the Assessing Officer as she was completely dependent on the advice of the CA. Further, the Assessing Officer in the subsequent proceedings has deleted the addition. Considering the totality of the facts of the case and in view of the provisions of section 273B of the Act, we hold that there was a reasonable cause on the part of the assessee for such non-appearance. Therefore, the penalty so levied by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC is directed to be deleted. The grounds raised by the assessee are accordingly allowed.
12. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 15th September, 2026.
