Basaveshwer Devalay Vs ITO (ITAT Bangalore)
Penalty U/s 271(1)(b) for Non-Compliance with Notices Deleted – Subsequent Participation in Assessment & Nil Income Accepted – ITAT Bangalore
Assessee, an educational institution running a school under the Kudal Sangam Development Board, did not initially respond to notices issued u/s 143(2) and 142(1) during reassessment proceedings initiated u/s 148. The AO consequently levied penalty of ₹20,000 u/s 271(1)(b) for non-compliance with the statutory notices, which was also confirmed by CIT(A).
Before ITAT, the assessee submitted that the non-response was not wilful but occurred because the institution was busy with admission work and had not checked the email communications. It was further pointed out that the assessee subsequently filed the return in response to notice u/s 148, and the AO ultimately accepted the return and assessed income at NIL, as the income of the educational institution was exempt u/s 10(23C)(iiiab).
The Tribunal observed that section 271(1)(b) uses the word “may,” indicating discretionary power and that penalties should not be imposed mechanically. It also noted that when the assessment is ultimately completed accepting the return and not u/s 144, it indicates that the assessee had subsequently participated in the proceedings. In such circumstances, penalties for earlier non-compliance are generally not warranted.
Considering that the explanation of the assessee was reasonable and that the assessment resulted in NIL income, ITAT held that the penalty was not justified. Accordingly, the penalty u/s 271(1)(b) was deleted and the appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 23/05/2025 in respect of the penalty levied u/s. 271(1)(b) of the Act for the A.Y. 2016-17 and raised the following grounds.
“1. The order of Learned Commissioner of Income. Tax (Appeals), NFAC, Delhi, in so far it against the appellant, is oppsed to law. facts, equity, weight and evidence, facts and circumstances of the case.
2. On the facts and circumstances of the cases and provision of the law, the honorable commissioner of Income tax (Appeal) erred in confirming the penalty imposed by assessing officer u/s 271(1)(b) of Rs 20,000/- without considering our written submission filed during the appeal proceedings.
3. The Appellant prays/craves leave to add, amend, alter any ground of Appeal in the interest of Justice and Equity at the time of hearing.”
2. The brief facts of the case are that the assessee is running a school and the same has been established under the Kudal Sangam Development Board under the control of the Government of Karnataka. The said school has been established solely for the educational purposes and not for profit and therefore its income is exempt u/s. 10(23C)(iiiab) of the Act. Since their income was exempt, they were under the bonafide impression that the assessee need not file the return of income u/s. 139(1) of the Act. The AO based on the information that the assessee had made huge deposits in their bank accounts had issued notice u/s. 148A(b) of the Act. The assessee filed their reply to the said show cause notice and thereafter the AO made an order u/s. 148A(d) of the Act and simultaneously notice u/s. 148 was issued. Thereafter the assessee field their return of income and claimed the entire income as exempt u/s. 10(23C)(iiiab) of the Act. Notices u/s. 143(2) as well as u/s. 142(1) were issued, but the assessee had not responded to the notices because of the pressure of work. The AO accepted the return of income filed and no tax liability has been arrived in the said computation. In the said order, the AO had proposed to impose penalties u/s. 271F of the Act for not filing their return of income u/s. 139(1) of the Act. Similarly, penalty u/s. 271(1)(b) of the Act was proposed for the non-compliance to the notices issued u/s. 143(2) as well as u/s. 142(1) of the Act.
