Section 271(1)(b) cannot be imposed for each non-compliance of Section 143(2) notices

Smt. Rekha Rani Vs DCIT (ITAT Delhi)

In the case of Smt. Rekha Rani vs. DCIT (ITAT Delhi), the issue revolved around the validity of a penalty of ₹50,000 imposed under Section 271(1)(b) of the Income Tax Act, 1961, for non-compliance with notices under Section 143(2). The penalty was imposed after the assessee failed to respond to multiple notices issued by the Assessing Officer (AO) during the assessment year 2009-10. The Commissioner of Income Tax (Appeals) [CIT(A)] had upheld the penalty, leading to the present appeal before the ITAT.

The tribunal noted that while the assessee failed to provide reasonable cause for non-compliance, the imposition of penalties for repeated defaults arising from the same non-compliance went against the legislative intent of Section 271(1)(b). The provision is meant to deter non-compliance rather than act as a revenue-generating tool. ITAT clarified that a penalty should be restricted to the first instance of non-compliance and that subsequent penalties for the same default are unwarranted. As a result, the penalty was reduced to ₹10,000, covering the initial default only.

This ruling underscores the principle that penalties under Section 271(1)(b) must be applied judiciously, aligning with the law’s intent to deter non-compliance without undue repetition. The tribunal’s decision partially allowed the assessee’s appeal and provided clarity on the limits of penalty enforcement under the Income Tax Act.