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.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee for the assessment year 2009-10 is directed against the order of learned CIT(A)-XXXII, New Delhi dated 20^th September, 2013.

2. The only issue in this appeal of the assessee is regarding validity of penalty imposed under Section 271(1)(b) of the Income-tax Act, 1961 amounting to ₹50,000/- confirmed by the learned CIT(A).

3. At the time of hearing, none appeared on behalf of the assessee and, therefore, the appeal of the assessee is being decided ex parte qua the assessee appellant on merits after hearing the arguments of learned DR.

4. Learned DR submitted that the Assessing Officer has issued notice under Section 143(2) of the Act on five different dates and the assessee failed to comply with the same. Accordingly, the Assessing Officer has invoked the provisions of Section 271(1)(b) of the Act and imposed penalty of ₹10,000/- for each default totaling to ₹50,000/-. He submitted that the assessee has no reasonable cause for not appearing on the date of hearing fixed before the Assessing He relied on the order of the Assessing Officer and the learned CIT(A).

5. We have considered the submissions of learned DR and have perused the order of the Assessing Officer and the learned CIT(A). we find that there was no reasonable cause on the part of the assessee for not appearing on the different dates of hearing before the Assessing Officer in response to notice issued under Section 143(2) of the Act. However, we find that the default is same and, therefore, penalty of ₹10,000/- could be imposed for the first default made by the assessee in this regard. The penalty under Section 271(1)(b) could not be imposed for each and every notice issued under Section 143(2), which remained not complied with on the part of the assessee. The provision of Section 271(1)(b) is of deterrent nature and not for earning revenue. Any other view taken shall lead to the imposition of penalty for any number of times (without limits) for the same default of not appearing in response to the notice under Section 143(2) of the Act. This does not seem to be the intention of the legislature in enacting the provisions of Section 271(1)(b) of the Act. In case of failure of the assessee to comply with the notice under Section 143(2) of the Act, the remedy with the Assessing Officer lies with framing of “best judgement assessment” under the provisions of Section 144 of the Act and not to impose penalty under Section 271(1)(b) of the Act again and again. In this view of the matter, we restrict the penalty levied under Section 271(1)(b) of the Act to the first default of the assessee in not complying with the notice under Section 143(2) of the Act. Accordingly, the penalty imposed is restricted to ₹10,000/- as against ₹50,000/- confirmed by the learned CIT(A). The grounds of appeal of the assessee are thus partly allowed.

6. In the result, the appeal of the assessee is partly allowed. Decision pronounced in the open Court on 6^th May, 2015.