Section 271(1)(b) Penalty Unsustainable Without Deliberate Default: ITAT Raipur

Sumit Global Private Limited Vs DCIT (ITAT Raipur)

Section 271(1)(b) Penalty Unsustainable Without Deliberate Default; Delay Defeats Legislative Intent: ITAT Raipur

The Raipur ITAT allowed the assessee’s appeals for AYs 2012-13 and 2013-14, deleting penalties of ₹20,000 each levied under Section 271(1)(b) of the Income Tax Act for alleged non-compliance with notices issued under Section 142(1). The Tribunal first condoned a delay of 16 days in filing the appeals, holding that the assessee had shown sufficient cause and that substantial justice should prevail over technical considerations.

The assessee’s cases had been reopened under Section 148 following a search under Section 132 in the RKTC Group. During reassessment proceedings, notices under Section 142(1) were issued, but the Assessing Officer alleged non-compliance and completed the assessments under Section 144 read with Section 147. Penalty proceedings under Section 271(1)(b) were thereafter initiated, culminating in levy of penalties, which were upheld by the CIT(A).

Before the Tribunal, the assessee contended that it had not received alerts on the Director’s mobile number or personal email, had not regularly accessed the Income Tax Portal, and had never received notices by post or by hand. It was also argued that the penalty orders were passed long after initiation of penalty proceedings and that penalties under Section 271(1)(b) have no direct correlation with the quantum assessment proceedings.

The Tribunal referred to the Supreme Court’s decision in Hindustan Steel Ltd., observing that penalty is quasi-criminal in nature and should not ordinarily be imposed unless there is deliberate defiance of law, contumacious conduct, dishonesty, or conscious disregard of statutory obligations. It accepted the assessee’s explanation for non-compliance and found no deliberate or dishonest conduct.

The Tribunal further held that penalty under Section 271(1)(b) is an administrative and procedural penalty intended to ensure timely compliance with statutory notices. Such proceedings should be initiated and concluded within a reasonable period following the alleged default. Waiting for the outcome of quantum proceedings to conclude penalty proceedings, despite the absence of any direct mathematical or functional relationship between the two, defeats the legislative intent underlying Section 271(1)(b).

Holding that there was no deliberate defiance of law or conscious disregard of legal obligations, the Tribunal set aside the impugned orders of the CIT(A) and deleted the penalties for both assessment years. Accordingly, both appeals were allowed.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

Common facts and issues are involved in the above captioned appeals of the assessee; therefore, these appeals were heard together and are being disposed off by this common order.

2. These appeals for Assessment Years (‘AYs’) 2012-13 and 2013-14 filed by the assessee are directed against orders dated 15.09.2025 of Commissioner of Income Tax (Appeals), [‘CIT(A)’], Raipur-3 passed under section 250 of the Income Tax Act, 1961 (‘Act’).

3. Vide three grounds of appeal, the assessee has challenged the levy of penalty of Rs.20,000/- under section 271(1)(b) of the Act for non-compliance of notices issued under section 142(1) of the Act in both appeals.

4. The relevant facts, in brief, required for adjudication of these cases are that the assessee is engaged in arranging funds for Rashi Steel and Power Ltd., Bilaspur. It filed its Income Tax Return (‘ITR’) of AY 2012-13 on 21.09.2012 declaring loss of Rs.(-)38,176/- and ITR of AY 2013-14 on 17.09.2013 declaring NIL income. Search and seizure operations under section 132 of the Act were conducted in RKTC Group of cases. The business premises of assessee was also searched on 22.01.2019 along with RKTC Group of cases. Later, the assessee’s cases of both years were reopened under section 148 of the Act. During the course of reopened assessment proceedings of these years, the Ld. Assessing Officer (‘AO’) issued show-caused notices under section 142(1) of the Act on 16.07.2019 and 09.10.2019 in both years. However, the assessee did not ensure any compliance of these notices. The Ld. AO completed assessments of these years under section 144 r.w.s. 147 of the Act. Thereafter, the Ld. AO issued penalty notices under section 271(1)(b) of the Act twice in both cases, which were also not respond to. The Ld. AO, therefore, levied penalty of Rs.20,000/- under section 271(1)(b) of the Act for non-compliance of the two notices issued under section 142(1) of the Act for both years. Aggrieved, the assessee filed appeals before the Ld. CIT(A), who dismissed both appeals.

5. At the outset, Shri Veekas S Sharma, CA, Ld. Authorized Representative (‘AR’) of the assessee submitted that these appeals were filed belatedly (there were 16 days’ delay in filing both appeals). He prayed for condonation of delay in filing both appeals. Affidavits of the Director were filed, wherein it had been admitted that the delay took place due to CA who was looking after the income tax matters was busy in auditing and filing ITRs of various assessees. The Ld. AR placed reliance on the decisions Hon’ble Supreme Court in the cases of Vidya Shankar Jaiswal [Civil Appeal Nos. 1308 and 1309 of 2025 dated 31.01.2025] and Rafiq & Anr Vs Munshilal & Anr 1981 AIR 1400.

6. The justification of the appellant assessee for delay condonation in this case therefore, becomes relevant to determine whether the same reflects sufficient and reasonable cause on its part in not presenting these appeals within the prescribed time. In case of Collector, Land Acquisition vs MST Katiji (1987) 2 SCC 107, the Hon’ble Supreme Court has held that the expression ‘Sufficient Cause’ used by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner to sub-serves the ends of justice that being the life-purpose of the existence of the institution of Courts. It is further held by the Hon’ble Supreme Court that such liberal approach is adopted on one of the principles that refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. Similar view has been taken by the Hon’ble Supreme Court in the case of Vidya Shankar Jaiswal [Civil Appeal Nos. 1308 and 1309 of 2025 dated 31.01.2025]. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. Another principle laid down by the Hon’ble Supreme Court is that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred as the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. It is also held by the Hon’ble Supreme Court that there is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of malafides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. In the instant cases, applying the same principles, we find that there is no culpable negligence or malafide on the part of the assessee in delayed filing of both appeals as the assessee does not stand to benefit by resorting to such delay. Therefore, in the factual matrix of both cases in hand, we find that there exists sufficient and reasonable cause for condoning the delay in filing these appeals as held by the Hon’ble Supreme Court in the case of Collector, Land Acquisition vs MST Katiji (supra). Therefore, in the interest of substantial justice, we are of the considered view that the delay in filing both appeals deserve to be condoned and these appeals should be decided on merit. Further, we do not see any prejudice which will be caused to the Revenue in deciding these appeals on merit. Thus, in view of the above, we hereby condone the delay in filing both appeals.

7. Shri Veekas S Sharma, CA, Ld. Authorized Representative (‘AR’) of the assessee submitted that the assessee was not aware of any of notices issued under section 142(1) of the Act for which penalty under section 271(1)(b) of the Act was levied in both cases as it had neither received any alert on the mobile number of Director nor on personal email of Director though both were mentioned in the ITR. Further, the assessee had not seen his Income Tax Portal regularly to know pending actions at its end, which resulted non-compliance. Had the assessee received any notice, it would have responded immediately. Further, it was brought to our notice that the Director of assessee company was residing at Raigarh, though the assessment was centralized at Raipur. Non-compliance on the part of the assessee was not intentional as it did not derive benefit there from. Further, the Ld. AR contended that the penalties in both cases were barred by limitation as the initial notices under section 271(1)(b) of the Act were issued in the month of November and December, 2019 and penalties were levied in the month of June, 2021 in both cases though these said penalties should have been levied within six months from the end of the month as these had no linkage/correlation with the assessments. Thus, these penalties got barred by limitation on 30.05/06.2020. However, the Ld. AO levied penalties vide order dated 09.06.2021 and 13.06.2021 respectively. As these penalties had no correlation with the income assessed and appeals pending against thereon as the pending appeals had no bearing on the fate of these penalties. The Ld. AR placed reliance on the decisions of Hon’ble Supreme Court in the case of Hindustan Steel Ltd. 83 ITR 26 and Tribunal decisions in the cases of Balram Kumar Mahendra ITA No. 1366/Del/2010, Indian Institute of Tourism ITA No. 64/Agra/2009 and Nirav J RAvani ITA No. 204 to 214/Rajkot/2022.

8. Shri Piyush Tripathi, Ld. Sr. DR vehemently argued both cases and defended the impugned orders. He contended that the Director of assessee was a chartered accountant and non-compliances were tactful and intended to evade investigations. The assessee had not only failed to ensure compliance during the assessment proceedings but also in penalty proceedings. This clearly established defiance of law. He prayed for dismissal of both appeals.

9. We have heard both parties at length and have perused the material available on records. The Hon‘ble Supreme Court, in the case of Hindustan steel Ltd. 83 ITR 26 has held that an order-imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of his obligation. Before us, the Ld. AR submitted that there was reasonable cause for non-compliance on the part of assessee. It was submitted that the assessee had neither received any alert on the mobile number of Director nor on personal email of Director though both were mentioned in the ITR. Further, the assessee had not seen his Income Tax Portal regularly to know pending actions at its end, which resulted non-compliance. Our attention was also drawn to the fact that the assessee had never received any notice by post/hand.

10. Basically, penalty under Section 271(1)(b) of the Act is strictly an administrative or procedural penalty. It is levied for failing to comply with statutory notices. The penalty proceedings under Section 271(1)(b) of the Act are intended to have deterrence to ensure timely compliance and therefore, we are of the considered view that the penalty proceedings under Section 271(1)(b) of the Act should be initiated within the reasonable time period from the date of non­compliance of the statutory notice and the same should be disposed of at the earliest. Waiting for the fate of quantum appeal for finalization of penalty proceedings under Section 271(1)(b) of the Act, particularly when the penalty initiated under Section 271(1)(b) of the Act generally has no direct mathematical or functional relation to the outcome of a quantum appeal, defeats the intent behind the legislation of Section 271(1)(b) of the Act.

11 .We have considered the entire facts of both cases and are satisfied with the reasons of non-compliance of the notices issued under section 142(1) of the Act in these cases as there is no deliberate defiance of law or is guilty of conduct contumacious or dishonest or act in conscious disregard of the legal obligation. We therefore, hereby set aside impugned orders and delete the penalties of both years.

12. In the result, both appeals of the assessee are allowed as above.

Order pronounced in the open court on 19/06/2026.