Is Section 271(1)(b) penalty imposable when assessee has complied with the income tax notice(s)?

When an assessment order is made under the Income Tax Act, 1961, certain additions and disallowances are made which enhances the total income of the assessee. In addition to the assessment order, the Act has made provision for the imposition of various penalties to be levied by the concerned authority so as to deter the assessee from repetitious blameworthy conduct. A penalty is levied under Section 271(1)(b) of the Income Tax Act, 1961 if the assessee has failed to comply with a notice under section 115WD(2) or under section 115WE(2) or under section 142(1) or section 143(2) or fails to comply with a direction issued under section 142(2A)

Let us refer to the case of Gyan Mata Radha Satyam Kriyayog Ashram Research Institute vs Income Tax Officer, where appeal of the assessee was directed against the order of CIT(A), arising from penalty order passed u/s. 271(1)(b) of the Income Tax Act, 1961. The assessee raised the following grounds:

• Penalty imposed u/s 271(1)(b) of Rs. 10,000 is bad both on facts and in law.
• The CIT(A) was wrong in passing the order ex-parte without providing opportunity to the assessee hence the order as framed was not correct
• Assessment order was passed u/s.143(3) after making due compliance hence penalty as imposed was not correct and was liable to be deleted.

Submission by Assessee:

• It was submitted that the assessee had complied with all the notices issued by the AO during the assessment proceedings though there was some delay in furnishing the requisite details as sought by the AO in the notice u/s. 142(1).
• Assessee referred to the assessment order and submitted that the AO had accepted that the assessee had filed the reply and furnished the requisite details in respect of the cash deposit.
• He further contended that the CIT(A) in the quantum of appeal had deleted the addition made by the AO and accepted the reply furnished by the assessee.
• He referred the order of CIT(A) in the quantum appeal and submitted that the CIT(A) had deleted the addition and accepted the explanation regarding the source of deposit made in the bank account.
• Thus, the assessee pleaded that the penalty imposed by the Assessing Officer u/s. 271(1)(b) and confirmed by the CIT(A) be deleted.

Submission by Department:

• Department submitted that there was a default and non- compliance on the part of the assessee to the notice issued u/s. 142(1).
• The assessee had filed the reply belatedly and that after show cause notice issued by the Assessing Officer u/s. 144.
• Thus, belated reply filed by the assessee could not be considered as a compliance.

Observations of ITAT

• In the assessment order, the AO had given the reference of notices issued u/s. 142(1).
• The assessee filed the reply explaining the source of deposit made in the bank account but the said reply was filed belatedly after the show cause notice issued by the AO u/s 144
• Thus, the factum of filing the reply and confirmation by the assessee was an evident from the assessment order and the AO had considered the reply of the assessee as well as the confirmation and thereafter framed the assessment u/s. 147 read with section 143(3).
• After filing the reply, the AO drop the proceedings u/s. 144 and framed the assessment u/s. 143(3).
• Therefore, finally the assessee complied with the notice issued u/s. 142(1).
• Even otherwise in the penalty order, the AO itself had given the details of the notice issued during the assessment proceedings and compliances made on behalf of the assessee
• On the one hand, the AO had given the date of compliances whereas the penalty was imposed on the ground that the above notices were not complied by the assessee.
• Further, the AO had also stated that the assessee had not made compliance to the show cause notice issued u/s. 271(1)(b).
• However, that could not be a ground for imposition of penalty u/s. 271(1)(b).
• In the quantum appeal, the CIT(A) vide its order had deleted the addition made by the AO and therefore, it amounted to acceptance of the explanation of the assessee filed during the assessment proceedings.
• Hence, in the facts and circumstances of the case and in view of Section 273B of the Act when the assessee had finally complied with the notice issued by the AO the penalty was not imposable as the explanation filed by the assessee was finally found to be correct and accepted in the quantum appeal.

Consequently, the penalty levied u/s. 271(1)(b) of the Act was deleted. In simple words, Section 271(1)(b) penalty is not imposable when assessee has finally complied with the income tax notice(s)

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