Income Tax Act, 1961, Section 271(1)(b) Whethee Penalty under section 271 (1)(b) can be levied for Non-compliance of notices of notice under section 274(1) is not issued?

Where no mandatory notice under section 274(1) was issued before imposing penalty under section 271(1)(b) and no reasonable opportunity of being heard was given, penalty under section 271(1)(b) could not be sustained.

A search and seizure operation was carried out on 17-1-2014 on the business/office and residential premises of assessee group of cases. Notice under section 153A(1) was issued for filing of return. Thereafter, notices under various sections were issued which were not complied by assessee. AO levied penalty under section 271(1)(b) which was confirmed by CIT(A). Held: On going through all the show cause notices issued by the AO it was found that for submission of the details as was mentioned in the penalty orders, it would be seen that in case of any failure to submit desired details, penalty would be levied but the necessary statutory satisfaction under section 271(1) that the assessee had failed to comply with the notices and the AO was satisfied to initiate the penalty proceedings had not been recorded anywhere. Further order sheets did not show of any notice under section 274 read with section 271(1)(d) or of recording of any such satisfaction. Penalty imposed was not sustainable in law. Following the consistent view taken in assessment year 2008-09 as aforesaid, the penalty involved in other appeals in respect of assessment years 2009-10 to 2014-15 also stood deleted.

Decision: In assessee’s favour.

Referred: CIT & Ors. v. Manjunatha Cotton and Ginning Factory & Ors. (2013) 359 ITR 565 (Karn) and CIT & Anr. v. SSA’s Emerald Meadows in CC No. 11485/2016, dt. 5-8-2016 (SC).

IN THE ITAT, DELHI BENCH

H.S. SIDHU, J.M.

Anil Kumar Seth v. DCIT

ITA Nos. 7516 to 7522/Del/2017

22 June, 2018

Assessee by: Vinod Kumar Bindal, CA and Rinky Sharma, ITP

Department by: Ashima Neb, Sr. DR.

These 07 appeals filed by the assessee are directed against the order of the learned Commissioner (Appeals)-2, Gurgaon dated 11-9-2017 and 18-10-2017 pertaining to assessment years 2008-09 to 2014-15. Since the grounds raised in these appeals are common and identical, hence, the appeals were heard together and are being disposed of by this common order for the sake of convenience by dealing with ITA No. 7516/Del/2017 (Assessment Year 2008-09).

2. The assessee has raised the following common grounds in all the appeals :–

“1. The learned Commissioner (Appeals) erred in law and on facts in confirming the penalty of Rs. 10,000 levied under section 271(1)(b) of the Act ignoring that there was no noncompliance and the appellant was regularly appearing before the assessing officer and complying with the requirements of the assessing officer thereafter.

2. The learned Commissioner (Appeals) erred in law and on facts by ignoring that necessary photocopies of-the seized material were given to the appellant in January 2016 whereas the alleged non-compliance in July 2015 was only in respect of the information relating to the said seized material and most of which did not pertain/belong-to the appellant.

3. The learned Commissioner (Appeals) erred in law and on facts in holding that photocopies of the seized material were given to the appellant by the Investigation Unit of the department prior to the same given by the assessing officer, a fact denied by the Investigation Unit in reply dated 5-12-2017 to an RTI application by the assessee group.

4. The Commissioner (Appeals) erred in law and on facts while passing the appellate order confirming the impugned penalty on 11-9-2017, a date which was prior to the date fixed on 17-10-2017 for hearing the appeal challenging the impugned penalty.

5. The Commissioner (Appeals) erred in law and on facts while confirming the penalty even though there was no addition of any undisclosed income in the assessment order or no incriminating material was found in respect of the addition made but only on the basis of already declared accounts.

6. The Commissioner (Appeals) erred in law and on facts in confirming the penalty without ascertaining from the assessment records that the appellant never committed any default to attract the impugned penalty as the assessing officer himself granted time to submit the information.

7. That the penalty has been imposed without identifying the date of default for non-compliance by the assessing officer.

8. Thus, the impugned penalty levied should be deleted.

9. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing.”

3. Brief facts are that, a search and seizure operation was carried out on 17-1-2014 on the business/office and residential premises of the assessees group of cases. The residential premise of the assessee was also covered under search. Notice under section 153A(1) of the Income Tax Act, 1961 was issued on 18-9-2014 for filing of return within 30 days of receipt of this notice. But, the assesses failed to comply. Notice under section 142(1) dated 14-5-2015 was issued for compliance on 26-5-2015, but the assesses again failed to make compliance, but the assesses again failed to make compliance. Later on, notice under section 271F of the Income Tax Act, 1961 was issued on 10-6-2015 or compliance on 17-6-2015 to show cause as to why an order imposing a penalty may not be passed. On due date neither anybody appeared nor any written reply was filed by the assessee. As the assessee failed to file return of income and make compliance of notices, a penalty under section 271F of the Income Tax Act, 1961 amounting to Rs. 5,000 was levied vide order dated 14-9-2015. Questionnaire on the basis of seized documents alongwith notice under section 142(1) dated 1-7-2015 were issued and duly served upon the assessee fixing the case for 20-7-2015. On the date of hearing, neither assessee attended nor any written submission filed. Subsequently, show cause notice under section 271(1)(b) of the Income Tax Act, 1961 was issued on 16-9-2015 for compliance on 24-9-2015 for failing to file reply to questionnaire dated 1-7-2015. On 24-9-2015 neither anybody attended nor any written submission were filed. Again show cause notice under section 271(1)(b) were issued on 28-9-2015 & 9-10-2015 for compliance on 6-1-2015 and 15-10-2015 respectively. After that the assessee filed his return of income on 14-10-2015. Thereafter, questionnaire alongwith notice under section 142(1)/143(2) dated 30-10-2015 were issued and duly served upon the assessee fixing the case for 16-11-2015. On the date of hearing, neither anybody attended nor any written submission was filed by the assessee. Further, show cause notices/letters were issued on different dates as to why penalty under section 271(1)(b) may not be levied upon you, the detail of which is mentioned at page no. 2 of the penalty order. Assessing officer noted that as per provisions of section 271(1)(b) “If the assessing officer in the course of any proceedings under this Act, is satisfied that any person has failed to comply with a notice under sub-Section of section 142 or sub-section (2) of section 143 he may direct that such person shall pay by way of penalty a sum of Rs. 10,000 for each such failure. In the above circumstances, it became crystal clear that the assessee failed to furnish reply in response to notice under section 142(1)/143(2) & questionnaire dated 1-7-2015 & 30-10-2015, in spite of a number of opportunities afforded by the Department. Assessing officer further observed that the assessee failed to adduce any plausible explanation for non-compliance of this office letter/notices. These facts show that the assessee is non-cooperative with assessment proceedings. So, this became a fit case for levy of penalty under section 271(1)(b) of the Income Tax Act, 1961. Therefore, the Deputy Commissioner of Income Tax, Central Circle, Karnal imposed a penalty of Rs. 10,000 under section 271(1)(b) of the Income Tax Act, 1961 vide order dated 4-3-2016. Against the penalty order, the assessee appealed before the learned Commissioner (Appeals), who vide his impugned order dated 11-9-2017 has confirmed the penalty. Aggrieved with the impugned order, the assessee is in appeal before the Tribunal.

4. At the time of hearing, learned Counsel of the assessee has stated no statutory notice under section 274(1) of the Income Tax Act was ever issued to the assessee to be heard before imposing the penalty and thus, no mandatory reasonable opportunity of being heard was ever given to the assessee before imposing the penalty under section 271(1)(b) of the Income Tax Act. It was further submitted that from all the show cause notices issued by the assessing officer for submission of the details as is mentioned in the penalty orders, it would be seen that those state that in case of any failure to submit desired details, penalty would be levied but the necessary statutory satisfaction under section 271(1) of the Income Tax Act that the assessee has failed to comply with the notices and the assessing officer was satisfied to initiate the penalty proceedings has not been recorded anywhere. It was further submitted that a proposal to initiate penalty proceedings is not equivalent to recording a satisfaction which is the post failure and not with a preposition “if failed to”. He further submitted that the order sheets entries do now show issuance of any notice under section 274 read with section 271(1) of the Act or of recording of any such satisfaction. Therefore, he stated that the penalty imposed is liable to be quashed as the issue is squarely covered by the following decisions :–

— Hon’ble Karnataka High Court decision in the case of CIT & Ors. v. M/s. Manjunatha Cotton and Ginning Factory & Ors. (2013) 359 ITR 565 (Karn)

— Apex Court decision in the case of CIT & Anr. v. M/s. SSA’s Emerald Meadows in CC No. 11485/2016, dt. 5-8-2016.

6. On the contrary, learned DR relied upon the orders of the authorities below.

7. I have heard both the parties and perused the relevant records, especially the orders of the revenue authorities alongwith the provisions of law as well as the case law cited by the learned Counsel of the assessee and the photocopies of the order sheets filed with the Paper Book. I find considerable cogency in the contention of the learned Counsel of the assessee that no statutory notice under section 274(1) of the Income Tax Act was ever issued to the assessee to be heard before imposing the penalty and thus, no mandatory reasonable opportunity of being heard was ever given to the assessee before imposing the penalty under section 271(1)(b) of the Income Tax Act, which is very essential. On going through all the show cause notices issued by the assessing officer it was found that for submission of the details as is mentioned in the penalty orders, it would be seen that in case of any failure to submit desired details, penalty would be levied but the necessary statutory satisfaction under section 271(1) of the Income Tax Act that the assessee has failed to comply with the notices and the assessing officer was satisfied to initiate the penalty proceedings has not been recorded anywhere. I further note that it was further submitted that a proposal to initiate penalty proceedings is not equivalent to recording a satisfaction which is the post failure and not with the a preposition “if failed to”. Also on perusing the order sheets entries do not show issuance of any notice under section 274 read with section 271(1) of the Act or of recording of any such satisfaction. In view of above discussions, the penalty imposed by the assessing officer and confirmed by the learned Commissioner (Appeals) is not sustainable in the eyes of law, hence, the same is deleted and appeal of the assessee stands allowed.

8. Following the consistent view taken in assessment year 2008-09 as aforesaid, the penalty involved in other appeals in respect of assessment years 2009-10 to 2014-15 also stand deleted and accordingly the other appeals also stand allowed.

9. In the result, all the 07 Appeals filed by the assessee stand allowed.

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