2015 (5) TMI 1100 - AT - Income Tax

ITAT Delhi Reduces Penalty, Emphasizes Deterrence Over Revenue Generation

The Appellate Tribunal ITAT Delhi partially allowed the appeal by the assessee, reducing the penalty imposed under Section 271(1)(b) of the Income-tax ... Penalty levied under Section 271(1)(b) - non appearing on the different dates of hearing before the Assessing Officer in response to notice issued under Section 143(2) - Held that:- 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/- . The grounds of appeal of the assessee are thus partly allowed. Issues: Validity of penalty under Section 271(1)(b) of the Income-tax Act, 1961The judgment by the Appellate Tribunal ITAT Delhi, involved the appeal by the assessee against the order of the CIT(A) regarding the validity of a penalty imposed under Section 271(1)(b) of the Income-tax Act, 1961 amounting to Rs. 50,000. The only issue in the appeal was the validity of this penalty. During the hearing, the assessee did not appear, and the appeal was decided ex parte. The Assessing Officer had issued notices under Section 143(2) of the Act on multiple dates, which the assessee failed to comply with, leading to the imposition of the penalty. The learned DR argued that there was no reasonable cause for the assessee's non-appearance. The Tribunal noted that while there was no reasonable cause for the assessee's non-appearance, the penalty of Rs. 10,000 could be imposed for the first default, but not for each notice under Section 143(2) that was not complied with. The Tribunal emphasized that the purpose of Section 271(1)(b) was deterrence, not revenue generation, and imposing penalties repeatedly for the same default was not the legislative intent. The Tribunal restricted the penalty to the first default of non-compliance with the notice under Section 143(2), limiting it to Rs. 10,000 instead of the initially confirmed Rs. 50,000 by the CIT(A). As a result, the appeal of the assessee was partly allowed, and the penalty was reduced to Rs. 10,000.In conclusion, the Tribunal's decision highlighted the importance of considering the legislative intent behind penalty provisions and ensuring that penalties are imposed for deterrence rather than revenue generation. The judgment clarified that penalties should be restricted to the first default in cases of non-compliance with statutory notices to prevent multiple penalties for the same offense.