2023 (7) TMI 992 - AT - Income Tax

Unjust penalty deleted for non-compliance with tax notices.

Bijender Lather Versus Income-tax Officer, Ward-1, Sonipat

The Tribunal held that the penalty imposed on the assessee under section 272A(1)(d) of the Income-tax Act for non-compliance of statutory notices was ... Penalty u/s 272A(1)(d) - non-compliance of the statutory notices - HELD THAT:- It is seen from the record that in response to the penalty notice the assessee had filed certain explanation before the Assessing Authority. However, the Assessing Authority did not consider the same. Penalty u/s 271A(1)(d) is not automatic. If the assessee could show the reasonable cause for non-compliance, in that event the AO should not levy the penalty. It is the contention of the assessee that AO through National Faceless Assessment Centre had issued notice dated 14.03.2018 and 23.08.2019 but the same were not received by the assessee. AO has not assigned any reason for not accepting the contention of the assessee. Therefore, it is not a fit case for levy of penalty. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 272A(1)(d) of the Income-tax Act (referred to in the grounds) / section 271A(1)(d) (referred to in the reasoning) can be sustained where the Assessing Officer did not record plausible reasons for rejecting the assessee's replies to statutory notices. 2. Whether non-receipt of notices under section 142(1) (as alleged by the assessee) and the filing of written explanations and documentary replies during assessment proceedings constitute a reasonable cause to avoid levy of penalty under the said provision. 3. Whether deletion of additions in separate quantum proceedings has any binding effect on the validity of a penalty imposed for alleged non-compliance with statutory notices. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Requirement of plausible reasons for rejecting replies before imposing penalty under s. 272A(1)(d) / s. 271A(1)(d) Legal framework: Penalty provisions under s. 272A(1)(d) (as pleaded) / s. 271A(1)(d) (as discussed in the order) are not automatic; they apply for failure to comply with statutory notices and contemplate consideration of the assessee's explanation and reasonable cause. Precedent Treatment: No judicial precedent was relied upon or cited in the impugned order or the Tribunal's decision; the Tribunal applied statutory principles and settled administrative law norms. Interpretation and reasoning: The Tribunal emphasized that before imposing penalty the AO must consider the explanations offered by the assessee and must assign reasons if those explanations are rejected. Mere imposition without recording reasons demonstrating why the replies were not acceptable fails to satisfy the statutory/administrative requirement of fair consideration. Ratio vs. Obiter: Ratio - Penalty under the cited provision is not automatic and cannot be sustained where the AO has not recorded reasons for rejecting the replies. Obiter - The judgment notes procedural deficiencies at the faceless centre but the core holding concerns the requirement to address the assessee's explanations. Conclusions: The Tribunal held that the AO did not satisfy the condition of assigning plausible reasons for rejecting the replies; therefore, imposition of penalty was improper and required deletion. Issue 2 - Effect of non-receipt of s. 142(1) notices and existence of written submissions as 'reasonable cause' Legal framework: Reasonable cause is a defence to penalty for non-compliance; non-receipt of statutory communications and submission of explanations/documentary material during assessment are relevant to determining whether reasonable cause existed. Precedent Treatment: No authority was invoked; the Tribunal applied the statutory principle that explanations showing reasonable cause should prevent levy of penalty. Interpretation and reasoning: The assessee asserted non-receipt of notices dated 14.03.2018 and 23.08.2019 and produced written explanations and supporting documents (cash-flow statement, bank details) during assessment. The AO did not consider those replies or record reasons for rejecting the non-receipt and the explanations. The Tribunal found that in such circumstances the AO's failure to address the explanations and to record contrary reasons meant the penalty could not be sustained. Ratio vs. Obiter: Ratio - If an assessee proffers a plausible explanation (including non-receipt of notice or timely submission of replies) the AO must consider it and cannot impose penalty without addressing and recording reasons for rejecting it. Obiter - The Tribunal referenced the faceless mechanism and administrative defaults but did not base the decision solely on those considerations. Conclusions: The Tribunal concluded that the assessee had offered a reasonable cause which the AO failed to rebut with recorded reasons; accordingly, the penalty was not justified and was ordered to be deleted. Issue 3 - Impact of quantum proceedings (deletion of additions) on penalty liability for non-compliance Legal framework: Liability for penalty for non-compliance with notices is conceptually distinct from correctness of assessments/additions; deletion of additions in quantum proceedings does not automatically extinguish a separate penal liability unless the penal finding is shown to be invalid for reasons related to non-compliance with procedural requirements. Precedent Treatment: The Department argued that deletion of additions does not absolve penalty; the Tribunal acknowledged this legal proposition but examined whether the AO nevertheless failed to meet the statutory standard in imposing penalty. Interpretation and reasoning: Although deletion of the addition was not dispositive of penalty liability, the Tribunal examined the record and found procedural infirmity in the penalty proceedings - absence of reasons for rejecting replies and non-consideration of the assessee's explanations. Thus, even taking the Department's point on principle, the particular facts showed the penalty to be unsustainable. Ratio vs. Obiter: Ratio - Deletion of additions does not per se negate penalty liability; however, if penalty proceedings suffer from failure to consider explanations or to record reasons, penalty must be deleted. Obiter - The Tribunal's observation that deletion of addition and penalty are separate inquiries. Conclusions: The Tribunal rejected the Department's submission as determinative; on the facts it found penalty invalid due to non-compliance with the requirement to record reasons and to consider the assessee's explanations, and therefore directed deletion of the penalty. Disposition The Tribunal allowed the appeal, held that penalty under the cited provision was not sustainable because the AO failed to assign plausible reasons for rejecting the assessee's replies and did not adequately consider the asserted reasonable cause (non-receipt of notices and submission of documentary explanations), and directed deletion of the penalty.