Valid service of notice is essential before penalty for non-compliance can stand; mere issuance is not enough.

Penalty under section 271(1)(b) cannot be sustained unless valid service of the statutory notices is established and the assessee is given a real opportunity to comply. The record did not show proper service, genuine to serve the notices, or any finding of refusal, absence, or incorrect address. Mere issuance of notices was therefore insufficient to prove default, and the adverse penalty action offended natural justice. On that basis, the penalty was deleted.

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Issues: Whether penalty under section 271(1)(b) of the Income-tax Act, 1961 was sustainable when the notices were not shown to have been served on the assessee and no proper opportunity of compliance was .

Analysis: The penalty was founded on alleged non-compliance with notices issued by the Assessing Officer. The record did not show proper service of the notices or genuine efforts to serve them, nor any clear finding that the assessee had refused service, was unavailable, or was not residing at the stated address. In such circumstances, mere issuance of notices could not establish default. The absence of valid service also engaged the principles of natural justice and the right to opportunity of hearing. Reliance was placed on the requirement that service of notice is a condition precedent for adverse action, and on coordinate and Supreme Court authority indicating that penalty cannot stand where non-compliance is attributable to non-service of notice.

Conclusion: The penalty under section 271(1)(b) was not sustainable and was deleted; the appeal was allowed in favour of the assessee.

Ratio Decidendi: Penalty for non-compliance with statutory notices cannot be sustained unless valid service of notice is established and the assessee is afforded a real opportunity to comply.

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