2017 (10) TMI 1673 - AT - Income Tax

Penalty under Section 271(1)(b) not imposed if substantial compliance under Section 143(3) is made without willful default

M/s Shree Brindaban Rice Mill Versus DCIT, Central Circle XXVII, Kolkata

The ITAT Kolkata held that the penalty under section 271(1)(b) could not be imposed where the assessee made substantial compliance by filing the ... Penalty u/s 271(1)(b) - no response the notices issued u/s 142(1) - DR contended that the assessee in the instant case was intentionally delaying the proceedings to take the assessment at the fag-end in order to divert the attention of the AO HELD THAT:- Identical facts and circumstances the Hon’ble Delhi Tribunal has decided the issue in favour of assessee in the case of Akhil Bhartiya Prathmik Shikshak Sangh Bhawan Trust [2007 (8) TMI 386 - ITAT DELHI-G] by observing that the assessment was framed u/s 143(3) of the Act which proves that substantial compliances were made by the assessee. Thus it cannot be held that the default committed by the assessee was willful. Thus, we are inclined not to uphold the order of lower authorities. Assessee’s appeal is allowed. ISSUES: Whether penalty under section 271(1)(b) of the Income Tax Act, 1961 can be sustained for non-compliance with notices issued under section 142(1) of the Act during assessment proceedings under section 153A/143(3).Whether the assessee's claim of reasonable cause, specifically illness of a family member, justifies non-compliance with statutory notices and exempts from penalty under section 271(1)(b).Whether substantial compliance during assessment proceedings under section 143(3) negates the willfulness required for imposing penalty under section 271(1)(b).Whether delay or non-appearance during assessment proceedings, without valid explanation, constitutes deliberate default attracting penalty under section 271(1)(b). RULINGS / HOLDINGS: The penalty imposed under section 271(1)(b) for non-compliance with notices under section 142(1) was not justified where substantial compliance was made during assessment proceedings under section 143(3), as the default was not 'willful'.The claim of reasonable cause based on illness of a family member was rejected as an 'apparent case of afterthought' since the illness did not coincide with the period of non-compliance and was not communicated to the Assessing Officer during assessment or penalty proceedings.The penalty should not be imposed unless the assessee acted 'deliberately in defiance of law' or was guilty of 'conduct contumacious or dishonest, or acted in conscious disregard of its obligation.'Technical or venial breaches, or breaches flowing from a bona fide belief of non-liability, do not warrant imposition of penalty under section 271(1)(b).Delay or non-appearance without prior intimation or valid explanation adversely affects the assessment process and may justify penalty, but in the instant case, the explanation was not substantiated, and penalty was thus upheld by lower authorities but reversed by the Tribunal. RATIONALE: The Court applied the provisions of the Income Tax Act, 1961, specifically sections 142(1), 143(3), 153A, and 271(1)(b), and relied on judicial precedents including the Supreme Court's ruling in Hindustan Steel Ltd. v. State of Orissa (83 ITR 26), which established that penalty is a quasi-criminal proceeding requiring deliberate or contumacious conduct.The Tribunal emphasized that penalty is discretionary and should be imposed judicially considering all relevant circumstances, including bona fide compliance and reasonable cause.The Tribunal distinguished between mere non-compliance and willful default, holding that substantial compliance under section 143(3) negates willfulness.The Tribunal found the medical grounds for non-compliance unsubstantiated as they were not timely disclosed and did not correspond to the period of default, rejecting the afterthought defense.The Tribunal followed the principle that penalty should not be imposed for 'technical ground' or 'venial breach' without deliberate defiance of law.