2020 (3) TMI 1489 - AT - Income Tax

Penalty under Section 271(1)(b) canceled for substantial compliance after assessment under Section 143(3)

The ITAT Kolkata held that penalty under section 271(1)(b) for non-compliance with AO's notice was not justified where the assessment was completed under ... Penalty u/s 271(1)(b) - non-compliance to the notice in question issued by the AO - HELD THAT:- Akhil Bhartiya Prathmik Shikshak Sangh Bhawan Trust [2007 (8) TMI 386 - ITAT DELHI-G] assessment order was finally passed by the AO u/s 143(3) and not u/s 144 of the Act and keeping in view the same, it was held by the Delhi Bench of this Tribunal that the subsequent compliance on the part of the assessee in the assessment proceedings was considered as good compliance and the defaults committed earlier were ignored by the AO. It was held that there was thus no reason to come to the conclusion that the default on the part of the assessee was wilful and the penalty imposed u/s 271(1)(b) was not justified. Following the said decision in the case of M/s. Shree Brindaban Rice Mill [2017 (10) TMI 1673 - ITAT KOLKATA] cancelled the penalty imposed by the AO and confirmed by the Ld. CIT(A) u/s 271(1)(b) of the Act after taking a note of the fact that the assessment was completed by the AO u/s 143(3) after taking into consideration the substantial compliance made by the assessee subsequently. Appeal of the assessee is allowed. ISSUES: Whether penalty under section 271(1)(b) of the Income Tax Act, 1961 can be imposed for non-compliance with notice issued under section 142(1) when the assessment is subsequently completed under section 143(3).Whether non-compliance with the notice issued on 01.11.2018 was wilful so as to justify imposition of penalty under section 271(1)(b). RULINGS / HOLDINGS: The penalty under section 271(1)(b) was not justified where the assessment was finally completed under section 143(3) after taking into consideration the details and documents furnished by the assessee, indicating 'substantial compliance' despite earlier non-compliance.The non-compliance to the notice issued on 01.11.2018 was not 'wilful' and therefore did not warrant imposition of penalty under section 271(1)(b).Following precedents where the assessment was completed under section 143(3), earlier defaults were ignored and penalty was cancelled, the penalty imposed in the present case was set aside. RATIONALE: The Court applied the statutory framework of the Income Tax Act, 1961, particularly sections 142(1), 143(2), 143(3), and 271(1)(b).The Court relied on coordinate bench decisions which held that completion of assessment under section 143(3) after submission of documents constitutes 'substantial compliance' and negates wilfulness in non-compliance.The Court distinguished cases where assessment is completed under section 144 (best judgment assessment), which may indicate wilful non-compliance, from cases completed under section 143(3).No dissent or doctrinal shift was noted; the Court followed established Tribunal precedents emphasizing the importance of substantive compliance over procedural defaults for penalty imposition.