Reasonable cause bars penalty for non-compliance with tax notices where Covid-related hardship and poor connectivity prevented response.

Penalty for non-compliance with notices under section 142(1) of the Income-tax Act was held unsustainable where the assessee showed reasonable cause for the default. The Tribunal accepted that the notices were issued during the Covid period, the assessee was stationed at a far-off place with poor telephone and internet connectivity, and these circumstances explained the failure to respond. Applying section 273B, it held that penalty under section 271(1)(b) cannot be levied when reasonable cause is proved, and the penalty was directed to be cancelled.

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Issues: Whether penalty for non-compliance with notices under section 142(1) of the Income-tax Act, 1961 was leviable under section 271(1)(b) of the Income-tax Act, 1961 when the assessee showed reasonable cause for the default.

Analysis: The assessee had participated in the original assessment, the reassessment proceedings arose after revision under section 264 of the Income-tax Act, 1961, and the notices under section 142(1) were issued during the Covid period. The Tribunal accepted that the assessee was posted in a far-off place with inadequate telephone and internet connectivity and that these circumstances constituted reasonable cause. It also relied on section 273B of the Income-tax Act, 1961, which bars penalty where reasonable cause is proved. On that basis, the Tribunal found the levy of penalty unsustainable.

Conclusion: Penalty under section 271(1)(b) of the Income-tax Act, 1961 was not justified and was directed to be cancelled.

Ratio Decidendi: Where the assessee proves reasonable cause for non-compliance, section 273B of the Income-tax Act, 1961 protects against penalty under section 271(1)(b) of the Income-tax Act, 1961.

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