2025 (8) TMI 1331 - AT - Income Tax

Assessee's noncompliance with notices u/s 142(1) not excused by pandemic filing extension; penalty under s.271(1)(b) reduced

Harshadkumar Bhogilal Raval Versus Income Tax Officer, Ward – 1, Patan, Gujarat

ITAT AHMEDABAD upheld that the assessee failed to comply with multiple notices u/s 142(1) and offered no reasonable explanation; the Supreme Court's ... Penalty proceedings u/s 271(1)(b) - non-compliance to the notices u/s 142(1) - HELD THAT:- It is not the case that the assessee was unaware about the assessment proceeding or that the notices issued u/s 142(1) of the Act were not received by him. In fact, the assessee had complied to the first notice issued u/s 142(1) of the Act and had sought adjournment. There was no compliance to the subsequent two notices and the reason for the non-compliances was also not explained. Thereafter, AO had also issued notice in the course of penalty proceedings and the matter was fixed for hearing on 08.12.2021. Assessee neither made any compliance nor any written submission was filed, in the course of penalty proceeding. This reflects a very casual approach of the assessee. Before the Ld. CIT(A) also, no compliance was made and the reasons for non-compliance to the notices before the AO was not explained. The assessee has referred to the general extension granted by the Hon’ble Supreme Court for the period from 15.03.2020 to 28.02.2022 due to Covid pandemic. The extension granted by the Hon’ble Supreme Court was in respect of filing of appeals. There was no stipulation in this extension that the assessee will not be required to comply to the notices issued by the Assessing Officer. We, therefore, do not find any reasonable explanation for the non-compliance made by the assessee to the notices issued u/s 142(1) of the Act in the course of assessment proceedings as well for the non-compliance in the course of penalty proceedings. AO was not correct in imposing the penalty of Rs. 20,000/-. The provision of Section 271(1)(ii) of the Act stipulates that for the failure to comply to the notice u/s 142(1) of the Act, a penalty of Rs. 10,000/- can be imposed for each failure. However, in order to impose penalty for multiple failures, separate notice u/s 271(1)(b) of the Act was required to be initiated for each failure. We, therefore, deem it proper to reduce the quantum of penalty imposed by the AO to Rs. 10,000/- only. Accordingly, the appeal filed by the assessee is partly allowed. Appeal of the assessee is partly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the First Appellate Authority erred in dismissing the appeal on the ground of delay without adjudicating the penalty matter on merits. 2. Whether the Supreme Court's suo moto exclusion of the period 15/03/2020 to 28/02/2022 for limitation purposes (COVID extension) exempts an assessee from complying with notices issued under Section 142(1) of the Income Tax Act during that period. 3. Whether the assessment completed under Section 147 read with Section 144 is invalid or without jurisdiction on account of approval under Section 151 being granted by PCIT instead of JCIT (challenge to jurisdiction/approval). 4. Whether penalty under Section 271(1)(b) (failure to comply with notices under Section 142(1)) can be imposed as a single penalty for multiple defaults, or whether separate penalty proceedings/notice are required for each failure; and the appropriate quantum of penalty. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Dismissal for delay vs. adjudication on merits Legal framework: Appellate authorities have jurisdiction to decide appeals on merits unless a valid procedural bar (e.g., limitation) applies; principles of natural justice require adjudication where procedural defects do not preclude jurisdiction. Precedent Treatment: No external precedents cited in the judgment; the Court applies administrative-law principles regarding duty to adjudicate where possible. Interpretation and reasoning: The Tribunal observed that the First Appellate Authority dismissed the appeal for delay but the impugned appellate decision did not preclude consideration of merits where delay was the only ground. The Tribunal noted the assessee's contention but found no substantive legal bar preventing merit adjudication in the record before it. Ratio vs. Obiter: Ratio - appellate authority should not decline to decide substantive merits solely on procedural delay where the record permits consideration; where dismissal for delay is effected, consequences must be within law. Obiter - procedural discretion of appellate authorities when delay is pleaded. Conclusions: The Tribunal found that the First Appellate Authority erred in failing to consider the merits to the extent relevant to penalty quantum, and proceeded to examine the penalty issue itself. Issue 2 - Effect of Supreme Court COVID period exclusion on compliance with Section 142(1) notices Legal framework: The Supreme Court's suo moto order excluded a specific period for purposes of limitation for filing of appeals; statutory notices under Section 142(1) and compliance obligations are governed by the Act and are distinct from limitation for filing appeals. Precedent Treatment: The Tribunal treats the Supreme Court's extension as limited to limitation for filing appeals and not as a blanket suspension of statutory notice compliance obligations; the Court's approach distinguishes the extension's scope from procedural duties under the Act. Interpretation and reasoning: The Tribunal emphasized that the Court's order related specifically to limitation for filing appeals and did not stipulate that assessees were excused from complying with notices issued by the Assessing Officer. The assessee's reliance on the COVID extension therefore did not constitute a legally acceptable excuse for non-compliance with Section 142(1) notices or for non-participation in penalty proceedings. Ratio vs. Obiter: Ratio - a time-extension order for limitation of appeals does not automatically suspend an assessee's obligation to comply with statutory notices under Section 142(1); such extension cannot be read as immunizing non-compliance in assessment or penalty proceedings. Obiter - factual observations about practical difficulties during pandemic not amounting to legal excuse. Conclusions: The Tribunal rejected the contention that the COVID-era limitation exclusion justified non-compliance with Section 142(1) notices or penalty proceedings; absence of compliance and lack of explanation weighed against the assessee. Issue 3 - Validity of assessment where approval under Section 151 granted by PCIT instead of JCIT Legal framework: Assessments under Section 147 r.w.s.144 require statutory approvals as prescribed (Section 151 and related provisions govern sanction/approval for reopening). Legitimacy of assessment can be challenged if mandatory approval is vested in a specific authority and an incorrect authority purportedly grants it. Precedent Treatment: The Tribunal noted the ground raised but did not elaborate on authority-specific jurisprudence; the issue was not pursued to a positive finding in the present order. Interpretation and reasoning: The assessee pleaded that approval was granted by an incorrect officer (PCIT instead of JCIT), challenging jurisdiction. The Tribunal's order does not record a finding annuling the assessment on that basis; instead, the Tribunal focused on penalty proceedings and non-compliance issues, implicitly treating the jurisdictional challenge as not determinative for the penalty matter before it. Ratio vs. Obiter: Obiter - the Tribunal did not decide the jurisdictional/approval point on merits in this order; therefore no binding ratio on correctness of approving authority is laid down here. Conclusions: The jurisdictional challenge to the assessment approval was raised but not adjudicated to affect the penalty outcome; no conclusion for or against validity of assessment approval is recorded in the reasoning resolving the penalty appeal. Issue 4 - Requirement of separate penalty proceedings for multiple defaults and appropriate quantum under Section 271(1)(b) Legal framework: Section 271(1)(b) authorizes imposition of penalty for failure to comply with notices under Section 142(1); statutory scheme contemplates penalty per failure. Principles of fair procedure require separate notice/proceedings for each distinct default where statute prescribes per-default penalty. Precedent Treatment: The Tribunal treats the statutory provision literally and follows settled procedural fairness principles; no external case law is cited or overruled. Interpretation and reasoning: The Tribunal observed that the Assessing Officer imposed a single penalty of Rs. 20,000 for two defaults without initiating separate penalty proceedings for each failure. The Tribunal interpreted Section 271(1)(b) as permitting a penalty of Rs. 10,000 for each failure; to impose penalty for multiple failures, separate notices/proceedings should be initiated for each failure. Because the AO had not initiated distinct proceedings for each default, the Tribunal considered the imposition of Rs. 20,000 procedurally improper. Ratio vs. Obiter: Ratio - where Section 271(1)(b) contemplates a per-failure penalty, separate penalty proceedings/notice are required for each failure; absent such separate proceedings, aggregate imposition for multiple defaults is improper. Ratio - quantum must reflect statutory per-failure limit unless proper separate proceedings justify multiplication. Conclusions: The Tribunal reduced the penalty from Rs. 20,000 to Rs. 10,000, holding that a single valid penalty equivalent to one failure could be sustained given absence of separate proceedings for each default; the assessee's casual non-compliance was noted but procedural deficiency in AO's approach required reduction of penalty. Cross-references and operative conclusions 1. The Tribunal upheld that lack of explanation and non-compliance with Section 142(1) notices and penalty proceedings reflected a casual approach by the assessee (see Issue 2), but procedural irregularity in initiating separate penalty proceedings for multiple defaults necessitated reduction of penalty (see Issue 4). 2. The Supreme Court's limitation exclusion for the COVID period is distinguished from obligations to comply with statutory notices; reliance on that exclusion does not excuse non-compliance with Section 142(1) notices or penalty hearing obligations. 3. The jurisdictional challenge to approval under Section 151 (PCIT v. JCIT) was raised but not decided in this order and did not affect the Tribunal's conclusion on penalty quantum; it remains an unadjudicated point in this judgment.