Penalty u/s 271(1)(b) quashed; delay condoned after accepting reasonable cause for non-compliance with Section 142(1) notice

ITAT Delhi - AT allowed the assessee's appeal arising from penalty proceedings under Section 271(1)(b) for alleged non-compliance with notice issued under Section 142(1) during assessment under Section 143(3). The Tribunal, after considering the assessee's explanation and overall factual matrix, condoned the delay in filing the appeal before CIT(A), holding that sufficient cause had been demonstrated. On merits, ITAT directed deletion of the penalty, implicitly recognizing that the alleged default did not warrant levy under Section 271(1)(b). Consequently, the penalty order stood annulled and the assessee's appeal was allowed in full.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the delay in filing the appeal against the penalty order before the first appellate authority should be condoned in view of the reasons advanced by the assessee.

1.2 Whether the penalty of Rs. 10,000/- levied under section 271(1)(b) of the Income-tax Act, 1961 for alleged non-compliance of notice under section 142(1) was sustainable in the facts and circumstances of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of delay in filing appeal before the first appellate authority

Interpretation and reasoning

2.1 The assessee explained the delay before the appellate authorities by pointing to (i) transition to the new e-filing system resulting in non-physical service of the penalty order, (ii) illness of the authorised representative causing non-checking of the order uploaded on the e-filing portal, and (iii) disruption caused by the Covid pandemic during 2020-2022.

2.2 It was submitted that an application for condonation of delay supported by an affidavit, along with written submissions, had in fact been filed during the appellate proceedings before the first appellate authority, though the appeal was rejected on the ground that no reasons for delay and no condonation request were furnished.

2.3 The Tribunal, after hearing rival contentions and considering the totality of facts and circumstances as placed before it, accepted the explanation and treated the delay as sufficiently explained.

Conclusions

2.4 The Court condoned the delay in filing the appeal before the first appellate authority.

Issue 2: Validity of penalty under section 271(1)(b) for alleged non-compliance with notice under section 142(1)

Legal framework (as emerging from the judgment)

2.5 The penalty was levied under section 271(1)(b) for alleged non-compliance with a notice issued under section 142(1) during assessment proceedings under section 143(3).

Interpretation and reasoning

2.6 The assessee contended that notices under section 142(1) dated 15.06.2018 and 27.08.2018 were duly complied with by filing replies on 27.08.2018 and again on 23.10.2018, supported by documents, and that the assessment was ultimately framed under section 143(3), evidencing substantial compliance.

2.7 It was further submitted that in the penalty proceedings, a show-cause notice was issued on 21.09.2018 and not on 05.02.2019 as mentioned, and that the assessee's reply had not been properly considered before levying the penalty.

2.8 The Tribunal, taking into account the submissions and the overall factual matrix, accepted that this was not a case of total non-compliance and that there was reasonable cause for any lapse, particularly when the assessment itself was completed under section 143(3) and not under section 144.

Conclusions

2.9 The Court directed the Assessing Officer to delete the penalty of Rs. 10,000/- levied under section 271(1)(b) of the Act.

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