Penalty under Section 271(1)(b) may be deleted where return is accepted and no escapement of income is found.

Where an educational institution exempt under Section 10(23C)(iiiab) failed to respond to notices under Sections 143(2) and 142(1) for bona fide reasons and the assessing officer subsequently accepted the return, completed assessment on merits showing nil tax and no escapement of income, the discretionary power under Section 271(1)(b) permits withholding penalty. The article concludes that a credible, bona fide explanation combined with an assessment that does not demonstrate escapement of income warrants deletion of the penalty and allowance of the appeal in favour of the assessee.

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Issues: Whether the penalty imposed under Section 271(1)(b) of the Income-tax Act, 1961 for non-compliance with notices under Sections 143(2) and 142(1) should be sustained or deleted.

Analysis: The assessee, an educational institution claiming exemption under Section 10(23C)(iiiab) of the Income-tax Act, 1961, did not respond to notices issued under Sections 143(2) and 142(1) due to heavy admission work and failure to verify emails. The assessment was subsequently completed by the assessing officer after accepting the return filed under Section 148, resulting in a nil tax computation. Section 271(1)(b) confers a discretionary power on the assessing officer to impose penalty for failure to comply with notice; case law of coordinate benches was considered where penalties were deleted when assessment proceeded on merits (i.e., not under Section 144) and no escapement of income was found. The Tribunal found the explanation of genuine oversight credible, the assessment showed no escapement of income, and the statutory provision uses permissive language ('may') enabling discretion against imposing penalty in such circumstances.

Conclusion: Penalty under Section 271(1)(b) of the Income-tax Act, 1961 is deleted and the appeal is allowed in favour of the assessee.

Ratio Decidendi: Where the assessing officer accepts the return and computes nil tax showing no escapement of income, and the assessee offers a bona fide, credible reason for non-compliance, the discretionary power under Section 271(1)(b) of the Income-tax Act, 1961 permits deletion of the penalty.

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