Non issuance of statutory notice u/s 274(1) vitiated levy of penalty u/s 271(1)(b) – ITAT

Non issuance of statutory notice u/s 274(1) vitiated levy of penalty u/s 271(1)(b). Mere proposal to initiate penalty proceedings not amount to recording the satisfaction-ITAT

ABCAUS Case Law Citation:
ABCAUS 2446 (2018) 08 ITAT

The instant judgment was delivered in a bunch of appeals filed by several assessee against the CIT(A)’s action of confirming levy of penalty u/s 271(1)(b) of the Income Tax Act, 1961 (the Act). due to non compliance of notice by the assessee.

Pursuant to the search and seizure operation notice u/s 153(1) of Act was issued which was not complied with. Also, successive notices u/s 142(1) of the Act were also not complied with resulting in penalty order u/s 271F of the Act for failure to furnish return of income.

Further, for non compliance with the notice u/s 142(1)/143(2) of the Act issued for several times, a notice u/s 271(1)(b) was also issued more than one time but the same was also ignored by the assessee without appearance either in person or through Authorized Representative. In the circumstances, due to the non cooperation of the assessee, the Assessing Officer levied a penalty of Rs. 10,000/- u/s 271(1)(b) of the Act deeming it to be a fit case for imposing the penalty.

CIT(A) confirmed the penalty and dismissed the appeals.

Before the Tribunal, the main plank of argument of the assessee was that no statutory notice u/s 274(1) of the Act was issued prior to the levy of penalty and the assessee is denied the opportunity of being heard.

It was submitted that for want of compliance with said statutory requirement and violation of the principles of natural justice also, the levy of penalty was bad.

Further, it was submitted that the proposal to initiate the penalty proceedings could not be equated to the recording of satisfaction on the failure of the assessee, as such, the penalty cannot be sustained. For this proposition the assessee placed reliance on the decision of the Karnataka High Court and the decision of the Hon’ble Apex Court dismissing the SLP against the decision of the Hon’ble Karnataka High Court.

The Tribunal observed that it was not the case of the Revenue that any notice u/s 274(1) of the Act was ever issued to the assessee or that the assessee was heard before the levy of penalty.

The Tribunal opined that the issuance of notice u/s 274(1) of the Act is a jurisdictional issue, and non issuance thereof vitiates the assumption of jurisdiction by the AO to levy the penalty u/s 271(1)(b) of the Act.

The Tribunal expressed agreement with the assessee in that mere proposal to initiate penalty proceedings was not equivalent to recording the requisite satisfaction on the failure of the assessee to comply with the notices u/s 143(2)/142(1) of the Act. For non recording of any satisfaction and for not affording any opportunity to the assessee after issuing of notice u/s 274 read with Section 271(1) of the Act vitiated the proceedings.

The Tribunal held that the levy of penalty could not be sustained and accordingly quashed the penalty proceedings.

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