ITAT deleted penalty 271(1)(b) and 271F as explanation of the assessee was ignored by the Assessing Officer and CIT(A).
ABCAUS Case Law Citation:
ABCAUS 3663 (2023) (02) ITAT
In the instant case, the appellant assessee had challenged the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) confirming the levy of Income Tax penalty under section 271(1)(b) and section 271F of the Income Tax Act, 1961 (the Act).
The assessee was an individual having commission (Dalali) Income earned from sale of livestock. The Assessing Officer received information from the ITD system, that during the relevant Financial Year, the assessee made a large amount of cash deposit in his bank account. However, the assessee had not filed any Return of Income.
Hence a notice u/s 148 of the Act was issued. However, the assessee has not filed the Return of Income and the notice u/s 142(1) were also not responded by the assessee. Therefore, an ex-parte assessment order was passed against the assessee treating the amount of cash deposit as his income.
Following the same, notice u/s. 271(1)(b) was issued as why not to levy of penalty for non-compliance of the notices issued u/s. 142(1) of the Act. Similarly, the penalty notice under section 271F was issued for non-filing of the Return of Income.
The assessee responded to the notice stating that his income was below taxable limit, hence he was not liable to file the Return of Income. Further, he stated that because of the bad health of the accountant on account of prolonged illness, the assessee could not reply to the notices.
However, the AO was not satisfied with the reply/explanation of the assessee and thereby levied a penalty under section 271(1)(b) and section 271F of the Act.
CIT(A) confirmed the levy of penalty u/s. 271(1)(b) and u/s. 271F of the Act.
The Tribunal observed that the imposition of penalties under section 271(1)(b) and under section 271F of the Act are not mandatory, rather it is discretionary, because if the assessee proves that there was a “reasonable cause” for the said failure, then the Assessing Officer ought to have considered the same and then proceed with levying penalties.
The ITAT further observed that perusal of the above provisions of u/s. 271(1)(b) and u/s. 271F shows that the Parliament has used the words “may” and not “shall”, thereby making their intention clear in as much as that levy of Penalty is discretionary and not automatic.
Further the ITAT noted that the above conclusion is further justified by Section 273B of the Act namely “Penalty not to be imposed in certain cases”. Section 273B encompasses that certain penalties “shall” not be imposed in cases where “reasonable cause” is successfully pleaded. The penalties imposable u/s. 271(1)(b) and u/s 271F are also included therein. By the said provisions, the Parliament has unambiguously made it clear that no penalty “shall be” imposed, if the assessee “proves that there was a reasonable cause for the said failure”.
The Tribunal observed that in the instant case, the explanation offered by the assessee had been ignored by the AO as well as the CIT(A)-NFAC but confirmed the levy of penalties u/s. 271(1)(b) and u/s 271F of the Act without considering u/s. 273B of the Act.
The ITAT opined that applying the provisions of Section 273B of the Act, no penalties were leviable as “reasonable cause” was clearly demonstrated by the assessee.
Accordingly, the ITAT deleted the penalties levied u/s 271(1)(b) and u/s. 271F of the Act.
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