Penalty us 271(1)(b) for failure to file return u/s 153C. Provisions of section 271(1)(b) does not empower AO to impose the penalty for delay or failure to file the returns in response to notice u/s 153C – ITAT
ABCAUS Case Law Citation:
ABCAUS 2032 (2017) (08) ITAT
Important Case Laws Cited/relied upon by the parties:
Hindustan Steels Ltd. vs. State of Orissa
Brief Facts of the Case:
The appellants were individual/HUF. A search and seizure operations under the provisosn of section 132 of the Income Tax Act, 1961 (the Act) were conducted in the case of certain group of companies. Consequent upon search and seizure operations, certain incriminating material pertaining to the appellant was found and therefore, AO issued notice u/s 153C calling upon the appellants to file return of income for assessment years 2003-04 to 2008-09.
However, despite contacting the appellant over telephone several times to file return of income, there was no response from the appellant to file return of income. Therefore, a show cause notice proposing to levy penalty u/s 271(1)(b) of the Act was issued for non-compliance of the notice.
The appellants did filed any explanation with respect to said show cause notice as well. Therefore, the AO proceeded with the levy of penalty u/s 271(1)(b) of the Act by levying penalty of Rs.10,000/- for each year.
The appellant preferred appeals before the CIT(A) wherein it was contended that the delay in filing return of income is on account of the fact that the Chartered Accountant who was entrusted with the responsibility of filing the return of income in response to notice u/s 153C was busy with the filing of returns of income of his clients due in the month of July and it was further contended that time granted to file the return of income was less than 15 days, which was not sufficient/reasonable time to file the return of income and thus it was contended that the time allowed by the AO was insufficient and since the notice per se was invalid, no penalty could be levied.
However, the CIT(A) rejected the explanation and held that the default on the part of the appellant was deliberate and willful noncompliance and therefore, confirmed the levy of penalty.
Contention of the Appellant Assessee:
It was contended on behalf of the appellant that notice calling upon the appellant to file return of income within the period of less than 15 days was invalid and therefore, the question of compliance did not arise. Alternatively, it was also submitted that since the Chartered Accountant who was given the responsibility of filing the returns was busy with filing of return of income of his clients due in the month of July, the appellant could not, comply with the notice well within time.
However, since the returns were subsequently filed and the returns of income were accepted by the AO in the assessment after scrutiny proceedings, there was no prejudice caused to the revenue. It was only technical breach of law and therefore, no penalty was exigible.
Observations made by the Tribunal:
The ITAT observed that a bare reading of the provisions of section 271(1)(b), it was clear that the penalty is leviable only in the cases where any person has failed to comply with notice issued under sub-section (2) of section 115WE or under sub-section (1) of section 142 or subsection (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142.
It was noted that only in aforesaid cases the assessee is liable for penalty in addition to tax if any payable, a sum of Rs.10,000/- for each such failure in the cases referred to in clause (b) in addition to tax, if any, payable by him.
It was further noted that in the instant cases, the penalty was obviously levied for delay in filing the return of income in response to notice u/s 153C of the Act. But the provisions of section 271(1)(b) did not empower the AO to impose the penalty in the case of delay or failure to file the returns in response to notice u/s 153C of the Act.
Thus the ITAT found that the penalty orders did not have any legal basis.
It was held that the orders passed by the AO imposing penalty u/s 271(1)(b) had no statutory basis and had no legs to stand. The AO was directed to delete the penalty.