The Income Tax Appellate Tribunal, New Delhi bench guided the AO to delete the penalty imposed under section 271(1) (b) of the Income Tax Act, 1961 since failure of the assessee’s counsel to attend the assessment proceedings without informing the assessee was a reasonable cause to immune from penalty.
The tribunal comprising of president Shri.G.D.Agarwal and judicial member Shri.Sudanshu Srivastava held so while disposing the appeal filed by assessee.
The assesse during the year under appeal had filed his return of income declaring income at Rs. 9, 38,237/-. The AO while making the assessment was made an addition of the total amount due to the sundry creditors and expenses payable as on 31/03/2008 by holding that the same were not allowable under the cash system of accounting.
The Tax Auditor ignorantly, made an incorrect statement that the method of accounting followed by the assessee was “cash” instead of “mercantile” which was the method of accounting being followed by the assessee.as a result of the appeal filed to CIT .made some addition.
Subsequently the AO levied penalty of Rs. 60,422/- u/s 271(1)(c) of the Income Tax Act, 1961 on additions/disallowances which was on further appeal confirmed by the Ld. CIT and the assessee has approached the ITAT challenging the confirmation of such penalty. Further the AO imposed a penalty of Rs. 40,000 for non-compliance of notice issued.
While imposing the penalty, the AO has noted that the show cause notices were issued to the assessee and duly served upon the assessee before the imposition of the penalty but the assessee had not filed any reply in this regard.
Difference in opinion had developed between assessee and tax auditor, who was also the counsel of auditor regarding the incorrect mentioning of the accounting method. Due to this unaware fact the counsel had stopped attending proceedings before the assessing officer till the receipt of show cause notice proposing to make the assessment and fixing the date of hearing for 20/12/2010.
It was submitted that there was a valid and reasonable cause for the assessee failing to attend the proceedings which was bona fide and, therefore, the penalty deserved to be deleted. Against this the DR contented that both the penalties had rightly been imposed and the same should be upheld.
The Tribunal, while hearing both the contention and on perusal of record the penalty under section 271 (1) (c) is concerned, the Hon’ble Supreme Court, in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26, had laid down. The position of law in that case was holding the assessee not to levy the penalty simply because the quantum addition has been sustained.
The tribunal bench proclaimed that no penalty shall be imposed if the assessee is able to prove that there was reasonable cause for the said failure of not complying with the notice served on them. Considered opinion of ITAT was that the failure of the assessee’s counsel to attend the assessment proceedings without informing the assessee was a reasonable cause which would fall within the exception as provided in section 273B and, therefore, directed the AO to delete the penalty imposed on assessee.
Read the full text of the Order below.
