No Penalty after Completion of Scrutiny Assessment u/s 143(3) of IT Act, when necessary Evidence is Furnished: ITAT [Read Order]

The Delhi High Court directed for the deletion of the penalty imposed by the Assessment Unit ( AO ) and set aside the order of the Commissioner of Income Tax (Appeals), even after the petitioner has completed the Scrutiny Assessment by producing the necessary evidence regarding the same.

The assessee, Bhavna Modi represented by Sunil Kumar Agrawal, CA is an individual, filed her return of income (ROI) on 05.09.2020, processed under section 143(1), where the case was selected for limited scrutiny under the ‘CASS’.

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Accordingly, notice under section 142 of the Act was issued and duly served upon the assessee, due course notices u/s 142(1) along with detailed questionnaires were also issued. In response, assessee have made submissions through e-proceedings on 16.02.22, 03.03.22 and 04.03.22, after deliberation certain additions were made by the AO (Assessment Unit), which is not the subject matter of present appeal.

While culminating the assessment, AO made an observation to initiate penalty proceedings u/s 270A of the Act, for reporting/misreporting of income along with penalty u/s 272A(1)(d) for non-compliances of notices. Later on, penalty proceedings were initiated by the Assessment Unit, Income Tax Department wherein it is observed that during the course of assessment proceedings, notice u/s 143(2) of the Act dated 29.06.2021 and notice u/s 142(1) of the Act dated 25.10.2021 were issued to the assessee seeking clarification and further details on the issue, in respect of which the case was selected for scrutiny.

However, the assessee did not respond to the said notices, therefore penalty proceedings u/s 272A(1)(d) was initiated for non-compliances to the notices. Notice u/s 274 r.w.s 272A(1)(d) was issued to the assessee on 01.08.2022, thereby the assessee was requested to explain, why an order imposing penalty u/s 271A(1)(d) of the Act for non-compliance to the above referred notices should not be made.

No response was filed by the assessee, therefore further notice was issued on 30.01.2023, to which a response is filed by the assessee contending that she has filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) and therefore, request to wait for disposal of the case from the said authority. The AO verified the details available on record and found that the appeal was filed before the CIT(A), however, she has not raised any ground in respect of initiation of penalty proceedings u/s 272A(1)(d) of the Act.

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In this situation, a further notice was issued to the assessee asking her to show cause as to why penalty should not be imposed, however the assessee had again filed and requested to stay the proceedings till the disposal of the appeal, as the assessees reply was not found satisfactory by the AO, therefore penalty for non-compliance was imposed at Rs 10,000/- per default, thus, considering two defaults, the penalty is Rs.20,000/-.

By the imposition of penalty, the assessee preferred an appeal before the CIT(A), but with no success, the appeal was dismissed.

At the outset, the assessee submitted that, the CIT(A) erred in sustaining the penalty of Rs.20,000/- imposed on assessee for non-compliance. But the assessee has furnished all the necessary information regarding the completion of assessment u/s 143(3) r.w.s 144B of the Act  in accordance to the notices received. These judgements squarely covers these issues, Rambhai Kanjibhai Patel vs. The DCIT, Central Circle-2, Surat in ITA No. 106 to 110/SRT/2023 dated 11.05.23 and Saleem Ahmed Khan vs. Income Tax Officer in ITA Nos.88,89 & 98/JAB/2022 dated 13.09.2023.

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Based on the submissions and the ration of decision from the case mentioned before, it was held that in a circumstance when an assessment has been completed u/s 143(3) of the Act, the Ld. AO is deemed to have condoned the absence of the assessee or his authorized representative on earlier occasions when subsequently, the details were furnished by him and the assessments were ultimately completed u/s 143(3) of the Act. Therefore, penalties for non-compliance at certain occasions cannot be made AR(Authorized Representative) requested to delete the penalty.

The Respondent, Income Tax Officer, Chhattisgarh represented by Shri Satya Prakash Sharma, Sr. DR vehemently supported the order of revenue authorities.

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The Division Bench consisting of Shri Ravish Sood,Judicial Member and Arun Khodpia, Accountant Member observed that even though the assessee has failed in responding certain notices of the AO, however, in responses the assessee has made necessary replies and completed the assessment in accordance with Section 143(3) of the Act.

So following the analogy, the bench decides that the penalty imposed u/s 272A(1)(d) of the Act is not justifiable in the present case, as the AO himself should have condoned the absence of assessee on earlier occasions, as necessary informations and evidences were furnished by the assessee to assist the completion of the assessment.

The Bench thus directed the Commissioner of Income Tax (Appellate) to set aside the order and Assessment Officer to delete the penalty in favor of the assessee.

Appeal of the assessee was allowed in terms of the aforesaid observations

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