The Income Tax Appellate Tribunal (ITAT), Rajkot Bench, has recently, in an appeal filed before it, held that when non- participation of the firm in the assessment proceedings is due to dispute between the partners, penalty u/s 271(1)(b) of teh Income Tax Act, 1961 shall not be imposed.
The aforesaid observation was made by the Tribunal when an appeal was filed before it by the appellant M/s. Vinars Enterprise, against the separate orders dated 06.12.2019, passed by the Commissioner of Income Tax (Appeals)-1, Rajkot, as against partly confirming the penalty levied under section 271(1)(b) of the Income Tax Act, 1961, relating to the Assessment Years (A. Ys) of 2012-13 & 2013-14 respectively.
The brief facts of the case being that the assessee was a Firm, which filed its Return of Income for the Assessment Year 2012-13 on 25.08.2012, admitting the total income to be Rs. 10,900/-, and on 13.09.2013, admitting its total income to be Rs. 32,272/ for the Assessment Year 2013-14, both these assessments were subsequently taken up for scrutiny assessment and notices u/s. 143(2) and 142(1) of the Income Tax Act issued on various occasions.
However, the assessee having neither responded to the notice nor offered any explanation to the Assessing Officer, the assessments were completed as per best judgment u/s. 144 of the Income Tax Act on 30.03.2015 and 31.03.2016 respectively, for the Assessment Years 2012-13 & 2013-14, with the assessing officer initiating penalty proceedings u/s. 271(1)(b) for non-compliance by the assessee, to the various statutory notices issued u/s. 142(1)/143(2) of the Act.
Aggrieved against the same, the assessee had filed an appeal before the CIT(A)-1, Rajkot, who partly allowed the assessee’s appeal for the Assessment Year 2012-13, on the ground that while three notices were issued u/s. 142(1), the date of service was not mentioned/proved.
With the only notice dated 22.12.2014 being shown to have been served upon the assesse before the date of hearing,to which the assesse had not responded, the CIT(A) confined the penalty of Rs. 10,000/- and partly allowed the appeal. And for the Assessment year 2013-14, he confined the penalty to the notice served on 20.08.2015 and 14.03.2016, thereby confining the penalty of Rs. 20,000/, leaving the assesse aggrieved to prefer the instant appeal before the Tribunal.
Hearing the opposing contentions of both the sides and perusing the materials available on record, the Tribunal consisting of Annapurna Gupta, the Accountant Member and T.R. Senthil Kumar, the Judicial Member observed:
“The main submission of the assessee is that the assessing officer has given only 15 days’ time to respond to the notices which is inadequate, and therefore thatthe penalty for non-compliance should not be levied. The assessee also claims that the disputes between the partners prevented it from not participating in the assessment proceedings and therefore requests to delete the penalty.”
“In fact the Ld. CIT(A) has confined the levy of penalty u/s. 271(1)(b) very particularly to the notices which was issued and served on the assessee, wherein the assessee failed to comply/reply to the notices. Thus, the ld. CIT(A) partially deleted the penalty levied against the assessee, wherein notices have been served to the assessee beyond the date of hearing or service of notices is not proved by the ld. A.O”, the Bench added.
Finally, allowing the assessee’s appeal, the Tribunal concluded:
“Literally only one proper notice was served to the assessee, wherein adequate time is not given to the assessee to file its reply. Further as explained by the assessee, non-response to the notice is because of disputes between the Partners. Thus, considering the facts of the present case, the levy of penalty u/s. 271(1)(b) is liable to be deleted.”
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