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Facts
Following a search, assessment proceedings were initiated against the assessees. Notices were issued, and during the process, a notice u/s.142(1) was issued. The assessees did not respond to this notice, which led to the imposition of penalties under Sections 271(1)(b) and 272A(1)(d) of the Income Tax Act.
Held
The Tribunal held that the assessees had a reasonable cause for not complying with the notice u/s.142(1), as they had consulted legal consultants and were pursuing settlement through the Income Tax Settlement Commission (ITSC). Furthermore, subsequent quashing of assessment orders by the High Court also supported the non-imposition of penalty.
Key Issues
Whether the assessees had a reasonable cause for not complying with the notice u/s.142(1), and if the penalty levied u/s.271(1)(b) and 272A(1)(d) was justified in light of subsequent developments including the quashing of assessment orders.
Sections Cited
142(1), 153A, 153C, 271(1)(b), 272A(1)(d), 273B, 245D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM: These are appeals preferred by the assessee(s) against the separate orders of the Learned Commissioner of Income Tax (Appeal), (hereinafter referred to as ‘Ld.CIT(A)‘), Chennai-18, dated 30.04.2025 for the Assessment Year’s (hereinafter referred to as ‘AY‘) 2015-16 to 2018-19 [Shri Veda Murthy], for AYs 2012-13 to 2018-19 [Dr.
Vedamurthy Maya] & for AYs 2014-15 to 2018-19 [M/s.RSV Skin & Laser Centre] confirming the penalty levied u/s.271(1)(b) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) for AY’s pre-AY’s 2016-17 and u/s.272A(1)(d) of the Act for AY’s 2017-18 to 2018-19.
Common order for 271(1)(b)/272A(1)(d):
Brief facts pertaining to levy of penalty u/s.271(1)(b) & 272A(1)(d) of the Act are that there was a search u/s.132 of the Act conducted at the premise of Dr. Vedamurthy Maya on 01.03.2018, pursuant to which, the AO had initiated action u/s.153A of the Act against the searched assessee (Dr. Vedamurthy Maya); and against other persons, issued
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre notice u/s.153C of the Act [i.e. against Dr Maya’s husband Shri Vedamurthy and the firm M/s. RSV Skin & Laser Centre]. Pursuant to notice u/s.153A of the Act dated 26.11.2018, Dr. Vedamurthy Maya filed return on 23.10.2019. Similarly, the other persons filed their return of incomes (RoI) on 12.11.2019 pursuant to notice u/s.153C of the Act dated 01.10.2019. Thereafter, the AO is noted to have issued statutory notices to the three persons u/s.143(2) of the Act and inter alia issued notice dated 09.12.2019 u/s.142(1) of the Act against the captioned three persons calling for certain details. However, according to the AO, notice u/s.142(1) of the Act didn’t elicit any response from the assessee’s, which omission on the part of the three assessee’s/persons led the AO to initiate penalty u/s.271(1)(b) of the Act by issuing notice for levy of penalty for AYs 2012-13 to 2016-17 in the case of Dr. Vedamurthy Maya on 01.01.2024 & 12.06.2024 and also for levy of penalty u/s.272A(1)(d) of the Act for AYs 2017-18 & 2018-19. Likewise, similar show cause notices were issued for levy of penalty to the other two assessee(s). The AO is noted to have levied penalty of ₹10,000/- against assessee’s, which action on appeal was confirmed by the Ld.CIT(A). The three (3) assessee’s has assailed the impugned action of the Ld.CIT(A) confirming the respective penalty in their hands by filing appeals for the captioned
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre :: 4 ::
AY’s, which details are captured in the chart below along with the details of penalty:
Appeal No. Assessment Penalty levied u/s. Assessee’s name Year 1711/Chny/2025 2015-16 271(1)(b) of the Act 1712/Chny/2025 2016-17 271(1)(b) of the Act Shri Vedamurthy 1713/Chny/2025 2017-18 272A(1)(d) of the Act 1714/Chny/2025 2018-19 272A(1)(d) of the Act 271(1)(b) of the Act 1715/Chny/2025 2012-13 1716/Chny/2025 2013-14 271(1)(b) of the Act 271(1)(b) of the Act 1717/Chny/2025 2014-15 Dr. Vedamurthy 271(1)(b) of the Act 1718/Chny/2025 2015-16 Maya 1719/Chny/2025 2016-17 271(1)(b) of the Act 272A(1)(d) of the Act 1720/Chny/2025 2017-18 1721/Chny/2025 2018-19 272A(1)(d) of the Act 271(1)(b) of the Act 1722/Chny/2025 2014-15 1723/Chny/2025 2015-16 271(1)(b) of the Act M/s.RSV Skin & 271(1)(b) of the Act 1724/Chny/2025 2016-17 Laser Centre 1725/Chny/2025 2017-18 272A(1)(d) of the Act 272A(1)(d) of the Act 1726/Chny/2025 2018-19
As noted in this case, penalty has been levied in the hands of the three (3) assessee’s ₹10,000/- for each AY’s by order dated 26.06.2024 u/s.271(1)(b) & 272A(1)(d) of the Act for non-compliance of notice u/s.142(1) of the Act which was issued by the AO on 09.12.2019.
According to the assessee, the non-compliance of the ibid notice dated 09.12.2019 was not deliberate but because the assessee after filing the ITR pursuant to statutory notices issued u/s.153A/153C of the Act had obtained legal opinion to settle the case by preferring application before the Income Tax Settlement Commission (ITSC); and on the basis of the advice given by the Legal Consultant, the assessee’s had started acting upon it by preparing the application for filing the same before the ITSC, and filed the application before ITSC on 27.12.2019 (i.e. after ‘18’ days).
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre :: 5 ::
Thus, according to the Ld.AR, the omission on the part of the three (3) assessee’s, not to appear before the AO, in the aforesaid facts and circumstances of the case can be seen to be bona fide and in good faith and therefore, the omission to appear/respond to notice on 09.12.2019, can’t invite penalty. The assessee’s case are that they had reasonable cause for not complying with the notice dated 09.12.2019 and hence, assessee’s shouldn’t be fastened with penalty. Therefore, the Ld.AR prayed that penalty levied of ₹10,000/-u/s.271(1)(b) of the Act by order dated 26.06.2024 (i) for AYs 2012-13 to 2016-17 in the case of Dr. Vedamurthy Maya (ii) for AYs 2014-15 to 2016-17 M/s.RSV Skin & Laser Centre and (iii) for AYs 2015-16 to 2016-17 Shri Vedamurthy, be deleted.
The Ld.AR also pleaded for deleting the penalty of ₹10,000/- levied for non-compliance to the notice u/s.142(1) of the Act dated 09.12.2019 for AYs 2017-18 & 2018-19 u/s.272A(1)(d) of the Act in the hands of all the three assessee(s) by penalty order dated 26.06.2024.
Per contra, the Ld.DR opposed the plea of Ld.AR for assessee and pointed out that the assessee had neither complied with the directions issued u/s.142(1) of the Act dated 09.12.2019 nor participated in the penalty proceedings initiated u/s.271(1)(b)/272A(1)(d) of the Act.
Therefore, according to the Ld.DR, this is a fit case for levying penalty
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre u/s.271(1)(b) / 272A(1)(d) of the Act and doesn’t want us to interfere with the action of the Ld.CIT(A).
Having heard both the parties and after perusal of the records, we note that pursuant to a search u/s.132 of the Act on 01.03.2018 at the premise of Dr. Vedamurthy Maya, assessment proceedings u/s.153A of the Act was initiated against the searched assessee i.e. Dr. Vedamurthy Maya who filed ITR/RoI on 23.10.2019. Likewise, notices u/s.153C of the Act was issued to her husband Shri Vedamurthy and their firm, M/s.RSV Skin & Laser Centre. Pursuant to notice u/s.153C of the Act, they are noted to have filed ITR/RoI on 12.11.2019. Thereafter, the AO is noted to have issued notices u/s.143(2) of the Act and notice u/s.142(1) of the Act dated 09.12.2019. For not attending or responding to a notice dated 09.12.2019 u/s.142(1) of the Act, the AO is noted to have levied ₹10,000/- in the hands of three (3) assessee’s across the AY’s as discernable from the chart (supra). Thus, non-compliance to the AO’s notice dated 09.12.2019 is noted to be the sole reason or foundation, on the basis of which, the AO had levied penalty of ₹10,000/- in the hands of each assessee’s. The Ld.AR submitted that penalty was not warranted in these cases u/s.271(1)(b) of the Act as well as u/s.272A(1)(d) of the Act since there was reasonable cause for the omission to comply with the directions given by the AO in his notice u/s.142(1) of the Act dated
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre :: 7 ::
09.12.2019 and drew our attention to Section 273B of the Act, the relevant provisions of law reads as under:
Penalty not to be imposed in certain cases.
273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section-271, …….. or clause (d) of sub-section (1) or sub- section (2) of section-272A, ……………… no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.[emphasis supplied]
According to the Ld.AR, non-compliance to the notice u/s.142(1) of the Act dated 09.12.2019 was not deliberate because the assessee on the basis of legal opinion was preparing to settle the case by filing application before the ITSC u/s.245D of the Act and meanwhile, the notice u/s.142(1) of the Act dated 09.12.2019 was issued by the AO and for non-compliance to the same, the impugned penalties has been imposed.
According to the assessee, the assessee acted bonafide on the legal advice and within ‘18’ days of the notice in question had preferred an application before ITSC u/s.245D(1) of the Act on 27.12.2019 which shows that the assessee had taken a course of action sanctioned by statue. Thus, according to the Ld.AR, the omission on the part of assessee’s, not to comply with the notice dated 09.12.2019 can’t be viewed as deliberate, rather it was a bona fide action made in good faith.
And in any case, there was reasonable cause for the failure to comply
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre with the notice as contemplated u/s.273B of the Act and hence, penalty u/s.271(1)(b) of the Act / u/s.272A(1)(d) of the Act was not warranted.
The question to be addressed is whether in the facts & circumstances of the case, whether levy of penalty u/s.271(1)(b)/272A(1)(d) of the Act is justified or not ? In other words, whether the assessee’s has made out a case that there was reasonable cause for non-compliance to the notice u/s.142(1) of the Act dated 09.12.2019. Before adverting to answer these questions let us look at the relevant penalty provisions i.e. u/s.271(1)(b)/272A(1)(d) of the Act, which reads as under:
Failure to furnish returns, comply with notices, concealment of income, etc. 271 (1) If the Assessing Officer …………. in the course of any proceedings under this Act, is satisfied that any person – (a) ………. (b) has failed to comply with a notice …………………… under sub-section (1) of section 142 or (c) ………… (d)………… he may direct that such person shall pay by way of penalty,- (i) …………. (ii) in the cases referred to in clause (b), in addition to tax, if any, payable by him, a sum of ten thousand rupees for each such failure; (iii) ……….
Penalty for failure to answer questions, sign statements, furnish information returns or statements, allow inspections, etc.
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre :: 9 ::
272A. (1) If any person - (a) …….. (b) ………. (c) ………. (d) fails to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142, he shall pay, by way of penalty, a sum of ten thousand rupees for each such default or failure.
A bear reading of both provisions reveals that the ingredients and language of the penalty provisions are pari-materia. Both are for levy of penalty for non-compliance with statutory notice or failure to comply with the directions given therein. The penalty has been levied against the three (3) assessee’s for failure to comply with the directions given in notice u/s.142(1) of the Act 09.12.2019. There is no dispute that they didn’t comply with the directions given in the said notice. The question is whether there was reasonable cause for non-levy of penalty as contemplated u/s.273B of the Act, which reads as under:
Penalty not to be imposed in certain cases.
273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section-271, …….. or clause (d) of sub-section (1) or sub- section (2) of section-272A, ……………… no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.
On examination of relevant facts, it is noted that pursuant to search at Dr.Maya’s premises, notice u/s.153A of the Act was issued and in response, Dr. Maya is noted to have filed ITR/RoI on 23.10.2019 & the to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya ITA Nos.1722 to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre other two assessee’s were issued notice u/s.153C of the Act and pursuant to that notice, they filed ITR/RoI on 12.11.2019. Thereafter, the assessee’s are noted to have consulted Legal Consultants, who advised them to settle the case by filing application for settlement u/s.245D of the Act, which they complied by filing application before the ITSC on 27.12.2019. Meanwhile, the AO is noted to have issued notice u/s.142(1) of the Act dated 09.12.2019, which they didn’t complied with. And for failure to comply with the directions given in notice u/s.142(1) of the Act dated 09.12.2019, the AO has levied penalty of ₹10,000/- across all the AY’s in the hands of assessee’s. Having found that assessee’s had acted upon the legal advice to pursue a course of action stipulated in the Act for settlement of the tax dispute, we can’t hold the assessee’s omission to comply with the directions given u/s.142(1) of the Act to be deliberate.
Rather, the assessee is noted to have acted upon the legal advice and in fact filed application before the ITSC u/s.245D of the Act on 27.12.2019.
Therefore, the omission on the part of assessee’s not complying with directions given in notice u/s 142(1) dated 09.12.2019 cannot be said to be deliberate or done on purpose, rather assessee’s are noted to have acted upon the legal advice and filed application on 27.12.2019 for settlement of case u/s 254D of the Act before ITSC, which recourse to remedy is allowed by the Income Tax Act. Hence assessee has made out
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre a case that there was reasonable cause for failure to comply with notice u/s.142(1) of the Act dated 09.12.2019. Therefore, the impugned action of the Ld CIT(A) confirming the penalty levied by AO u/s.271(1)(b) or 272A(1)(d) of the Act was unjustified and hence, we direct deletion of penalty in all the AY’s.
The penalty is not leviable on one more count because, even though, the Settlement Commission had treated the settlement application filed by the assessee dated 27.12.2019 as invalid vide order dated 27.02.2020, the assessee is noted to have filed Writ Petition before the Hon’ble High Court challenging the ITSC’s order which we find to have been finally allowed by the Hon’ble High Court and the assessee’s application for settlement has been remitted back to the file of the Interim Board for Settlement (ITSC) vide order dated 05.06.2025 [refer to Writ Appeal Nos.3554, 3555 & 3556 of 2023]. Further, it is noted that pursuant to refusal by the ITSC to entertain the assessee’s application u/s.245D(1) of the Act, the AO is noted to have passed assessment orders on 27.12.2023 [in the case of Dr. Vedamurthy Maya] and assessment order u/s.153C of the Act in the case of other two assessee(s) on 30.12.2023. It is further noted that the assessee had challenged the assessment orders and filed Writ Petition in the Hon’ble High Court; and Hon’ble High Court was pleased to quash the assessment
ITA Nos.1711 to 1714/Chny/2025 (AYs 2015-16 to 2018-19) Vedamurthy to 1721/Chny/2025 (AYs 2012-13 to 2018-19) Dr. Vedamurthy Maya to 1726/Chny/2025 (AYs 2014-15 to 2018-19) M/s.RSV Skin & Laser Centre orders passed u/s.153A / 153C of the Act by order dated 05.06.2025 [in WP Nos.5362, 7761, 7764, 7767, 7769, 7773, 7777 of 2024]. Thus, we note that the assessment orders passed in the case of all the three assessee(s) stands quashed and the application filed by the three assessee(s) u/s.245D(1) of the Act before the ITSC stands restored before the Interim Board of Settlement. Therefore, in the light of the developments discussed supra and the quashing of assessment orders of all the three assessee’s albeit on 05.06.2025, according to us, penalty is not warranted in these cases.
In the result, all the appeals filed by the assessee(s) are allowed.
Order pronounced on the 18th day of September, 2025, in Chennai.