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Facts
An ex-parte assessment order for AY 2017-18 resulted in an addition of Rs. 30.17 lakhs for cash deposits, later reduced to Rs. 2 lakhs by the Tribunal in a quantum appeal. Simultaneously, an ex-parte penalty order under Section 271E was issued but allegedly not served, leading to the assessee (a small-time karyana shopkeeper) discovering the penalty only when seeking a stay for the quantum demand. This resulted in a delay of 1041 days in filing the appeal against the penalty order.
Held
The Tribunal condoned the delay of 1041 days, finding 'sufficient cause' due to the non-service of the penalty order and the assessee's diligence in challenging the quantum addition. On merits, it held that the transactions were normal sales from a karyana shop, not loans or deposits violating Section 269, and therefore, no penalty under Section 271E was imposable. The tribunal emphasized a liberal interpretation of 'sufficient cause' based on Supreme Court precedents.
Key Issues
1. Whether the delay of 1041 days in filing the appeal against the penalty order u/s 271E should be condoned. 2. Whether the penalty levied u/s 271E of the Income Tax Act was justified.
Sections Cited
147, 144B, 271E, 253(5), 249(3), 269, 282, Section 5 of Indian Limitation Act, 1963
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Income Tax Appellate Tribunal, BENCH, ‘SMC’ CHANDIGARH
Before: SHRI RAJPAL YADAV
PHYSICAL HEARING O R D E R
The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 15.10.2025 passed for assessment year 2017-18.
2. The solitary issue of the assessee is that ld.CIT (Appeals) has erred in not condoning the delay of 1041 days and confirming the penalty levied u/s 271E of the Income Tax Act.
ITA No.1383/CHD/2025 A.Y.2017-18 2
The brief facts of the case are that an ex-parte assessment order was passed by the ld. AO u/s 147 read with Section 144B of the Income Tax Act on 28.03.2022. The AO has made an addition of Rs.30.17 lacs on account of cash deposits in the bank account. The dispute in this quantum appeal travelled upto the Tribunal vide and Tribunal has decided this appeal on 04.08.2025. The Tribunal recorded the finding that assessee has been filing its return in presumptive taxation and its turnover did not exceed Rs.40 lacs, hence, the lumpsum addition of Rs.2 lacs is being sustained and rest is being deleted.
The ld. counsel for the assessee has submitted that assessment order was passed ex-parte. Simultaneously, a penalty order u/s 271E was also passed ex-parte which was never served upon the assessee nor it came to the notice of the assessee. Otherwise, assessee could have challenged this order also well in time. When assessee has applied for stay of the outstanding demand before the CIT (Appeals) under pleading that he is a small-time shopkeeper running a karyana shop and not in a position to make payment of huge demand A.Y.2017-18 3 of Rs.40 lacs, only then he came to know about another demand of penalty u/s 271E. Immediately, assessee has filed an appeal before ld.CIT (Appeals) but by the time it has become time barred by 1041 days.
The ld. DR on the other hand, relied upon order of the CIT (Appeals) and submitted that assessee should be more vigilant about litigation with the Department.
Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross- objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. This expression sufficient cause employed in the section has also been used identically in sub- section 3 of section 249 of Income Tax Act, which provides powers to the ld. Commissioner to condone the delay in filing the appeal before the Commissioner. Similarly, it has been used in section 5 of Indian Limitation Act, 1963. Whenever interpretation and construction of this expression has fallen for consideration before Hon’ble High Court as well as before the Hon’ble Supreme Court, then, Hon’ble Court were unanimous in their conclusion that this expression is to be A.Y.2017-18 4 used liberally. We may make reference to the following observations of the Hon’ble Supreme court from the decision in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353:
Ordinarily a litigant does not stand to benefit by lodging an appeal late.
Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day’s delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non- deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. 6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice A.Y.2017-18 5 and is expected to do so.
Similarly, we would like to make reference to authoritative pronouncement of Hon’ble Supreme Court in the case of N. Balakrishnan Vs. M. Krishnamurthy (1998) 7 SCC 123 dated 03.09.1998. It reads as under:
“Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finislitium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time A.Y.2017-18 6 then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss”.
In the light of above, if we examine, then it emerges out that the earlier penalty proceeding was being prosecuted by Faceless Assessment Unit but when it was going to be time barred, it was transferred to jurisdictional AO who only left with 1 ½ months and he issued only one notice to the assessee in the month of August, when the penalty proceedings were going to be time barred by 30.09.2022. Only one notice dated 04.08.2022 was alleged to have been issued. It is not discernable whether it was issued through electronic mode only or it was issued by affixture or any other mode of service contemplated in Section 282 of the Income Tax Act. Thus, assessee was not having any knowledge of this penalty order. If it is being appreciated in the light of the fact that quantum addition made in an ex-parte order has already been challenged before ld.CIT (Appeals) as well as in appeal before the Tribunal, then it is to be inferred that assessee would have acted diligently if it was in his knowledge. Accordingly, I A.Y.2017-18 7 condone the delay in filing appeal before ld.CIT (Appeals) and proceed to decide the appeal on merit myself.
A perusal of the record would indicate that assessee has not repaid any loan or deposit to Shri Phool Chand Gupta, as alleged by the AO, rather these are the transactions of normal sales from a karyana shop. Invoices have been issued by the assessee whose copies have been shown before me. Accordingly, no case of violation u/s 269 is being made out and no penalty u/s 271E is imposable upon the assessee. I allow the appeal of the assessee and delete the penalty levied u/s 271E of the Income Tax Act, 1961.
In the result, appeal of the assessee is allowed.
Order pronounced on 03.02.2026.