INVEST SMART INDIA PRIVATE LIMITED,HYDERABAD vs. ITO, WARD-2(1), HYDERABAD

This appeal filed by the assessee is directed against the order dated 19.04.2023 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2013-14.

Although a number of grounds have been raised by the assessee, however, these all relate to the order of the learned CIT (A) NFAC in confirming the penalty of Rs.30,000/- levied by the Assessing Officer u/s 271(1)(b) of the I.T. Act.

Facts of the case, in brief, are that the assessee is a private limited company and did not file its return of income nor submitted its reasons for non-filing. The case of the assessee was reopened after recording reasons and after taking statutory prior approval from the competent authority. Accordingly, notice u/s 148 dated 31.03.2021 was issued and served upon the assessee. However, no return was filed by the assessee nor was any response to the statutory notices issued. The Assessing Officer, therefore, completed the assessment u/s 144 of the I.T. Act and determined the total income of the assessee at Rs.3,95,72,450/- by making addition of the same u/s 68 of the I.T. Act. Since the assessee did not respond to the statutory notices issued u/s 142(1) dated 30.06.2021, 29.11.2021 and 22.12.2021, the Assessing Officer issued notice u/s 274 r.w.s. 271(1)(b) dated 29.3.2022 asking the assessee to explain as to why penalty u/s 271(1)(b) should not be levied. Since there was no response from the side of the assessee despite various opportunities granted, the Assessing Officer levied penalty of Rs.30,000/- u/s 271(1)(b) of the Act on the assessee for the 3 defaults.

Before the learned CIT (A) NFAC, the assessee, apart from challenging the penalty so levied on merit, challenged the levy of the penalty on the ground that the Assessing Officer has not taken prior approval of the JCIT/Add. CIT since the penalty so levied is above Rs.10,000/-. However, the learned CIT (A) NFAC dismissed the appeal filed by the assessee and upheld the penalty of Rs.30,000/- levied u/s 271(1)(b) of the Act.

Aggrieved with such order of the learned CIT (A) NFAC, the assessee is in appeal before the Tribunal.

The learned Counsel for the assessee at the outset drew the attention of the Bench to the provisions of section 271(1)(b) r.w.s. 274 and submitted that since the penalty in the instant case has exceeded Rs.10,000/-, the Assessing Officer was duty bound to obtain the prior approval of the JCIT/Add.CIT which he has not done. Therefore, such levy of penalty by the Assessing Officer which has been upheld by the learned CIT (A) NFAC should be cancelled. Referring to para 7.3 of the order of the learned CIT (A) NFAC he submitted that the learned CIT (A) NFAC has given a factual finding that no such approval was taken from the Add. CIT/JCIT before imposition of such penalty. Referring to the decision of the Coordinate Bench of the Tribunal in the case of P.C. Pantulu vs. Dy.CIT in dated 11.04.2018, he drew the attention of the Bench to Para 7 of the order which reads as under:

He accordingly submitted that since the Assessing Officer has not taken prior approval of the JCIT/Add CIT before levying of the penalty of Rs.30,000/- since penalty being not in accordance with law has to be cancelled.

The learned DR, on the other hand, submitted that the Assessing Officer has levied a penalty of Rs.10,000/- each for 3 defaults and has issued 3 separate demand notices and therefore, the Assessing Officer is not required to obtain any approval from the JCIT/Add.CIT although he has passed a combined order levying penalty of Rs.30,000/-.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case levied penalty of Rs.30,000/- u/s 271(1)(b) of the I.T. Act, 1961 for default of the assessee in not responding to the notices issued u/s 142(1) on 30.06.2021, 29.11.2021 and 22.12.2021 respectively. The relevant order u/s 271(1)(b) of the I.T. Act reads as under:

We find when the assessee challenged before the learned CIT (A) NFAC that the Assessing Officer has not taken prior approval from the JCIT/Add.CIT, the learned CIT (A) NFAC vide para 7.3 of his order has held that although the Assessing Officer has not taken prior approval from the Add CIT/ JCIT before imposition of such penalty, but 3 separate demand notices were issued. Relevant observation of the learned CIT (A) NFAC at para 7.3 of his order reads as under:

A perusal of the assessment order as well as the order of the learned CIT (A) NFAC clearly shows that although the Assessing Officer has levied penalty of Rs.30,000/- on the basis of notice issued u/s 274 on 29.3.2022 and subsequent notices, however, he has not taken any prior approval of the Add. CIT/JCIT before levy of such penalty which is in excess of Rs.10,000/-. We find the provisions of section 274(2) which reads as under: Section 274(2) in The Income Tax Act, 1961 “(2)[ No order imposing a penalty under this Chapter shall be made-(a)by the Income-tax Officer, where the penalty exceeds ten thousand rupees; (b)by the ][Assistant Commissioner or Deputy Commissioner] [ Substituted by Act 21 of 1998, Section 3, for " Assistant Commissioner" (w.e.f. 1.10.1998).][, where the penalty exceeds twenty thousand rupees, except with the prior approval of the [Joint Commissioner]”

Since the Assessing Officer in the instant case has admittedly not taken prior approval of the JCIT/Addl.CIT before levy of penalty of Rs.30,000/- which is in excess of Rs.10,000/-, he has violated the provisions of section 274(2) of the I.T. Act. Under these circumstances, we are of the considered opinion that due to non- obtaining of prior approval of the JCIT/Add.CIT for levy of penalty in excess of Rs.10,000/- the order passed by the Assessing Officer u/s 271(1)(b) being not in accordance with law is liable to be quashed. We therefore, set aside the order of the learned CIT (A) NFAC and direct the Assessing Officer to cancel the penalty levied by the AO u/s 271(1)(b) of the Act. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed.

In the result, appeal filed by the assessee is allowed.