ITAT Bangalore Deletes Penalty Under Section 271(1)(b) for Non-Compliance with Notices

Background and Context

The Bangalore Bench of the Income Tax Appellate Tribunal in the case of Gaddeppa Santhosh Vs ITO (ITAT Bangalore) deleted a penalty of ₹30,000 imposed under Section 271(1)(b) of the Income Tax Act 1961. The penalty was levied for failure to comply with multiple statutory notices during reassessment proceedings for Assessment Year 2015-16.

The assessee, an individual engaged as a pujari and astrologer, was not a regular return filer and was dealing almost entirely in cash. The reassessment proceedings were initiated on the basis of substantial cash deposits in his bank account, treated as unexplained money under Section 69A read with Section 115BBE.

The Tribunal examined whether non-appearance and non-response to notices, in the circumstances of this case, justified the levy of penalty in light of Section 273B, which provides immunity from penalty where there exists a “reasonable cause” for the default.

Facts of the Case

Initiation of Reassessment

  • The assessee, an individual, had not filed any Return of Income for the relevant year.
  • Information with the department showed cash deposits of ₹78,72,635 in his bank account.
  • Based on this, the Assessing Officer (AO) reopened the assessment and issued a notice under Section 148 on **31st March 2022`.
  • As there was no compliance, the AO proceeded to complete the reassessment ex parte and treated the entire cash deposit of ₹78,72,635 as unexplained money under Section 69A, taxing it at the special rate under Section 115BBE.

Non-Compliance with Section 142(1) Notices

During the reassessment proceedings, the AO issued statutory notices under Section 142(1) on multiple occasions.

  • Notices were issued for compliance on:
    • 21st September 2022
    • 19th October 2023
    • 1st November 2022
  • The assessee did not respond to any of these notices and did not furnish details or appear before the AO.

Given this repeated non-compliance, the AO initiated penalty proceedings under Section 271(1)(b).

Penalty Proceedings Under Section 271(1)(b)

  1. Show cause notices for levy of penalty under Section 271(1)(b) were issued on:
    • 22nd February 2023
    • 27th March 2023
    • And a reminder on 18th April 2023
  2. The assessee did not file any written submissions in response to these notices.
  3. During a virtual hearing on 9th August 2023, the assessee merely stated that he had already filed an appeal before the CIT(A) against the quantum assessment and requested that penalty not be imposed.
  4. Observing that:
    • No explanation had been offered showing “reasonable cause” under Section 273B, and
    • The assessee had not even challenged the initiation of penalty proceedings in the quantum appeal,
      the AO levied a penalty of ₹30,000, calculated at ₹10,000 for each instance of default, through an order dated 21st August 2023.

First Appeal Before CIT(A)

The assessee carried the matter in appeal to the National Faceless Appeal Centre, Delhi (CIT(A)).