Validity of Penalty Under Section 272A(1)(d) When Assessment Concludes Under Section 143(3): An In-Depth Analysis of ITAT Indore's Ruling

The intersection of statutory compliance and administrative pragmatism frequently becomes a battleground in tax jurisprudence. A recurring dispute arises when an assessee delays responding to statutory notices but eventually furnishes the required details, which the tax authorities subsequently utilize to frame the final assessment. The critical question is whether the revenue department can still penalize the assessee for the initial delay even after accepting and relying upon the delayed submissions.

This exact legal conundrum was recently addressed by the Income Tax Appellate Tribunal (ITAT), Indore Bench, in the landmark case of Ujjain Dugdh Sangh (Sah) Maryadit Vs DCIT/ACIT-1. The Tribunal delivered a decisive verdict, holding that once an Assessing Officer (AO) completes a scrutiny assessment under Section 143(3) of the Income-tax Act, 1961, by considering the delayed responses, the earlier procedural defaults are deemed to be condoned. Consequently, no penalty can be sustained under Section 272A(1)(d) of the Income-tax Act, 1961.

This article provides a comprehensive analysis of the factual matrix, the statutory provisions involved, the arguments presented by the assessee, and the broader implications of the Tribunal's ruling pronounced on 27 February 2026.

1. Statutory Framework Governing the Dispute

To fully appreciate the nuances of the Tribunal's decision, it is imperative to understand the underlying legal framework that governed the actions of both the revenue authorities and the assessee.

1.1 The Power to Call for Information: Section 142(1)

Under Section 142(1) of the Income-tax Act, 1961, the Assessing Officer possesses broad investigative powers to issue notices compelling an assessee to produce accounts, documents, or any other information necessary for the purpose of making an assessment. Timely compliance with these notices is a statutory obligation.

1.2 Penal Consequences for Default: Section 272A(1)(d)

To ensure strict adherence to statutory directives, the legislature enacted Section 272A(1)(d) of the Income-tax Act, 1961. This provision empowers the tax authorities to levy a fixed monetary penalty of ₹10,000 for each instance of failure to answer questions, sign statements, or comply with a notice issued under Section 142(1).

1.3 The Shield of Reasonable Cause: Section 273B

Recognizing that genuine hardships can prevent an assessee from strictly adhering to statutory timelines, the law provides a safety valve. Section 273B of the Income-tax Act, 1961 explicitly states that no penalty shall be imposable under various penal provisions, including Section 272A(1)(d), if the assessee proves that there was a "reasonable cause" for the failure.

1.4 Assessment Modalities: Section 143(3) vs. Section 144

The method of concluding an assessment is highly relevant to penalty proceedings.

• **Scrutiny Assessment (Section 143(3))😗* This is a regular assessment where the AO examines the evidence produced by the assessee and passes an order determining the correct income.
• **Best Judgment Assessment (Section 144)😗* If an assessee completely fails to comply with Section 142(1) notices, the AO is authorized to estimate the income to the best of their judgment based on available material.

2. Factual Matrix of the Case

The dispute pertained to the Assessment Year 2020-21. The assessee, Ujjain Dugdh Sangh (Sah) Maryadit, is a co-operative society registered under the Madhya Pradesh Co-operative Societies Act, 1960. The entity's primary operational activities involve procuring milk from local farmers and milkmen via designated collection centers, followed by the processing, manufacturing, and marketing of milk and allied dairy products.