The Income Tax Appellate Tribunal (ITAT), Delhi, recently set aside a penalty of Rs 40,000 imposed under Section 272A(1)(d) of the Income Tax Act, 1961, holding that non-compliance with statutory notices does not automatically warrant penalty if no prejudice is caused to the revenue. This ruling underscores the principle that procedural lapses must be evaluated in the context of their substantive impact on tax assessment proceedings.
Background & Facts
The Dispute
The appellant, Hari Govind Texfab (India) Pvt. Ltd., a textile and garment manufacturing company, filed its return of income for the Assessment Year (AY) 2019-20 under Section 139(1) of the Income Tax Act declaring a total income of Rs 33,65,579. The Assessing Officer (AO) sought to reopen the assessment by issuing a notice under Section 148 of the Act on 5 April 2023, to which the assessee responded by filing a return on 3 May 2023 declaring the same income. The reassessment was completed under Section 147 read with Section 144B of the Act on 26 March 2025, determining a total income of Rs 26,59,08,482 after additions of Rs 26,25,42,903.
Key Facts
- The assessee was engaged in the business of manufacturing textiles and garments.
- The original return of income for AY 2019-20 was filed on 30 November 2019 (implied from the timeline).
- Notice under Section 148 for reopening of assessment was issued on 5 April 2023.
- The assessee filed a return in response to the notice on 3 May 2023.
- The reassessment order under Section 147/144B was passed on 26 March 2025, making substantial additions to the income.
- During reassessment proceedings, the AO observed non-compliance with notices issued under Section 142(1) and Section 143(2) of the Act.
- Penalty proceedings under Section 272A(1)(d) were initiated, culminating in a penalty of Rs 40,000.
Procedural History
- 5 April 2023: Notice under Section 148 issued for reopening of assessment.
- 3 May 2023: Assessee files return in response to Section 148 notice.
- 11 June 2024: Notice under Section 143(2) issued, fixing the due date for reply as 26 June 2024.
- 8 August 2024: Notice under Section 142(1) issued.
- 11 November 2024: Assessee partially complies with Section 142(1) notice.
- 21 November 2024, 28 February 2025, 13 March 2025, 22 March 2025: Assessee furnishes further replies to the AO.
- 26 March 2025: Reassessment order passed under Section 147/144B.
- 1 September 2025: Penalty order passed under Section 272A(1)(d) levying Rs 40,000.
- 17 October 2025: CIT(A) confirms the penalty.
- 29 April 2026: Appeal heard by ITAT Delhi.
- 29 June 2026: ITAT pronounces order deleting the penalty.
The Parties' Positions
For the Appellant (Assessee):
- Argued that the notice under Section 143(2) did not specify any details to be furnished, rendering non-compliance inconsequential.
- Contended that the delay in complying with Section 142(1) was condoned by the AO in the quantum proceedings, as the reassessment was not framed under Section 144 (best judgment assessment).
- Submitted that no prejudice was caused to the revenue due to the delayed compliance.
For the Respondent (Revenue):
- Relied on the strict language of Section 272A(1)(d), which mandates penalty for non-compliance with notices under Section 142(1) and Section 143(2).
- Argued that the assessee’s delayed compliance warranted the levy of penalty.
Relief Sought
The assessee sought deletion of the penalty of Rs 40,000 levied under Section 272A(1)(d) of the Act.
The Legal Issue
The central question before the ITAT was whether the Learned CIT(A) was justified in confirming the penalty of Rs 40,000 under Section 272A(1)(d) of the Act for non-compliance with notices issued under Section 142(1) and Section 143(2), where no prejudice was caused to the revenue and the delay was condoned in the quantum proceedings.
Arguments Presented
For the Appellant
- No Specific Details in Section 143(2) Notice: The notice under Section 143(2) did not specify any details to be furnished, making non-compliance a technical lapse without substantive impact.
- Condonation of Delay in Quantum Proceedings: The AO did not frame the reassessment under Section 144 (best judgment assessment), implying that the delay in complying with Section 142(1) was condoned.
- No Prejudice to Revenue: The assessee ultimately furnished all required details, and no prejudice was caused to the revenue due to the delayed compliance.
For the Respondent
- Strict Compliance Required: Section 272A(1)(d) mandates penalty for non-compliance with notices under Section 142(1) and Section 143(2), regardless of prejudice.
- Delayed Compliance: The assessee’s delayed responses to the Section 142(1) notice justified the levy of penalty.
The Court's Analysis
The ITAT examined the provisions of Section 272A(1)(d) of the Act, which stipulates penalty for non-compliance with notices issued under Section 142(1) and Section 143(2). The Tribunal observed:
"On perusal of the provisions of section 272A(1)(d) of the Act, we find that the penalty is leviable for non-compliance to notice under section 142(1) and 143(2) of the Act. In the instant case, the notice under section 143(2) of the Act dated 11-6-2024 stood issued to the assessee fixing the due date of reply as 26-6-2024. The learned A.R. placed on record the copy of the notice under section 143(2) before us, wherein, we find that no details were asked by the learned A.O. Hence, even if there was no compliance to the notice under section 143(2) of the Act on the first date of hearing, no prejudice is caused to the revenue. Hence, penalty levied for non-compliance to notice under section 143(2) of the Act deserve to be deleted."
The Tribunal further analyzed the compliance with the Section 142(1) notice:
"We find that notice under section 142(1) of the Act was issued on 8-8-2024, which was partially complied by the assessee on 11-11-2024. Thereafter the assessee had furnished replies on 21-11-2024, 28-2-2025, 13-3-2025 and 22-3-2025. Hence it could be safely concluded that the details were indeed furnished with delay by the assessee which alone prompted the Learned AO in not framing the reassessment under section 144 of the Act by making a best judgment assessment. Hence it could be inferred that the delay in not filing the details by the assessee had been practically condoned by the Learned AO in the quantum proceedings itself. Having done so, the levy of penalty under section 272A(1)(d) of the Act would have no legs to stand."
The ITAT concluded that the penalty levied under Section 272A(1)(d) was unsustainable in law, as the AO had effectively condoned the delay in the quantum proceedings by not resorting to a best judgment assessment under Section 144.
The Verdict
The ITAT allowed the appeal of the assessee and directed the deletion of the penalty of Rs 40,000 levied under Section 272A(1)(d) of the Act. The Tribunal held that:
- Non-compliance with a Section 143(2) notice that does not specify any details to be furnished does not warrant penalty, as no prejudice is caused to the revenue.
- Delay in complying with a Section 142(1) notice is condoned if the AO does not frame the reassessment under Section 144 (best judgment assessment), implying that the delay was overlooked in the quantum proceedings.
- The levy of penalty under Section 272A(1)(d) is unsustainable where the delay has been effectively condoned by the AO.
What This Means For Similar Cases
Penalty Under Section 272A(1)(d) Is Not Automatic
- Contextual Evaluation Required: The ITAT’s ruling establishes that the levy of penalty under Section 272A(1)(d) must be evaluated in the context of whether the non-compliance caused any prejudice to the revenue. Mere technical non-compliance with statutory notices does not automatically warrant penalty.
- Substantive Impact Over Technical Lapses: Practitioners must argue that procedural lapses should not attract penalties if they do not impede the assessment process or cause prejudice to the revenue.
Condonation of Delay in Quantum Proceedings
- Implied Condonation: If the AO does not resort to a best judgment assessment under Section 144 despite delayed compliance, it implies that the delay was condoned in the quantum proceedings. In such cases, the levy of penalty under Section 272A(1)(d) is unsustainable.
- Strategic Compliance: Assessees should ensure that all required details are ultimately furnished, even if with delay, to avoid the AO invoking Section 144. The absence of a best judgment assessment can be a strong ground for challenging penalties.
Specificity in Notices Under Section 143(2)
- No Penalty for Vague Notices: A notice under Section 143(2) that does not specify any details to be furnished cannot form the basis for levying penalty under Section 272A(1)(d). Assessees should scrutinize such notices for specificity before responding.
- Precedent for Challenging Penalties: This ruling provides a precedent for challenging penalties where notices lack clarity or specificity, particularly under Section 143(2).
