The Income Tax Appellate Tribunal, Lucknow Bench, has set a significant precedent by deleting a Rs. 40,000 penalty imposed under Section 272A(1)(d) of the Income Tax Act, 1961 for alleged non-compliance with statutory notices. The judgment underscores that penalty provisions cannot be mechanically applied where the assessee demonstrates reasonable cause, and the Revenue fails to establish deliberate or willful default.
Background & Facts
The Dispute
The appellant, Amar Liquors, a registered partnership firm with PAN ABRFA8108P, filed its return of income for Assessment Year 2022-23 on 19.10.2022, declaring a total income of Rs. 17,75,430. The case was selected for scrutiny proceedings under the Income Tax Act, 1961.
Key Facts
The Assessing Officer (AO) issued multiple statutory notices to the assessee:
Notice u/s 143(2) dated 01.06.2023
Notices u/s 142(1) dated 26.07.2023, 31.08.2023, and 17.01.2023
The assessee failed to comply with these notices, leading the AO to initiate penalty proceedings under Section 272A(1)(d) of the Act.
The assessee contended that it did not receive the notices, and the non-compliance was not deliberate.
The AO levied a penalty of Rs. 40,000, which was sustained by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, vide order dated 12.08.2025.
Procedural History
19.10.2022: Return of income filed for AY 2022-23.
01.06.2023: Notice u/s 143(2) issued by AO.
26.07.2023, 31.08.2023, 17.01.2023: Notices u/s 142(1) issued by AO.
Non-compliance: Assessee failed to respond to the notices.
Penalty Proceedings: AO initiated penalty u/s 272A(1)(d) and levied Rs. 40,000.
12.08.2025: Ld. CIT(A) sustained the penalty.
ITA No. 741/LKW/2025: Appeal filed before ITAT Lucknow.
04.06.2026: Hearing conducted before ITAT Lucknow.
30.06.2026: Judgment pronounced, deleting the penalty.
Relief Sought
The assessee sought deletion of the penalty of Rs. 40,000 levied under Section 272A(1)(d) of the Act, contending:
Non-receipt of notices.
Absence of deliberate or willful non-compliance.
Lack of satisfaction recorded in the assessment order for non-compliance with notice u/s 143(2).
Protection under Section 273B of the Act, which exempts penalties where reasonable cause is established.
The Legal Issue
The central question before the Tribunal was whether the penalty under Section 272A(1)(d) of the Income Tax Act, 1961, could be sustained where:
The assessee alleged non-receipt of statutory notices u/s 142(1) and 143(2).
The Revenue failed to establish deliberate, willful, or contumacious non-compliance.
The assessee subsequently participated in assessment proceedings, and the assessment was completed based on available records.
Arguments Presented
For the Appellant
The Ld. Counsel for the assessee reiterated the submissions made before the Ld. CIT(A), contending:
The assessee did not receive the notices issued by the AO, and thus, non-compliance was not deliberate.
The authorities below failed to appreciate the circumstances preventing timely compliance.
For non-compliance with notice u/s 143(2), no satisfaction was recorded in the assessment order, nor was the default specifically mentioned in the penalty show-cause notice, rendering the penalty legally unsustainable.
The assessee had reasonable cause for the alleged defaults, invoking the protection of Section 273B of the Act.
For the Respondent
The Departmental Representative (DR) opposed the submissions and supported the orders of the authorities below, arguing:
The assessee failed to comply with statutory notices, warranting the penalty under Section 272A(1)(d).
The non-compliance was a technical breach of statutory obligations, justifying the levy of penalty.
The Court's Analysis
The Tribunal meticulously examined the legal framework governing penalty provisions under the Income Tax Act, 1961, and the principles established by judicial precedents. Key observations include:
Purpose of Penalty Provisions: The Tribunal emphasized that penalty provisions under the Act are not intended to punish every technical or venial breach of statutory obligations. Instead, they are designed to deter deliberate or willful non-compliance.
Protection Under Section 273B: The Tribunal noted that Section 273B of the Act provides a safeguard against penalties where the assessee establishes reasonable cause for the failure. The assessee’s explanation for non-compliance was not found to be false or mala fide, thereby invoking this protection.
"It is a settled proposition of law that penalty provisions are not intended to punish every technical or venial breach of statutory obligations. Where an assessee establishes reasonable cause for the failure, the protection provided under section 273B of the Act comes into operation and no penalty can be sustained."
Non-Compliance with Notice u/s 143(2): The Tribunal observed that the AO failed to record any satisfaction in the assessment order regarding the assessee’s non-compliance with the notice issued under Section 143(2). Additionally, the penalty show-cause notice did not specifically refer to this default. Consequently, the levy of penalty on this count was held to be legally unsustainable.
Subsequent Participation in Proceedings: The Tribunal noted that the assessee subsequently participated in the assessment proceedings, and the assessment was completed based on the information available on record. The Revenue failed to bring any material on record to establish that the non-compliance was deliberate, willful, or contumacious.
Totality of Facts and Circumstances: Considering the assessee’s explanation and the absence of evidence suggesting mala fide intent, the Tribunal concluded that the assessee had reasonable cause for the alleged defaults. Thus, the penalty levied under Section 272A(1)(d) was not sustainable.
The Verdict
The Tribunal allowed the appeal of the assessee and deleted the penalty of Rs. 40,000 levied under Section 272A(1)(d) of the Income Tax Act, 1961. The grounds of appeal raised by the assessee were allowed in full.
What This Means For Similar Cases
Reasonable Cause Is a Valid Defense Against Penalties
The judgment reaffirms that Section 273B of the Income Tax Act provides a robust defense against penalties where the assessee demonstrates reasonable cause for non-compliance. Practitioners should note:
The burden of proving reasonable cause lies on the assessee, but the Revenue must establish deliberate or willful default to sustain a penalty.
Mere technical non-compliance, without evidence of mala fide intent, is insufficient to justify a penalty under Section 272A(1)(d).
Procedural Compliance by the Revenue Is Non-Negotiable
The Tribunal’s observation regarding the AO’s failure to record satisfaction for non-compliance with notice u/s 143(2) highlights a critical procedural requirement:
Satisfaction Recording: The AO must explicitly record satisfaction in the assessment order for any alleged non-compliance that forms the basis of a penalty.
Specificity in Show-Cause Notices: Penalty show-cause notices must clearly specify the defaults alleged against the assessee. Vague or generic notices may render the penalty unsustainable.
Participation in Proceedings Can Mitigate Penalties
The judgment underscores that subsequent participation in assessment proceedings can serve as a mitigating factor:
If the assessee cooperates in later stages and the assessment is completed based on available records, the Revenue’s case for penalty weakens.
Practitioners should emphasize the assessee’s willingness to comply and the absence of prejudice to the Revenue’s interests.
Key Takeaways for Practitioners
Document Non-Receipt of Notices: Assessees should maintain records (e.g., postal receipts, email acknowledgments) to substantiate claims of non-receipt of notices.
Invoke Section 273B Early: Raise the defense of reasonable cause at the earliest stage, preferably during penalty proceedings before the AO.
Challenge Procedural Lapses: Scrutinize assessment orders and penalty notices for procedural lapses, such as lack of satisfaction recording or specificity.
Focus on Intent: Argue that non-compliance was not deliberate, willful, or contumacious, and provide evidence to support this claim.
