Facts of the Case

The present appeals were filed by the assessee challenging the orders dated 31st October 2018 and 20th January 2022 passed by the Income Tax Appellate Tribunal (ITAT), whereby the Tribunal upheld the levy of penalty under Section 271(1)(b) of the Income Tax Act, 1961 for non-compliance with notice issued under Section 142(1) of the Act.

The case originated from information received by the Revenue from French authorities indicating that the assessee was allegedly an account holder (Account Holder No. 2) in a Swiss bank account with HSBC Bank.

The assessee was required to:

  • Furnish details of the foreign bank account,
  • Provide bank statements, and
  • Submit a consent-cum-waiver form enabling the tax authorities to obtain information from the Swiss bank.

However, the assessee denied any connection with the foreign bank account and did not comply with the notice.

Issues Involved

  1. Whether non-compliance with notice under Section 142(1) justifies penalty under Section 271(1)(b)?
  2. Whether penalty can be sustained when the assessee denies ownership of the foreign bank account?
  3. Whether deletion of protective assessment eliminates the basis for penalty?
  4. Whether requiring submission of a consent form violates Article 21 of the Constitution of India?

Petitioner’s Arguments

  • The assessee contended that she had no connection with the alleged Swiss bank account and therefore was not obligated to furnish the consent form.
  • It was argued that the protective assessment had already been deleted by the CIT(A), hence no penalty could survive.
  • The petitioner relied on the Supreme Court judgment in Selvi & Ors. vs. State of Karnataka (2010) 7 SCC 263, claiming that compelling submission of a consent form violated the right to privacy under Article 21.
  • It was also submitted that penalty proceedings against her husband in a related matter had been dropped.

Respondent’s Arguments

  • The Revenue argued that there was clear non-compliance with statutory notice under Section 142(1).
  • It relied on precedent involving Mr. Sanjay Dalmia, arising from the same set of facts and the same bank account, where penalty under Section 271(1)(b) had been upheld.
  • The Revenue contended that even if the assessee denied ownership, she was still required to comply with statutory notices.

Court’s Findings / Order

The Delhi High Court dismissed the appeals and upheld the penalty. Key findings include:

  • Non-compliance with notice under Section 142(1) justified imposition of penalty under Section 271(1)(b).
  • The Court held that mere denial of connection with the bank account does not absolve the assessee from complying with statutory notices.
  • It observed that if the assessee had no connection with the account, no prejudice would have been caused by submitting the consent form.
  • The Court relied on its earlier judgment in the case of Sanjay Dalmia, where similar penalty was upheld and SLP was dismissed by the Supreme Court.
  • The argument based on Article 21 and reliance on Selvi case was rejected, as that judgment applied to criminal proceedings and not tax matters.
  • The Court clarified that deletion of protective assessment does not invalidate penalty for non-compliance with statutory notices.

Important Clarifications

  • Compliance with notice under Section 142(1) is mandatory irrespective of denial of allegations.
  • Penalty under Section 271(1)(b) is independent of assessment outcome.
  • Right to privacy under Article 21 cannot be invoked to avoid statutory tax compliance.
  • Even in cases of alleged foreign undisclosed assets, procedural compliance is compulsory.

 Link to download the order

https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:909-DB/MMH09032022ITA372022_151509.pdf

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