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), wherein penalty under Section 271(1)(b) of the Income Tax Act, 1961 was upheld for non-compliance with notices issued under Section 142(1) of the Act.

The Revenue received information from French authorities indicating that the assessee was linked as account holder No. 2 in a Swiss bank account maintained with HSBC Bank. The assessee was required to furnish account details or alternatively submit a consent-cum-waiver form to enable tax authorities to obtain information from the foreign bank.

However, the assessee denied having any connection with the said account and did not comply with the notice or furnish the consent form.

Issues Involved

  1. Whether non-compliance with notice under Section 142(1) justifies imposition of penalty under Section 271(1)(b)?
  2. Whether refusal to sign a consent-cum-waiver form violates Article 21 of the Constitution?
  3. Whether deletion of protective assessment negates penalty proceedings?
  4. Whether penalty can be sustained when the assessee denies connection with the foreign bank account?

Petitioner’s Arguments

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

Respondent’s Arguments

  • The Revenue contended that the assessee failed to comply with statutory notices issued under Section 142(1).
  • It relied on earlier judgments in the case of Sanjay Dalmia, where penalty under Section 271(1)(b) was upheld in identical circumstances involving the same bank account.
  • The Revenue argued that non-compliance with statutory notices itself attracts penalty irrespective of the ultimate tax liability.

Court’s Findings / Order

  • The Delhi High Court held that non-compliance with notice under Section 142(1) is sufficient to attract penalty under Section 271(1)(b).
  • The Court observed that if the assessee had no connection with the bank account, no prejudice would have been caused by complying with the notice and submitting the consent form.
  • The Court rejected the reliance on Selvi case, clarifying that the principle of right against self-incrimination applies primarily to criminal proceedings and not to such tax matters.
  • The Court also held that deletion of protective assessment does not automatically invalidate penalty proceedings.
  • It emphasized parity, stating that penalty cannot be upheld against one account holder (attorney holder) and not against another linked account holder.

Important Clarification

  • Mere denial of ownership of a foreign bank account does not exempt an assessee from complying with statutory notices.
  • Penalty under Section 271(1)(b) is procedural and independent, and can be imposed even if substantive additions are deleted.
  • Right against self-incrimination under Article 21 does not extend to refusal of compliance in income tax proceedings.
  • Compliance with notice under Section 142(1) is mandatory, irrespective of the assessee’s defence.

 Link to download the order –

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

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