The Income Tax Department has dropped penalty proceedings initiated under Section 272A(1)(d), holding that genuine medical reasons constituted a “reasonable cause” for the assessee’s failure to comply with statutory notices issued during assessment proceedings.
The order underscores that penalties for non-compliance with notices are not automatic and that taxpayers who can satisfactorily demonstrate a bona fide and unavoidable reason for default are entitled to relief under the law.
Background of the Case
The assessee had filed the return of income for Assessment Year 2024-25, following which the case was selected for complete scrutiny. During the assessment proceedings, the Assessing Officer issued multiple notices under Section 142(1) of the Income Tax Act seeking information and documents. The assessee allegedly failed to comply with notices dated July 18, August 5, and September 23, 2025.
Consequently, the assessment was completed under Section 143(3) read with Section 144B after making additions by disallowing certain exemption and deduction claims. Simultaneously, penalty proceedings under Section 272A(1)(d) were initiated for the alleged non-compliance with statutory notices.
Assessee Explained Medical Hardship
During the penalty proceedings, the assessee submitted that the non-compliance was neither deliberate nor intentional but was caused by serious medical circumstances beyond his control.
The assessee explained that he is a senior citizen and a retired Lieutenant Colonel in the Indian Armed Forces. He stated that he was suffering from prolonged illness, including high fever and typhoid, and subsequently experienced neurological complications. The reply further stated that after the demise of his wife, he suffered severe mental trauma, resulting in Alzheimer’s-related memory loss that significantly affected his ability to attend to official matters.
Medical prescriptions, treatment records and supporting documents were produced before the Department to substantiate the explanation.
The assessee also pointed out that he had complied with the notice dated September 23, 2025 within the prescribed time and had subsequently furnished replies and relevant information during the assessment proceedings. Therefore, it was argued that the penalty proceedings were unwarranted.
Reliance on Judicial Precedents
In support of his defence, the assessee relied upon the Supreme Court’s landmark judgment in Hindustan Steel Ltd. v. State of Orissa, which laid down that penalty should not ordinarily be imposed merely because it is lawful to do so. The judgment emphasizes that penalties should generally be reserved for deliberate or contumacious conduct rather than technical or bona fide defaults.
The assessee also cited decisions of the Income Tax Appellate Tribunal where penalties under Section 272A(1)(d) were deleted after holding that subsequent compliance during assessment proceedings and genuine explanations for earlier defaults could constitute sufficient grounds for relief.
Department Accepted Medical Explanation
After examining the assessment records, the replies submitted by the assessee and the supporting medical evidence, the Income Tax Department observed that although the assessee had initially failed to respond to certain notices, he had subsequently participated in the assessment proceedings by furnishing replies to later communications within the prescribed time.
The Department further noted that the medical evidence convincingly established that the earlier non-compliance was attributable to genuine health issues rather than any deliberate attempt to obstruct or delay the assessment proceedings.
Accordingly, the explanation offered by the assessee was found to be genuine and acceptable.
Benefit of Section 273B Extended
The Department invoked Section 273B of the Income Tax Act, which provides that no penalty shall be imposed for specified defaults, including those covered by Section 272A(1)(d), if the assessee proves that there was a reasonable cause for the failure.
After considering the facts, medical records and overall conduct of the assessee, the authority concluded that the statutory requirement of establishing “reasonable cause” stood satisfied.
Penalty Proceedings Dropped
Holding that the medical reasons constituted a reasonable and bona fide explanation for the non-compliance with statutory notices, the Income Tax Department concluded that the case was not fit for levy of penalty under Section 272A(1)(d).
The penalty proceedings were accordingly dropped, reaffirming that where taxpayers are able to substantiate genuine medical hardship with documentary evidence, the protection available under Section 273B can shield them from penal consequences arising from procedural defaults.
The order serves as an important reminder that while compliance with statutory notices remains mandatory, the Income Tax Act recognizes genuine and unavoidable circumstances, ensuring that penalties are imposed only where the default is without reasonable cause.
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