Kartikay Nayyar vs. ACIT: ITAT Deletes Penalty for Alleged Non-Compliance in AY 2015-16

Case Overview: Kartikay Nayyar vs. ACIT, Assessment Year 2015-16

The case of Kartikay Nayyar vs. ACIT Central Circle-20, New Delhi, concerning the assessment year 2015-16, revolves around the imposition of a penalty under section 271(1)(b) of the Income Tax Act, 1961. This penalty, amounting to Rs. 10,000, was levied by the Assessing Officer (AO) due to what was perceived as repeated non-compliance with multiple notices issued during the reassessment proceedings. The Income Tax Appellate Tribunal (ITAT), Delhi, through an order pronounced on March 8, 2021, evaluated the case and provided its final ruling.

Background of the Case

The reassessment process for Kartikay Nayyar was initiated following a notice under section 153A of the Income Tax Act on September 22, 2017. This was followed by several notices under sections 142(1) and 143(2), wherein the AO required the submission of various documents and explanations from the appellant.

However, the appellant allegedly failed to respond adequately to these notices, leading the AO to issue a penalty notice under section 274 on November 9, 2018. Subsequently, on December 6, 2018, a penalty of Rs. 10,000 was imposed under section 271(1)(b), citing non-compliance as the reason.

Appellant’s Arguments

Represented by CA Anil Jain, the appellant contested the penalty, arguing that it was unwarranted. The appellant claimed that one of the critical notices, dated October 5, 2018, and fixing the hearing for October 25, 2018, was not received. This was communicated to the Assessing Officer on November 19, 2018. The appellant maintained that this constituted a reasonable cause for the alleged non-compliance.

The appellant further argued that despite the non-receipt of one of the notices, there had been substantial compliance, including the submission of the income tax return and relevant documents. Therefore, the imposition of the penalty was deemed unjustified, as there was no willful neglect or deliberate intention to disregard the notices.

Respondent’s Arguments

The Departmental Representative (DR) argued that the penalty was correctly imposed, citing a consistent pattern of non-compliance by the appellant throughout the reassessment proceedings. The DR maintained that the appellant’s repeated failures to respond adequately to the notices justified the penalty under section 271(1)(b) of the Income Tax Act.

Tribunal’s Analysis and Findings

The ITAT closely examined the facts of the case, including the submissions made by both the appellant and the respondent. The tribunal noted that the appellant had indeed responded to the notice on November 19, 2018, explaining that the earlier notice for the hearing on October 25, 2018, had not been received. This explanation was acknowledged by the Assessing Officer, which contradicted the claim that there was no compliance on the appellant’s part.

The tribunal emphasized that the imposition of penalties under section 271(1)(b) should not be automatic and must consider the specific circumstances and facts of each case. In this instance, the ITAT found that the AO had failed to take into account the reasonable explanation provided by the appellant regarding the non-receipt of the notice and the subsequent attempts to comply.

Moreover, the ITAT highlighted that penalties under section 271(1)(b) require evidence of willful or deliberate non-compliance. In this case, the tribunal found no evidence of such willful default. The tribunal recognized that the appellant had made efforts to comply with the notices and had communicated valid reasons for any delays or issues in compliance.

Final Decision

Based on its findings, the ITAT concluded that the penalty imposed under section 271(1)(b) was unjustified and should be deleted. Consequently, the appeal was allowed in favor of Kartikay Nayyar, and the penalty order was overturned.

This decision by the ITAT underscores the importance of fair and judicious consideration in cases of alleged non-compliance. It reinforces the principle that penalties should not be imposed mechanically but must be based on a thorough evaluation of the circumstances and facts surrounding each case.

Conclusion

The outcome of Kartikay Nayyar vs. ACIT serves as a crucial reminder to both taxpayers and tax authorities. For taxpayers, it is essential to maintain clear communication and documentation during assessment and reassessment proceedings. For tax authorities, this case highlights the necessity of exercising discretion and fairness when imposing penalties, ensuring that such measures are only applied in instances of clear and willful default.

The decision also reflects the significance of the appellate process in safeguarding taxpayers’ rights and ensuring that penalties are imposed justly and appropriately. As demonstrated in this case, reasonable explanations provided by taxpayers should be given due consideration before any punitive action is taken.

Kartikay Nayyar vs. ACIT: ITAT Deletes Penalty for Alleged Non-Compliance in AY 2015-16