Kartikay Nayyar vs. ACIT: ITAT Overturns Penalty for Non-Compliance in AY 2013-14

Case Overview: Kartikay Nayyar vs. ACIT, Assessment Year 2013-14

The case of Kartikay Nayyar vs. ACIT Central Circle-20, New Delhi, concerning the assessment year 2013-14, revolves around the imposition of a penalty of Rs. 10,000 under section 271(1)(b) of the Income Tax Act, 1961. The penalty was imposed by the Assessing Officer (AO) for alleged non-compliance with various notices issued during the assessment proceedings. This article provides a detailed analysis of the tribunal’s decision, pronounced on March 8, 2021, by the Delhi Bench ‘SMC-2’ of the Income Tax Appellate Tribunal (ITAT), which ultimately led to the overturning of the penalty.

Background of the Case

On September 22, 2017, a notice under section 153A of the Income Tax Act was issued to Kartikay Nayyar, initiating reassessment proceedings. Subsequently, several notices were issued under sections 142(1) and 143(2), along with a questionnaire, requiring the appellant to provide various details and explanations.

However, the appellant did not fully comply with these notices, which led to the issuance of a penalty notice under section 274 on November 9, 2018. The Assessing Officer then levied a penalty of Rs. 10,000 under section 271(1)(b) on December 6, 2018, citing non-compliance with the notices.

Appellant’s Arguments

The appellant, represented by CA Anil Jain, contended that the penalty was unjustified. The primary argument was that the notice fixing the hearing for October 25, 2018, was not received, which was promptly communicated to the Assessing Officer on November 19, 2018. The appellant asserted that this constituted a reasonable cause for the alleged non-compliance and that the penalty was therefore unwarranted.

It was also argued that despite the alleged non-compliance, the appellant had provided responses, including the submission of income tax returns, which should have been considered by the Assessing Officer before imposing the penalty.

Respondent’s Arguments

The Departmental Representative (DR) argued that the penalty was rightly imposed due to a pattern of non-compliance by the appellant. The DR maintained that the appellant’s repeated failure to attend hearings and respond to the notices justified the imposition of the penalty under section 271(1)(b).

Tribunal’s Analysis and Findings

Upon reviewing the facts and the submissions made by both parties, the ITAT found that the appellant had indeed responded to the notice on November 19, 2018, explaining that the earlier notice had not been received. This explanation was noted by the Assessing Officer, which contradicted the conclusion that there had been no compliance on the appellant’s part.

The tribunal emphasized that penalties under section 271(1)(b) should not be imposed mechanically or without proper consideration of the facts. In this case, the ITAT observed that the Assessing Officer failed to acknowledge the appellant’s reasonable explanation for the non-receipt of the notice and the subsequent attempt to comply.

Furthermore, the tribunal pointed out that the penalty provisions under section 271(1)(b) require a deliberate or willful default by the taxpayer. In this instance, the tribunal found no evidence of willful non-compliance or deliberate disregard of the notices. Instead, the tribunal recognized that the appellant had made efforts to comply and had communicated the reasons for any delays or non-receipt of notices.

Final Decision

In light of the above findings, the ITAT concluded that the penalty imposed under section 271(1)(b) was unjustified and should be deleted. The tribunal allowed the appeal in favor of Kartikay Nayyar, setting aside the penalty order.

The decision of the ITAT in this case highlights the importance of considering the specific circumstances and facts surrounding each instance of alleged non-compliance. It underscores the need for tax authorities to exercise discretion and fairness when imposing penalties, ensuring that they are only applied in cases of clear and willful default.

Conclusion

The outcome of this case serves as a reminder to taxpayers and tax authorities alike to maintain clear communication and thoroughly document all interactions during assessment proceedings. The appellate process plays a crucial role in ensuring that penalties are imposed justly and that taxpayers have the opportunity to challenge any perceived injustices.

The decision in Kartikay Nayyar vs. ACIT also reinforces the principle that penalties should not be imposed automatically and that reasonable explanations provided by taxpayers must be given due consideration before any punitive measures are taken.

Kartikay Nayyar vs. ACIT: ITAT Overturns Penalty for Non-Compliance in AY 2013-14