Kartikay Nayyar vs. ACIT: ITAT Overturns Penalty for Non-Compliance in AY 2014-15

Case Overview: Kartikay Nayyar vs. ACIT, Assessment Year 2014-15

The case of Kartikay Nayyar vs. ACIT Central Circle-20, New Delhi, pertaining to the assessment year 2014-15, addresses the imposition of a penalty under section 271(1)(b) of the Income Tax Act, 1961. The penalty of Rs. 10,000 was imposed by the Assessing Officer (AO) for what was claimed as non-compliance with multiple notices issued during the reassessment proceedings. This article delves into the key details of the case, the arguments presented, and the final decision by the Income Tax Appellate Tribunal (ITAT), Delhi, pronounced on March 8, 2021.

Background of the Case

The reassessment proceedings for Kartikay Nayyar were initiated with the issuance of a notice under section 153A of the Income Tax Act on September 22, 2017. This was followed by a series of notices, including those under sections 142(1) and 143(2), where the AO requested various documents and explanations from the appellant.

The appellant allegedly failed to comply with these notices fully, prompting the AO to issue a penalty notice under section 274 on November 9, 2018. Subsequently, a penalty of Rs. 10,000 was imposed on December 6, 2018, due to what the AO perceived as repeated non-compliance.

Appellant’s Arguments

Represented by CA Anil Jain, the appellant argued that the penalty was unjustified, primarily because one of the critical notices, fixing the hearing for October 25, 2018, was not received by the appellant. 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 contended 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. The appellant argued that the penalty should not have been imposed, as there was no willful neglect or intentional non-compliance.

Respondent’s Arguments

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

Tribunal’s Analysis and Findings

Upon examining the facts and the submissions from both parties, the ITAT found 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 ITAT emphasized that penalties under section 271(1)(b) should not be imposed automatically or without proper consideration of the circumstances. The tribunal noted that the AO failed to consider the appellant’s reasonable explanation for the non-receipt of the notice and the subsequent efforts to comply.

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

Final Decision

Based on the 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, thereby overturning the penalty order.

The ITAT’s decision underscores the importance of considering the specific circumstances and facts surrounding each case of alleged non-compliance. It highlights the need for tax authorities to exercise discretion and fairness when imposing penalties, ensuring that they are only applied in instances 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 and reassessment 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 in a mechanical manner 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 2014-15