SNG Microns Private Limited v. Faceless National Assessment Center (ITAT Kolkata)

In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Calcutta, has set aside a penalty of ₹20,000 imposed on SNG Microns Private Limited by the National Faceless Assessment Center (NFAC). The penalty, imposed under section 272A(1)(d) of the Income Tax Act, 1961, was found to be unfair by the court, which highlighted issues regarding the proper meaning of advice and effective communication.

The case arises out of an appeal filed by SNG Microns relating to the assessment year 2017-18. The appeal challenged an order passed by the Commissioner of Income Tax (Appeals) (CIT(A)) on March 29, 2023. The CIT(A) upheld the sanction following careful assessment in the framework of the centralized assessment system (CASS).

SNG Microns put forward several grounds in its appeal, including the CIT(A)’s failure to properly consider the meaning of the notices, which they said violated the principles of natural justice. The company argued that the CIT(A) upheld the sanction without recognizing that all communications were directed to its consultant, who had not informed the company of the ongoing proceedings.

The court heard arguments from both sides. The Authorized Representative (AR) of SNG Microns contended that the notices issued under sections 142(1) and 143(2) of the Act were never adequately served on the company. It was noted that the initial notice was issued on 25 September 2018 and the assessment order was passed on 11 December 2019, with no further communication received until the issuance of the penalty notice in November 2019.

On the other hand, the Ministry Representative (DR) defended the actions taken by the assessing officer and the CIT(A). The DR insisted that the notices were duly sent to the registered email address of the company consultant and the subsequent sanction was justified for non-compliance.

The court, however, found the arguments presented by SNG Microns to be well-founded. They observed that although notices were sent to the consultant’s email, the company was not aware of these notices due to a lack of communication from its representative. This negligence constitutes reasonable cause for the company’s failure to comply with the notices, as set out in section 273B of the Income Tax Act, which provides relief from penalties where reasonable cause can be shown .

In light of these findings, the ITAT ruled that the sanction imposed on SNG Microns was not justified. The court set aside the sanction order, allowing the appeal in favor of the company.

This decision highlights the critical importance of effective communication between taxpayers and their representatives, particularly when it comes to compliance. The decision reiterates that sanctions must be applied judiciously, taking into account the circumstances surrounding the non-compliance.

The resolution of the appeal provides a notable example of how the ITAT addresses issues related to procedural fairness and proper execution of tax laws. The court’s emphasis on reasonable grounds in the context of reporting failures indicates a balanced approach to tax enforcement, ensuring that penalties do not unfairly burden compliant taxpayers.

In conclusion, SNG Microns Private Limited emerged victorious in its appeal against the sanction imposed by the NFAC, thereby reinforcing the principle that adequate notice and communication are essential elements of the assessment process. The cancellation of the fine of ₹20,000 underlines the court’s commitment to upholding justice within the law.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal filed by the assessee in respect of Assessment Year (for short ‘AY’) 2017-18 is directed against the order passed under section 250 of the Income Tax Act, 1961 (for short the “Act”) by the Ld. Commissioner of Income Tax (Appeals) (for short “the Ld. CIT(A)”), National Faceless Appeal Center (NFAC), Delhi, dated 29.03.2023, arising out of the order of sanction of the 06.09.2021, adopted under Article 272(1). )(d) of the Act.

2. The assessee has raised the following grounds of appeal:

“1. For this, Id. CIT (A) NFAC erred in upholding imposition of penalty u/s 272A (1)(d) amounting to Rs.20,000/-.

2. For this the Ld. CIT (A) NFAC failed to appreciate that the imposition of penalty without proper notice and without adequate opportunity and thereby violated the principles of fairness and natural justice.

3. For this, Id. CIT(A) NFAC erred in confirming the imposition of a penalty under section 272A(1)(d) for alleged non-compliance with the provisions of section 143(2) and 142(1) of the Income Tax Act, which is wrong and illegal. and unjustified in view of the facts of the case.

4. For this the Ld. CIT (A) NFAC failed to appreciate that no penalty is applicable/sustainable under 272A(1)(d) in view of the order of the jurisdictional court directly on the issue which has been followed in a large number of ‘orders of the court, Patna Bench, Patna.

5. For this, the continuation of the sanction by CIT (A) NFAC is erroneous, illegal and unjustified in view of the facts and circumstances of the petitioner’s case.

6. For this, the entire order is bad in fact and law and can be set aside. »

3. The case of the assessee has been selected for further consideration in accordance with the Centralized Assessment System (CASS) guidelines. A notice u/s 143(2) of the Act was issued on 25.09.2018 and in compliance, the assessee filed online submission on 11.10.2018. Thereafter, no notice or communication was received by the assessee except the assessment order and notice, the assessment order dated 11.12.2019 mentioned that the notice u/s 142(1) of the Act had been issued on 09.10.2019, almost lapsed. of 12 months from the date of notice u/s 142(1) of the Act and after a period of 24 months from the date of filing of the income tax return. Further, show cause notices were issued on 08.11.2019 and 03.12.2019 respectively, the assessment order was finally passed on 11.12.2019. As per the assessment order, the Ld. AO claimed that all the notices were sent to the assessee through his registered email through the Income Tax portal. However, the assessee failed to comply with the notices and hence penalty notice u/s 272A(1)(d) of the Act was issued on 18.11.2019 and again on 06.08.2021 for non -compliance with notices u/articles 143(2) and 142(1) of the Law. Subsequently, a penalty of Rs. 20,000/- was levied on 06.09.2021 by passing a penalty order u/s 272A(1)(d) of the Act.

4. Aggrieved by the order of sanction, the assessee filed an appeal before the Ld. CIT(A), whose appeal was dismissed.

5. Dissatisfied with the order of the Ld. CIT(A), the assessee has now filed an appeal before this Tribunal.

6. While hearing the Ld. AR contended that the notices under section 142(1) of the Act were never properly served on the assessee. It was submitted that all the communications were sent by email to the consultant of the assessee, who did not ignore the notices and hence did not appear before the Ld. AO. The Ld. AR further contended that the penalty imposed under section 272A(1)(d) of the Act was unfair as the assessee had not intentionally failed to comply with the notices. The assessee was unable to present his file due to the non-communication of the opinion by the consultant. It was therefore prayed that the sanction be annulled.

4. On the other hand, the Ld. DR supported the orders of the AO and the Ld. CIT(A), it was contended that the notices were duly sent to the assessee through registered email address and non-compliance by the assessee warranted imposition of penalty. The Ld. DR further contended that the assessee had failed to comply with the statutory requirements and hence the sanction was rightly imposed.

5. We have heard the arguments of the competitors and examined the documents available on file. The main question for consideration is whether the sanction order under section 272A(1)(d) of the Act was rightly imposed for non-compliance with the notices issued under section 143(2). ) and 142(1) of the Act. On this issue, it is undisputed that notices 143(2) and 142(1) of the Act were sent through the Income Tax portal to the registered email address of the consultant. However, the assessee claims that he was not aware of this notice due to the fact that the consultant had not informed the assessee about the pending proceedings. In such a scenario, where the assessee has not received a response due to the negligence of the consultant, the imposition of penalty seems harsh. Further, the intention of the assessee is that he did not intend to ignore the notice and was not given an opportunity to respond since the consultant did not communicate the notice. Considering these facts, we are of the view that the assessee had reasonable cause for non-compliance with section 273B of the Act which provides for relief from penalty where the assessee can show reasonable cause for non-compliance. compliance. Considering the facts and circumstances stated above and the failure of the consultant to communicate the notices to the assessee, we are of the view that the penalty imposed under section 272A(1)(d) of the Act is not justified. Accordingly, we set aside the sanction imposed by AO and allow the appeal in favor of the assessee.

9. Accordingly, the appeal of the assessee is allowed and penalty of Rs. 20,000/- imposed under section 272A(1)(d) of the Act is hereby waived.

Calcutta, 26^th September 2024.