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of <h1>Penalty under Section 271A(1)(d) canceled due to improper service of notices and no willful default found</h1> <h3>Jayshree Nilam Patel Versus Income Tax Officer, Ward-1, International Taxation, Ahmedabad</h3> Jayshree Nilam Patel Versus Income Tax Officer, Ward-1, International Taxation, Ahmedabad - TMI 1. ISSUES PRESENTED and CONSIDERED Whether penalty under section 272A(1)(d) of the Income-tax Act, 1961 can be imposed for failure to comply with notices issued under section 142(1) when the assessee claims non-receipt of such notices. Whether the existence of reasonable cause under section 273B of the Act can exempt the assessee from penalty liability for non-compliance with statutory notices. Whether the non-compliance with notices was willful or due to lack of knowledge arising from improper service, particularly considering the assessee's non-resident status. The applicability and scope of penalty provisions under section 272A(1)(d) in cases of non-cooperation and ex-parte assessment under sections 147 and 144 of the Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Imposition of penalty under section 272A(1)(d) for non-compliance with notices under section 142(1) Legal Framework and Precedents: Section 272A(1)(d) imposes penalty for failure to comply with notices issued under sections 143(2), 142(1), etc. The penalty is predicated on the assessee's failure to furnish information or documents as required by the statutory notice. Court's Interpretation and Reasoning: The Tribunal observed that the Assessing Officer (A.O.) issued multiple notices under section 142(1), which the assessee did not respond to. The A.O. completed assessment ex-parte under section 147 read with section 144 due to non-cooperation. The CIT(A) affirmed the penalty on the basis that the assessee failed to comply with statutory notices despite reminders and show cause notices. Key Evidence and Findings: The Department relied on the fact that the assessee did not file return or respond to notices. The penalty notices under section 272A(1)(d) were also not responded to. However, the assessee claimed non-receipt of all such notices, citing lack of effective service, especially given the non-resident status. Application of Law to Facts: The Tribunal noted that the fundamental basis for penalty under section 272A(1)(d) is willful default or failure to comply. Mere non-compliance without knowledge of the notices cannot constitute willful default. The absence of proof of proper service undermines the Department's case. Treatment of Competing Arguments: While the Department emphasized non-cooperation, the assessee argued absence of knowledge due to non-service. The Tribunal found no material on record to show proper service in accordance with prescribed procedures for a non-resident assessee. Conclusions: Penalty under section 272A(1)(d) cannot be sustained where the assessee was not effectively served and thus had no knowledge of the notices. Non-compliance due to lack of service does not amount to willful default. Issue 2: Existence of reasonable cause under section 273B and its impact on penalty liability Legal Framework and Precedents: Section 273B provides that no penalty shall be imposed if the assessee proves that there was reasonable cause for failure to comply with the provisions of the Act. Court's Interpretation and Reasoning: The assessee contended that non-receipt of notices constituted reasonable cause for non-compliance. The Tribunal accepted that lack of knowledge due to improper service is a reasonable cause exempting penalty under section 273B. Key Evidence and Findings: The assessee produced evidence of first knowledge of proceedings only upon receipt of a demand notice via email, months after the notices were allegedly issued. No evidence was presented by the Department to prove service of notices. Application of Law to Facts: The Tribunal applied the principle that penalty should not be imposed where default is not deliberate or negligent but due to circumstances beyond the assessee's control, such as non-service. Treatment of Competing Arguments: The Department did not produce any material to rebut the assessee's claim of non-service or to establish willful default. The Tribunal found the assessee's explanation credible. Conclusions: The Tribunal held that reasonable cause existed under section 273B, warranting waiver of penalty. Issue 3: Willful default versus lack of knowledge in the context of penalty under section 272A(1)(d) Legal Framework and Precedents: The essence of penalty under section 272A(1)(d) is willful default in complying with statutory notices. Mere non-compliance without willfulness or negligence is insufficient for penalty. Court's Interpretation and Reasoning: The Tribunal emphasized that willful default requires knowledge of the notice and deliberate refusal to comply. Here, the assessee's non-compliance was due to lack of knowledge arising from non-service. Key Evidence and Findings: The assessee's long-term non-resident status and absence of any communication from the Department until receipt of demand notice supported the conclusion of absence of willful default. Application of Law to Facts: The Tribunal found the penalty unsustainable in absence of proof of willful default. Treatment of Competing Arguments: The Department's argument of non-cooperation was rejected due to lack of proof of proper service and knowledge. Conclusions: No willful default was established; hence, penalty under section 272A(1)(d) was not justified. Issue 4: Effect of non-resident status on service of notices and penalty proceedings Legal Framework and Precedents: Proper service of notices on non-resident assessees requires adherence to prescribed procedures under the Act. Failure to serve notices effectively invalidates subsequent penalty proceedings based on non-compliance. Court's Interpretation and Reasoning: The Tribunal noted the assessee's non-resident status for over 30 years and the lack of evidence that notices were served in accordance with the Act's requirements for non-residents. Key Evidence and Findings: The assessee was unaware of any proceedings until receipt of demand notice by email. The Department failed to produce any proof of service of notices under sections 148A(b), 148, 142(1), or penalty notices. Application of Law to Facts: The Tribunal held that the foundation of penalty proceedings-service of notices-was not established, rendering penalty untenable. Treatment of Competing Arguments: The Department did not counter the assessee's claim with evidence of proper service. Conclusions: Non-service of notices to a non-resident assessee negates the basis for penalty under section 272A(1)(d).
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