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of <h1>Penalty under section 272A(1)(d) deleted as reasonable cause under section 273B shown for non-compliance with section 142(1) notice</h1> <h3>Sunil Kumar Nayak Versus DLC-C-123 (1), Jaipur.</h3> Sunil Kumar Nayak Versus DLC-C-123 (1), Jaipur. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 272A(1)(d) for alleged non-compliance with notice under Section 142(1) can be sustained where the assessee made partial compliance and the required documentary portfolio could not be produced because the third-party trading entity had ceased operations. 2. Whether the finding of wilful or intentional avoidance of statutory compliance by the assessee is justified on the material on record, including electronic service of notices and the timing/extent of the replies. 3. Whether the assessee's inability to furnish the requested documents constitutes 'reasonable cause' within the meaning of Section 273B such that penalty under Section 272A(1)(d) must be deleted. 4. Whether alleged non-application of mind or failure to consider submissions and documentary evidence by the appellate authority (claim of breach of principles of natural justice) vitiates the penalty confirmation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainment of penalty under Section 272A(1)(d) for non-compliance with notice under Section 142(1) Legal framework: Section 272A(1)(d) prescribes penalty for failure to comply with notices issued under the Income-tax Act (including Section 142(1)). Section 273B empowers the authority to not impose penalty if the person shows that there was reasonable cause for the failure. Precedent treatment: No specific precedent was applied in the impugned orders recorded in the text; the authorities relied on assessment record and compliance history. Interpretation and reasoning: The Assessing Officer found non-compliance with a Section 142(1) notice dated 10.02.2023 and imposed a penalty of Rs. 10,000. The appellate authority (CIT(A)) upheld the penalty, concluding that the assessee intentionally and wilfully avoided compliance, and observed absence of cogent documentary evidence regarding source of funds. The Tribunal reviewed the record and noted (a) the assessee had filed returns and replies in response to other notices (submissions dated 22.08.2022, 02.03.2023, 03.03.2023), (b) the assessee furnished 15 attachments albeit with some delay, and (c) the missing portfolio documents arose because the trading company with which transactions were undertaken had ceased operations and could not provide portfolio details. Ratio vs. Obiter: Ratio - penalty under Section 272A(1)(d) cannot be sustained where reasonable cause under Section 273B is shown (here, inability to obtain third-party documents due to company closure and partial timely compliance). Obiter - comments by the CIT(A) about mens-rea and the adequacy of the assessee's responses may be considered ancillary observations not forming the basis for upholding penalty once reasonable cause is established. Conclusions: The Tribunal concluded that on the facts the assessee had a reasonable cause for not producing the specific portfolio details and had not committed total non-compliance; therefore the penalty of Rs. 10,000 imposed under Section 272A(1)(d) should be deleted. Issue 2 - Existence of wilful or intentional non-compliance Legal framework: For penalty under Section 272A(1)(d) the authority must consider whether non-compliance was due to neglect or willfulness; a finding of wilful avoidance supports penalty unless reasonable cause is shown under Section 273B. Precedent treatment: No case law is cited in the decision text to define wilfulness; authorities relied on contemporaneous compliance and documentary record. Interpretation and reasoning: The CIT(A) inferred intent from (a) absence of satisfactory documentary proof of source of funds, (b) no adjournment sought, and (c) a perceived failure to file 'cogent and tenable' replies during assessment and DRP proceedings. The Tribunal, however, weighed the evidence of multiple submissions, partial compliance, and the practical impossibility of obtaining portfolio records from the closed trading entity, and found no clear material to sustain a finding of wilful non-compliance. Ratio vs. Obiter: Ratio - mere delay or partial failure when accompanied by demonstrable efforts and external impediments (e.g., third-party closure) does not establish wilful non-compliance. Obiter - general statements by the CIT(A) characterizing the assessee's conduct as harshly and illogically non-compliant do not survive where reasonable cause is proved. Conclusions: The Tribunal held that the record did not justify a finding of wilful or intentional avoidance; therefore the penalty grounded on such a finding could not stand. Issue 3 - Application of Section 273B (reasonable cause) where documents unavailable from a third party Legal framework: Section 273B permits waiver of penalty where reasonable cause for failure to comply is shown; inability to produce third-party documents despite bona fide efforts can constitute reasonable cause. Precedent treatment: The decision reviews statutory text and facts; no external appellate precedents are invoked in the text. Interpretation and reasoning: The Tribunal focused on the assessee's demonstrated attempts to comply (multiple submissions and attachments) and the specific reason for non-production - closure of the company maintaining the trading portfolio. Given that the Tribunal had already set aside related quantum issue in earlier proceedings (indicating incomplete factual unanimity on the investments), it considered that the circumstances amounted to reasonable cause under Section 273B. Ratio vs. Obiter: Ratio - inability to obtain necessary third-party records due to cessation of the third-party's business, combined with demonstrable efforts at compliance, qualifies as reasonable cause under Section 273B and prevents imposition of penalty under Section 272A(1)(d). Obiter - the broader finding that every delay must be excused where third-party cooperation is lacking is contextual, not general. Conclusions: The Tribunal applied Section 273B and directed deletion of the penalty, finding reasonable cause established by the inability to procure portfolio details from the defunct trading company and by the assessee's partial and timely efforts at compliance. Issue 4 - Allegation of breach of principles of natural justice and non-application of mind by appellate authority Legal framework: Appellate orders must consider submissions and documentary evidence; failure to do so may vitiate the order for breach of natural justice or non-application of mind. Precedent treatment: The assessee alleged such breach before the CIT(A); the CIT(A) dismissed the ground as general and did not find merit. The Tribunal examined the record of submissions and replies. Interpretation and reasoning: The CIT(A) recorded reasons for upholding the penalty. The Tribunal, having reviewed the documentary record and the sequence of submissions, found sufficient material to justify reconsideration under Section 273B and hence deleted the penalty. The Tribunal did not expressly hold that the CIT(A) committed a jurisdictional breach of natural justice; rather, it reached its own conclusion on the merits based on the record. Ratio vs. Obiter: Ratio - when an appellate authority's decision is challenged for non-application of mind, an appellate forum may examine the record and, if warranted, set aside the penalty on merits; explicit findings of procedural breach are not necessary if the appellate outcome follows from the material. Obiter - the assessee's contention of a breach of natural justice was dismissed as general and not separately adjudicated. Conclusions: The Tribunal dismissed the natural-justice argument as not requiring separate adjudication but nonetheless allowed the appeal on merits by finding reasonable cause and deleting the penalty; no independent vitiation of the CIT(A) order on procedural grounds was made. Overall Disposition and Controlling Principle The Tribunal allowed the appeal and deleted the penalty under Section 272A(1)(d) by applying Section 273B, holding that the assessee had reasonable cause for non-production of requested portfolio documents (third-party company had ceased operations) and had made partial and timely compliance otherwise; consequently the penalty could not be sustained. The finding of wilful avoidance by the lower authority was not upheld on the record.
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