Evermore Polymer Systems Ltd. Vs CIT (ITAT Mumbai)
Evermore Polymer Systems Ltd. recently achieved a significant victory in its appeal against the imposition of a penalty under Section 271B of the Income Tax Act. The Income Tax Appellate Tribunal (ITAT) Mumbai, in its order dated August 25, 2023, emphasized that penalties should not be imposed without providing the assessee with a reasonable opportunity to be heard.
1. Background of the Appeal: Evermore Polymer Systems Ltd. appealed against an order issued by the National Faceless Appeal Centre (NFAC) dated March 21, 2023, under Section 250 of the Income Tax Act, pertaining to the assessment year 2007-08.
2. Grounds of Appeal: The appellant raised several grounds of appeal, challenging the decision of the Commissioner of Income-Tax (Appeals). These grounds included issues related to the imposition of penalty, service of orders, and the timing of the penalty proceedings.
3. Assessment and Loan Inquiry: The case revolved around the scrutiny of the appellant’s return of income filed in 2007, which declared NIL income. The authorities inquired into loans received from various directors of the company.
4. Challenges Faced by the Directors: The appellant company had three directors, each facing unique challenges, including health issues and relocation.
5. Discontinuation of Business: The appellant had ceased its business operations and informed the Registrar of Companies, leading to the removal of the company’s name from the register.
6. Chartered Accountant’s Representation: The appellant’s Chartered Accountant represented the case before the Assessing Officer, explaining the challenges faced by the appellant and the difficulties in providing information due to adverse circumstances.
7. Loss of Records in 2005 Flood: Tragically, in the 2005 flood, the appellant’s records stored in a friend’s industrial factory were destroyed, which further compounded the challenges in complying with the authorities’ requests.
8. AO’s Decision to Impose Penalty: Despite being aware of the business discontinuation and the loss of records, the Assessing Officer invoked Section 144 and passed an ex-parte order, leading to the imposition of the penalty under Section 271B.
9. Pending Quantum Appeal: Notably, a quantum appeal related to the same matter was still pending before the Commissioner of Income-Tax (Appeals) at the time of the penalty proceedings. The appellant’s business had long been discontinued, and this fact was communicated to the authorities.
10. ITAT’s Ruling and Conclusion: – The ITAT, in its judgment, highlighted the importance of providing the assessee with a reasonable opportunity to be heard before imposing penalties under Section 271B. The tribunal found that the appellant had a reasonable cause for its failure to comply with certain requirements due to extenuating circumstances.
11. Penalty Deleted: – Consequently, the ITAT ordered the deletion of the penalty imposed under Section 271B, granting relief to Evermore Polymer Systems Ltd.
12. Conclusion: The ITAT Mumbai’s decision in the case of Evermore Polymer Systems Ltd. vs. CIT serves as a crucial reminder of the need for fair and just imposition of penalties under the Income Tax Act. It emphasizes the importance of considering the unique circumstances of each case and providing the assessee with a reasonable opportunity to be heard before penalizing them. This landmark ruling sets a precedent for future cases involving Section 271B penalties, ensuring a fair and just tax assessment process.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by assessee is directed against the order of National Faceless Appeal Centre (for short “NFAC”) dated 21.03.2023 u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2007-08. The assessee has raised the following grounds of appeal:-
1. THAT learned Commissioner of Income-Tax (Appeals), in his Order Dt.21-03-2023 has erred in failing to appreciate, true facts and circumstances, recited in “Statement of Facts”, and Appellant’s submission, vide Letter Dt.16-03-2023 (copy annexed), and has MISCONSTRUED the “Grounds of Appeal”.
2. THAT the learned Commissioner of Income-Tax (Appeals), in his Order Dt.21-03-2023 has erred in assuming that Order (dt.23-06-2010), appealed against, has been truly served on Appellant, on or before 22-07-2010, whereas it was never served, at any point of time, on the Appellant, by the Dept.
3. THAT the learned Commissioner of Income-Tax (Appeals), in his Order Dt.21-03-2023 has failed to consider that copy of said Order, was actually received by Appellant, on 02-04- 2019 (being the actual date of receipt of Order), when, at Appellant’s request, for a copy to enable Appellant to file an Appeal, was made to the Ld.AO.
4. THAT Ld. CIT (A), in his Order Dt.21-03-2023, has failed to consider Appellant’s prayer (at Para 6, Letter Dt. 16-03-2023), that “I say the Imposition of Penalty, during the pendency of the quantum Appeal, is an act of haste therefore I pray U/s. 276 C, the present Appeal proceedings may kindly be kept pending till the disposal of the Quantum Appeal”
5. THAT Ld. CIT (A), in his Order Dt.21-03-2023, has acted in undue haste, in dismissing the Penalty Appeal, during the pendency of the “Quantum Appeal”..
6. THAT Ld. CIT (A), has erred in failing to consider, other “Grounds of Appeal”, and has misconstrued that the only Ground was “Condonation of Delay”.
7. THAT Ld. CIT (A) has erred in
(i) not adopting a holistic view of, facts and circumstances, especially, the fact that Appellant had discontinued its business, had closed its business, and had discontinued its Company;
(ii) That its three original Directors had gone away and one of them (Mahesh H. Hinduja) had settled abroad; the failure of the Directors to attend was on account of circumstances beyond their control and also on account of their growing age and physical disabilities. It was at this time that Senior Director (H. K. Hinduja) had to undergo Heart Surgery; Also, the other Director was medically challenged and was under constant medical attention. It was at this time that the adult child of the Directors was discovered to be suffering from cancer and after a struggle of more than two years, succumbed to this deadly disease on 29/08/2010.
8. THAT the learned CIT(Appeals) has erred in failing to consider, that Directors were unable to attend because of circumstances beyond their control;
9. THAT the learned CIT (Appeals) has erred in failing to consider, that, the Appellant Company had substantial B/f losses, it was natural, just and fair to assume that they would have no tax liability.
10. THAT the learned CIT(Appeals) has erred in failing to consider, that the Appellant Company had been removed, from the Companies Act, Register, and ceased to be a Company, since a number years earlier, from the rolls of the Companies Act; that it had filed its return of income voluntarily, had explained its family tragic personal, Medical circumstances, its selling off its Office & residential flat, and the loss of its record due to the 2005 DELUGE (floods), and thereby causing inability to attend personally to the IT Notices.
11. THAT the learned Commissioner of Income-Tax (Appeals) has erred in not taking cognizance of various Appeals contemporaneously filed and pending with the Ld. CIT(A), vide Numbers 462098231080419 U/s 144 (Quantum Appeal) U/s. 271(1)(c) Penalty for concealment.
2. The brief facts of the case are that assessee company filed its return of income on 30.09.2007 declaring NIL income. The case of assessee was selected for scrutiny and an inquiry, with reference to the following amounts received from the directors were made:
