Lack of evidence of non-compliance with issued notices: ITAT Quashes Section 272A(1)(C) penalty

Deepak Kumar Samtani Vs ADIT (Inv.) (ITAT Jaipur)

In the case of Deepak Kumar Samtani vs. ADIT (Inv.), the Jaipur Income Tax Appellate Tribunal (ITAT) reviewed an appeal against a penalty imposed under Section 272A(1)(C) of the Income Tax Act. The penalty stemmed from alleged non-compliance with multiple summonses issued to Samtani. The first notice, sent by email on March 30, 2018, required attendance the following day; however, the assessee’s representative contended that this notice was never received, a fact the Department did not dispute. Regarding the second notice, Samtani requested an adjournment, indicating compliance rather than neglect. The third notice was also reportedly not received by the assessee, again undisputed by the Department. The fourth and final notice was fully complied with, and there were no concerns raised from either party regarding this. In light of these details, the Tribunal concluded that there was no demonstrable non-compliance by Samtani, referencing Section 273B, which exempts individuals from penalties if they can show reasonable cause for non-compliance. Based on these findings, ITAT allowed grounds 1 and 2 of the appeal, dismissing the penalty. Grounds 3, 4, and 5, being general and technical, were not adjudicated further, as they did not impact the core judgment. Consequently, the appeal was allowed, with the Tribunal’s decision announced in open court on October 25, 2024.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

By way of this appeal, the above named assessee challenges the order of the Id. Commissioner of Income Tax (Appeals) Jaipur-5, [ for short CIT(A) ] dated 20.10.2023. Ld. CIT(A) passed that order because the assessee challenged an order passed by DCIT. Central. Circle, Ajmer passed uls 272A(1)(c) r.w.s 274 of the Income Tax Act, 1961 ( for short

2. In this appeal, the assessee has raised following grounds: –

1. The impugned penalty order passed ids 272A(1)(C) dated 27.03.2019 is bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be quashed.

2. 30,0001-, The Id. CIT erred in law as well as on the facts in confirming the imposition of penalty u/s 272A(1)(C) of Rs. 30,000/-. The penalty so imposed being totally contrary to the provisions of law and facts kindly be deleted in full.

3. The appellant prays your honours indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing.

2.1 The following additional grounds of appeal are raised, as under:

“4. The impugned penalty order dated 27.03.2019 is a nullity being non-est and must be considered as never passed in as much as no DIN number has been generated as per the prescribed procedure, which is in violation of the binding instructions of CBDT and hence, the impugned assessment order may kindly be held as non-est and may kindly be quashed.

5. The impugned penalty order passed u/s 272A(1)(c) r.w.s 274 dated 27.03.2019 is nullity and being without jurisdiction in as much as the said order has not been signed digitally as per the prescribed procedure, which is in violation of the binding instructions of CBDT and hence, the impugned assessment order may kindly be held as non-est and may kindly be quashed. Hence, the impugned order is completely devoid of jurisdiction not having being signed digitally as statutorily required.”

3. Succinctly, the facts, as culled out from the records are that during the course of investigation pertaining to search & seizure in the case of Shri Deepak Kumar Samtani, summons u/s were 131 issued on 30.03.2018 for personal attendance on 31.03.2018 and sent through mail (given in his ITR), but assessee failed to attend.

Again, summons u/s 131 were issued on 03.04.2018 and delivered personally to his wife on 03.04.2018 for personal attendance on 04.04.2018. but, he failed in compliance. Thereafter, once again, summons u/s 131 dated 31.05.2018 were issued to personally attend on 06.06.2018. but, again no compliance was made.

Looking into the facts mentioned herein above, it was noted that he had intentionally and willfully avoided compliance of the summons u/s 131 of the IT. Act, 1961. Accordingly, the matter was referred to the Addl. DIT(Inv.) Jaipur for initiation of penalty u/s 272A(1)(c) of the IT. Act, 1961. On receipt of reference from the Asstt. Director of Income-tax (Investigation)-1, Jaipur, notice u/s 272(A)(1)(c) dated 20/08/2018 was issued by Addl. DIT(Inv.) Jaipur asking the assessee to appear before the him on 27/08/2018 or file written explanation for non-compliances to summons issued by the Asstt. Director of Income-tax(Investigation)-1, Jaipur and also to explain as to why penalty u/s 272(A)(1)(c) of the Income-tax Act, 1961 should not be imposed upon him.

Shri Deepak Kumar Samtani appeared and submitted his written reply vide letter dated 27/08/2018 along with copy of retraction petition filed by him for earlier statement as recorded u/s.132 of the IT Act by the department on 29/03/2013.

The Addl. DIT(Inv.) Jaipur thoroughly perused the submission of the assessee and found the same not acceptable in view of the provisions of section 131 of the Income-tax Act. 1961. Section 131 of the Income Tax Act empowers the income tax authorities to conduct enquiries. It provides powers to summon persons/ witnesses to examine them on oath. During the course of post search enquires summons u/s 131 issued to Shri Deepak Kumar Samtani asking for his personal appearance which is clearly mentioned in the summons itself. The summonses were issued in order to record statements of the assessee. As the assessee in reply for non compliance of summons did not give any reason for non compliance but only filed a copy of letter addressed to ADIT(Inv.)-1, Jaipur dated 11/05/2018 along with copy of retraction petition. No specific reply for non compliance of summons was found to have been furnished in his reply.

4. The Id. Addl. DIT(Investigation), Jaipur further noted that Shri Deepak Kumar Samtani had been deliberately and knowingly making non-compliances to summons issued by the Assistant Director of Income-tax (Investigation), Jaipur, and had also not furnished satisfactory reply in response to penalty show-cause notice dated 20/08/2018, and, therefore penalty was imposed for non- compliance of summons u/s 131 of the Income-tax Act, 1961 for each default and failure to compliance for each of default for an amount of Rs. 30.000/-, u/s 272(A)(1)(c) of the Act.

5. Aggrieved by the order of Addl. DIT (Investigation), Jaipur, the assessee preferred an appeal before the Id. CIT(A). Apropos to the grounds so raised the relevant finding of the Id. CIT(A) is reiterated here in below:

^“5.2.3 From the above facts narrated, it is very clear that lhe appellant was doing Hawala business and various incriminating material including cash of Rs. 4 cr. was seized. During post search investigation, summons was issued to appellant for further investigation. Being a sensitive case, the appellant was mandatorily expected to attend the summons and should cooperate the ongoing Investigation. I do not found any merit on the arguments of the appellant. The Add. DIT(Inv.) Jaipur had passed the penalty order in very detailed manner narrating all the facts and law. There was no sufficient cause which was prevented him to attend the summons. Thus, the penalty of Rs. 30,000/- levied u/s 272A(1)(c) r.w.s 274 of the Income Tax Act for the year under consideration is hereby upheld. The ground raised by the appellant regarding this issue is dismissed.”

6. As the assessee did not find any respite in the appeal, he filed before the Id. CIT(A), the assessee has preferred present appeal before this Tribunal on the ground, as reproduced hereinabove. To support the various grounds so raised, Id. AR of the assessee has filed the written submissions in respect of the various grounds raised by the assessee and the same is reproduced herein below:

“Brief Facts: The facts as noted by the AO are that :

1. The A.T.S. Jaipur had seized cash of Rs.4.00.00,000/- on 28.03.2018 al Manoharpura Toll Durgapura. Delhi-Jaipur Highway from Shri Banwari Lal Mishra (Dadhich). During the statement of Shri Banwari Lal Mishra Ws 132(4) dated 29.03.2018, it was revealed that Shri Fazie Raoof and Shri Deepak Samtani (assessee), Bhilwara are partners and engaged in the business of Money Transfer i.e. “Hawala” Transactions. Shri Bhandari Lai Mishra (Dadhich) is an employee of Shri Fazie Raoof since last 5.6 months and working as Courier Boy for making delivery of cash from here and there. Shri Fazle Raoof paid Rs. 10,0001- per month to Shri Barware Lal Mishra (Dadhich) to work as Courier Boy.

2. During the course of investigation, summon u/s 131 were issued to the assessee on three dates i.e. on 30.03.2018, 3.04.2018 and 31.05.2018 for his personal attendance. However, the assessee did not compile with the same. The Id. AO thereafter initiated penalty u/s 272A(1)(c), noting that the assessee has been deliberately and willfully making non-compliance of summon Ws 131 of the Act, vide notice dated 20.08.2018 asking the assessee to file an explanation with regard to non-compliance of the summon issued. In response. the assessee appeared and submitted his reply vide letter dated 27.08.2018 along with copy of retraction petition filed. The Id. AO however not feeling satisfied. with the submissions of the assessee, imposed penalty of Rs. 30.000/- (3 summons • 10.000 for each default).

3. In the first appeal, the Id. CIT(A) upheld the assessment order, holding that the appellant was mandatorily expected to attend the summons and should cooperative in investigation” Hence this appeal.

Submission:

GOA 2: The imposition of penalty u/s 272A(1)(C) of Rs. 30.000/- is totally contrary to the provisions of law:

1. At the outset, the reason for non-attendance / non-compliance is as below:

2. We reply upon the written submissions made before the Id. CIT(A) dated 02.09.2023 (PB 7-9):

“in above we have to submit as under –

A. Section 274 of IT Act stated that no order imposing the penalty be made unless the assessee has been heard or has been given reasonable opportunity of being heard.

And by virtue of Sec. 2736 no penalty shall be impose* on the peisoh of the assesses as the case may be for any failure references to in the said provisions if he proves that there was reasonable cause for the said allure.

i. Sir from above detail your honor will appreciate that the notice dated 30/03/2018 fixing the date of hearing on 31/03/2018 (only less than 24 hours given to attend) and that too was issued on mail which cannot be predicted by arty one that the assessee or other person will always (twenty-four hours watch the mail). No such mail was seen by the assessee as this was the very first time that the notices will be required to sent on mail Hence there was reasonable ground of not attending the notice on 31/03/2018.

ii As regards notice dated 03/04/2018 fixing the hearing date 04/04/2018 which is also not proper even though as the notice was served to his wife but he requested for adjournment vide letter and mail dated 04/04/2018 as the time allowed was very short The copy of the same enclosed for your ready reference Annexure-A (Pagel 82).

Thus, there was no default for notice dated 03/04/2018.

iii. As regards notice dated 31/05/2018 fixing the heanng on 06/06/2018 is concerned, the AO stated that notice was issued for 06/06/2018 but the AO has not mentioned the mode of delivery of the notice to the assessee With due regards we submit that though this was not proper opportunity (less than seven days) even though as and when notices were received the same were responded as stated above. As per record of the assessee no such notice was received by him.

Above all the mental status of the assessee was also not good and he was under continuous treatment of Psychotherapist and non-addiction disease since 2017, copies of doctor prescription dated 02/02/2017. 27/01/2018. 19/06/2018 and 22/01/2019 attached as evidence. Annexure Page I to 4)

4.1 No Adequate Opportunity Provided: As mentioned aforesaid in the table, all the summon uls 131 issued were either not al all served upon the assessee or else provided less than even 7 days to response. Thus. no reasonable opportunity was provided to the assessee to respond to the said summons. In this regard, the Horible Apex Courts have time and again held that a reasonable opportunity of hearing which is sine qua non and imperative for the statutory authority to afford before passing the order or decision. Hear the other party or the rule of fair hearing or the rule that no one should be condemned unheard. This principle is the basic concept of principle of natural justice. This expression implies that a person must be given opportunity to defend himself. This principle is sine qua non of every civilized society.

The law is well settled that in a case where there is a violation of Principles of natural justice and a party has been deprived of its valuable rights of being heard effectively yet such an order has to be considered as having been done without jurisdiction and vitiating the entire order which, results into as nullity and is not case of mere irregularity. Kindly refer Colonisers vs. ACIT [1992) 41 ITO 57 (Hyderabad) (SB) (1993] 45 TTJ 114 (Hyderabad) (SB) holding that:

“In the preceding paragraphs it has been indicated why the assessee’s version cannot be rejected as regards the credits appearing in his books. Perhaps the only justification, if at all it can be called a justification, for the ITO to reject the credits as not genuine is the failure of the assessee to produce the creditors when called upon to do so by the ITO. At this stage it is but necessary to state the circumstances in which the assessee was unable to produce the creditors. We are concerned with the asst. yr. 1985- 86. For the first time the ITO called upon the assessee to produce the creditors by his letter dt. 7th March, 1988 which was served on the assessee on 9th March, 1988.

The rules of natural justice operate as implied mandatory requirement. non­observance of which amounts to arbitrariness and discrimination. The principles of natural justice have been elevated to the status of fundamental nights guaranteed M the Constitution of India as is evident from the decision of the Full Bench of the Honie Supreme Court in the case of Union of India vs. Tulsiram Pate! & Ors. reported in AIR 1985 SC 1416 at 1469. holding that the principle of natural justice have thus come to be recognised as being a part of the guarantee contained in Article 14 of the Constitution of India because of the new and dynamic interpretation given by the Supreme Court to the concept of equality which is the subject-matter of that Article and that violation of principles of natural justice by a State action is a violation of Article 14. A quasi-judicial or administrative decision rendered or an order made in violation of the rule of audi alteram pertain is null and void and the order made in such a case can be struck down as invalid on that score alone (Maneka Gandhi vs. Union of India AIR 1978 SC 597. Gangadharan Pillai vs. ACED: (1980) 126 ITR 356 (Ker): (1978) 8 CTR (Ker) 352 at pp. 365 to 367). In other words. the order which infringes the fundamental principle, passed in violation of Audi alteram pattern rule, is a nullity. When a competent Court or authority holds such an order as invalid or sets it aside, the impugned order becomes null and void. (Nb. Khan Abbas Khan vs. State of Gujarat AIR 1974 SC 1471 at 1479). In the light of these decisions, we do opine that the addition made by the Assessing Officer in violation of the principles of natural justice has to be set aside as void only in so far as the additions by way of cash credits alone are concerned, which are separable from the other additions in the order that are not challenged and consequently becoming thus non est in the eye of law.’

4.2 Supporting Case Law: In Uma Nath Pandey and Ors. Vs. State of U.P and Ors (2009)12 SCC 40, wherein it was held as under:

8. The adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a quasi-judicial body embarks on determining disputes between the parties, or any administrative action involving civil consequences is in issue. These principles are well settled The first and foremost principle is what is commonly known as audi alteram patient rule. It says that no one should be condemned unheard. Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate sb as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him. This is one of the most important principles of natural justice ft is after all an approved rule of fair play. The concept has gained significance and shades with time. When the historic document was made at Runnymede in 1215, the first statutory recognition of this principle found its way info the “Magna Carla” The classic exposition of Sir Edward Coke of natural justice requires to ‘ovate, interrogate and adjudicate. In the celebrated case of Cooper v. Wands worth Board of Works (1863) 143 ER 414. the principle was thus stated:

Even God did not pass a sentence upon Adam, before he was called upon to make his defence. “Adam* says God, where art thou? halt thou not eaten of the tree whereof I commanded thee that thou shouldest not eat.

X                             X                           X                           X

15. Concept of natural justice has undergone a great deal of change in recent years Rules of natural justice are not rules embodied always expressly in a statute or in rules framed thereunder. They may be implied from the nature of the duty to be performed under a statute. What particular rule of natural justice should be implied and what its context should be in a given case must depend to a great extent on the fact and circumstances of that case, the frame-work of the statute under which the enquiry is held. The of distinction between a judicial act and en administrative act has withered away. Even an administrative order which involves civil consequences must be consistent with the rules of natural justice. Expression civil consequences’ encompasses infraction of no! merely property or personal rights but of civil liberties, material deprivations, and non-pecuniary damages. In its wide umbrella comes everything that affects a citizen in his civil life.

X                             X                           X                           X

19. Natural justice is the essence of fair adjudication. deeply rooted in tradition and conscience, to be ranked as fundamental. The purpose of following the principles of natural justice is the prevention of miscarriage of justice.”

5. Reasonable Cause Existed – Assessee’s Medical Condition not proper since 2017:

5.1 On merits, another reason behind non-compliance of the summons was the health of the assessee is that he is suffering from mental illness like depression, schizophrenia (a mental disorder that can result in hallucinations or delusions and also adversely affects a person’s ability to think and behave), anxiety disorder. The assessee was being regularly seeking treatment from Psychotherapist since the year 2017 (copy of medical prescription for various dates is placed of Pa 3.6) A bare perusal of the said medical prescription will show that the assessee had to consult the doctor on monthly basis and thus, was under strict surveillance of the Psychotherapist doctor.

5.2 Alternatively and without being prejudice to the other arguments/ contentions. it is basic human tendency that a person is suffering from acute mental illness like depression, schizophrenia etc. has a habit of extreme overthinking and getting scared on petty things. In the instant case, a search action was carried out against the assessee and pursuant thereto, he was being called upon to be personally present of his statements. a situation wherein even a normal person with health mind gets tensed, mentally pressurized, depressed. Considering such a situation, the assessee was in a much worse state due to his known acute mental illness.

Thus, even considering for a moment that the assessee had non-complied with the summon, the same would have been due to his acute mental Illness. and hence not intentional or deliberate

5.3.1 Supporting Case Law: In Smt. Pupil’ Sanjay Badmouth vs ITO (ITA No.1608tPUNt2017 vide order dated 28.07.2020), the Co-ordinate Bench of ITAT held as under:

“7 We have perused the case records and analyzed the facts and circumstances in this case. This is a case where penalty u/s. 271(1)(b) has been imposed on the assessee for Rs.10.000/- for non-compliance of notice u/s 142(1) of the Act. It is evident from the facts on record that the assessment was completed Thereafter. information’s were received by the Assessing Officer from Sales Tax Department. Maharashtra and after which he had issued notice u/s. 148 of the Act to the assesses for which there was no compliance. Thereafter. the Assessing Officer had issued another notice u/s. 142(1) of the Act. Again there was non-compliance and the Assessing Officer proceeded to impose penalty u/s. 271(1)(b) of the Act stating that there was no reasonable cause demonstrated by the assessee for nonattendance on the given date as per the said notice. The penalty was confirmed by the Id. CIT(A) upholding the findings of Assessing Officer. When we peruse the penalty order at pars 5 It is crystal clear that the assessee has submitted before the Assessing Officer a medical certificate from Dr. Majoj Dashpute stating that the assesses was under his treatment for depression with anxiety disorder for the last two years. The Assessing Officer still levied the penalty saying that this is not sufficient reason for non-compliance of notice and therefore the Assessing Officer in our considered view has absolutely overlooked the facts on record which are genuine. Neither the Assessing Officer nor the CIT(A) has brought on record anything against the evidences furnished by the assessee regarding his ill-health. We are of the considered, view that this is not Wit case for imposition of penalty u/s. 271(11(b) of the Act anti we therefore. delete the penalty and allow the appeal of assessee without claim; into the merits of the case.

8. In the result, the appeal of assessee is allowed.”

Addl. GOA 4: No DIN mentioned – Hence impugned orders is non-est invalid:

We reply upon our submissions for GOA 9 made in appeal in A.V 2018-19 (ITA  No. 785/JPR/2023) since the facts and circumstances of both the years are similar and hence, the same may be considered

Therefore. in view of our submissions the impugned addition of difference so made. kindly be deleted in full.

Addl. GOA 5: Impugned assessment order not digitally signed:

We reply upon Our submissions for GOA 8 made in appeal in A.Y 2018-19 (ITA No. 785/JPR/2023) since the facts and circumstances of both the years are similar and hence. the same may be considered

Therefore. in view of our submissions the impugned addition of difference so made, kindly be deleted in full’

7. To support the contention so raised in the written submission reliance was placed on the following evidence / records:

8. The- id. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee relied upon the chart as reproduced herein below in the written submissions that the first notice was not served and other two notices wherein time given was lesser and that the assessee had been advised rest, and as such, the assessee was having sufficient reason for non-compliance. The assessee lives in Bhilwara and summons were given to appear at Jaipur within short time which is not sufficient time given looking to the distance involved.

9. The Id DR has relied on the findings of the lower authorities.

10. We have heard the rival contentions and perused the material placed on record.

Ground no. 1 & 2 raised by the assessee are to challenge the penalty levied u/s 272A(1)(C). which was levied against the assessee on the alleged non compliance on the three notices/ summons issued to the assessee.

It is available from the record that first notice was issued on 30.03.2018 requiring the assessee to attend on 31.03.2018. The said notice was alleged to have been issued via email. Ld. AR for the assessee contended before the Id. CIT(A) and before this Tribunal that the said-notice was not served to the assessee This fact has not been controverted by the Id. DR representing the revenue.

As regards the second notice, the assessee had sought adjournment and therefore the same cannot be termed as non compliance on part of the assessee

So far as the third notice, Ld. AR for the assessee also contended that the same has not been received by the assessee. This fact has not been opposed by the Id. DR.

The fourth notice issued was duly complied and there is no grievance from either party about the compliance so made.

Section 273B provides that no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. Considering all the facts , no case of non compliance on the part of the assessee is made out.

Considering this discussion ground no. 1 & 2 raised by the assessee are allowed.

Ground no 3 being general does not require our adjudication.

Grounds no. 4 & 5 raised by the assessee being technical and since

we have not considered the appeal of the assessee on its merits we do not

find any reasons to sustain the penalty.

Result

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 25/10/2024.