2025 (6) TMI 282 - AT - Income Tax

Penalty u/s 272A(1)(c) - non- compliance of summons/three notices u/s 131 for each default - HELD THAT - 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. Assessee contended before the ld. CIT(A) and before this Tribunal that the said notice was not served to the assessee. This fact has not been controverted by the ld. 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 ld. 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. Ground no. 1 2 raised by the assessee are allowed.

Summary

The core legal questions considered in this appeal pertain primarily to the validity and propriety of the penalty imposed under section 272A(1)(c) read with section 274 of the Income Tax Act, 1961. Specifically, the issues are:

1. Whether the penalty order dated 27.03.2019 imposing Rs. 30,000/- under section 272A(1)(c) is legally sustainable, considering alleged lack of jurisdiction and procedural irregularities.

2. Whether the assessee's non-compliance with summons issued under section 131 of the Income Tax Act was deliberate and willful, justifying the penalty.

3. Whether the summons were duly served and reasonable opportunity was provided to the assessee to comply, in light of principles of natural justice.

4. Whether the penalty order is invalid due to absence of a Digital Identification Number (DIN) and lack of digital signature, contrary to binding CBDT instructions.

5. Whether the assessee had reasonable cause for non-compliance, including medical grounds, thereby exempting him from penalty under section 273B.

Issue-wise Detailed Analysis

Issue 1 & 2: Legality and justification of penalty under section 272A(1)(c) for non-compliance of summons under section 131

Legal Framework and Precedents: Section 131 empowers income tax authorities to summon persons for examination on oath during investigation. Section 272A(1)(c) penalizes wilful failure to comply with such summons. Section 274 mandates that no penalty shall be imposed without giving the assessee an opportunity of being heard. Section 273B provides that penalty shall not be imposed if the assessee proves reasonable cause for failure.

Court's Interpretation and Reasoning: The Tribunal examined the facts surrounding the issuance and service of summons on three occasions: 30.03.2018 (for attendance on 31.03.2018), 03.04.2018 (attendance on 04.04.2018), and 31.05.2018 (attendance on 06.06.2018). The first summons was sent via email less than 24 hours before the date of attendance; the second was delivered personally to the assessee's wife with less than 24 hours' notice and an adjournment request was filed; the third summons was allegedly not received by the assessee at all.

The Tribunal noted that the Revenue did not controvert the assessee's claim of non-receipt for the first and third summons, and accepted the adjournment request for the second summons. The assessee complied with a subsequent summons, which was not in dispute.

Applying section 273B, the Tribunal held that the assessee had established reasonable cause for non-compliance, including insufficient notice period and non-service of summons. The Tribunal emphasized the principle that penalty cannot be imposed without reasonable cause and proper opportunity.

Key Evidence and Findings: The evidence included copies of summons, email communications showing adjournment request, and the absence of proof of service for certain summons. The assessee also submitted medical prescriptions evidencing mental illness, which was argued to affect his ability to comply.

Application of Law to Facts: The Tribunal applied the principles of natural justice and statutory provisions, concluding that the short notice and non-service deprived the assessee of reasonable opportunity. The failure to comply was not deliberate or willful but due to these circumstances and medical condition.

Treatment of Competing Arguments: The Revenue relied on the findings of the lower authorities that the penalty was justified due to deliberate non-compliance. The Tribunal rejected this, noting the lack of evidence contradicting the assessee's claims and the absence of sufficient cause to deny the adjournment or excuse the non-attendance.

Conclusions: The Tribunal allowed the appeal on these grounds, holding that no penalty should have been imposed as the assessee had reasonable cause and was not in wilful default.

Issue 3: Adequacy of opportunity and principles of natural justice

Legal Framework and Precedents: The Tribunal extensively referred to the principles of natural justice, particularly the audi alteram partem rule, which requires that no person be condemned unheard. The Tribunal relied on authoritative precedents emphasizing that violation of natural justice renders an order null and void.

Court's Interpretation and Reasoning: The Tribunal underscored that the summons served with less than 24 hours' notice and via email (which the assessee may not have reasonably monitored) violated the principle of reasonable opportunity. The adjournment request filed by the assessee was also ignored by the Revenue.

Key Evidence and Findings: The Tribunal relied on the timeline of summons issuance and service, email correspondence for adjournment, and the absence of proof of service for the third summons.

Application of Law to Facts: The Tribunal applied the principle that failure to provide reasonable opportunity vitiates the penalty order, making it a nullity rather than a mere irregularity.

Treatment of Competing Arguments: The Revenue did not dispute the short notice or non-service but argued that the penalty was justified. The Tribunal found the Revenue's position untenable in light of natural justice.

Conclusions: The Tribunal held that the penalty order was passed in violation of natural justice and was therefore invalid.

Issue 4 & 5: Validity of penalty order in absence of DIN and digital signature

Legal Framework and Precedents: The CBDT has issued binding instructions requiring penalty orders to bear a Digital Identification Number (DIN) and be digitally signed to be valid. Non-compliance with these procedural mandates renders the order a nullity.

Court's Interpretation and Reasoning: The Tribunal noted the assessee's contention that the penalty order lacked a DIN and digital signature, violating CBDT instructions. However, since the penalty was not sustained on merits, the Tribunal did not delve deeply into these technical grounds.

Key Evidence and Findings: The record showed absence of DIN and digital signature on the penalty order.

Application of Law to Facts: The Tribunal acknowledged that these procedural defects would invalidate the order but did not rely on these grounds to decide the appeal, as the penalty was already set aside on substantive grounds.

Treatment of Competing Arguments: The Revenue did not contest these procedural defects.

Conclusions: The Tribunal observed that these technical grounds further support the invalidity of the penalty order but did not base its decision solely on them.

Additional Consideration: Medical Condition of the Assessee

The assessee submitted medical prescriptions diagnosing him with mental illnesses including depression and schizophrenia, treated by a psychotherapist since 2017. The Tribunal considered this as a reasonable cause for non-compliance, supported by a precedent where penalty was deleted due to medical incapacity affecting compliance.

Significant Holdings

"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."

"The rules of natural justice operate as implied mandatory requirement, non-observance of which amounts to arbitrariness and discrimination. The principles of natural justice have been elevated to the status of fundamental rights guaranteed in the Constitution of India... A quasi-judicial or administrative decision rendered or an order made in violation of the rule of audi alteram partem is null and void..."

"The Tribunal allowed the appeal of the assessee on the grounds of non-compliance with principles of natural justice, lack of reasonable opportunity, and existence of reasonable cause including medical condition, thereby holding the penalty under section 272A(1)(c) as unsustainable."

"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."

In conclusion, the Tribunal held that the penalty imposed under section 272A(1)(c) was not sustainable due to failure of the Revenue to provide reasonable opportunity and proper service of summons, the existence of reasonable cause including medical grounds, and procedural defects in the penalty order. The appeal was allowed and the penalty deleted.