COVID-19 prevented Assessee from complying with Income Tax Notices: ITAT quashes Penalty u/s 272A(1)(d) [Read Order]

The Income Tax Appellate Tribunal ( ITAT ) Pune Bench recently quashed a penalty under Section 272A(1)(d) of the Income Tax Act, 1961, citing COVID-19 as a valid reason for non-compliance with notices issued by the Income Tax authorities.

The assessee had failed to respond to notices issued under Section 142(1) during reassessment proceedings for the assessment year 2017-18.

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The notices dated December 12, 2021, and December 27, 2021, demanded specific documentation, which the assessee did not provide, resulting in a penalty of ₹10,000.

The assessee had cited the disruptions caused by the COVID-19 pandemic in the appeal as the reason for non-compliance. The penalty was upheld by the National Faceless Appeal Centre ( NFAC ), which prompted the assessee to file an appeal before the ITAT.

Arvind Desai represented the department while in the absence of appellant assessee, the tribunal invoked rule 24 of ITAT-Rules, 1963 and proceeded ex-parte subject to the provisions of rule 18 (supra) perused the material placed on record and considered facts of the case in light of settled positions of law.

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In its ruling, the ITAT noted the impact of the COVID-19 pandemic, which severely hampered individuals' ability to comply with such notices. The Tribunal took note of the Supreme Court's suo-motu extension of limitation periods due to the pandemic, which applied from March 15, 2020, to February 28, 2022.

The tribunal observed that, “Without disputing that the COVID-19 Pandemic forms a reasonable cause within the meaning & for the purpose of section 273B of the Act the only support the Revenue draws for imposition of penalty and its sustenance in first appeal is the absence of documents establishing the existence of COVID-19 pandemic during the unexpired period of notices issued to the assessee requiring him to furnish information/documents etc.”

It was further remarked that, “Without reproducing lock, stock and barrel of section 273B of the Act, in relation imposition of penalty u/s 272A(1)(d) of the Act it shall be purposive to state that, it empowers tax authorities for not to impose penalty u/s 272A of the Act if assessee proves that there was a reasonable cause behind the failure to comply with the notices issued u/s 142(1) or 143(2) or 142(2A) of the Act.”

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The ITAT observed that the pandemic constituted a reasonable cause under Section 273B of the Act, which provides relief from penalties if the assessee can demonstrate a reasonable cause for non-compliance.

The Tribunal bench of Judicial Member S S Godara and Accountant Member G D Padmahshali held that the assessee’s failure to respond to the notices was excusable, considering the extraordinary circumstances brought about by the pandemic, and thus, quashed the penalty order.

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