ITAT Levies ₹10,000 Fine on Foreign Portfolio Investor for Ignoring Section 142(1) Notices

ITAT Levies ₹10,000 Fine on Foreign Portfolio Investor for Ignoring Section 142(1) Notices

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has levied a penalty of ₹10,000 on a Foreign Portfolio Investor (FPI) due to their failure to address notices issued under Section 142(1) of the Income Tax Act.

In a ruling presided over by Vikas Awasthy (Judicial Member) and Padmavathy (Accountant Member), the bench noted the presence of negligence on the part of the assessee for neglecting to address the notices dispatched by the Assessing Officer (AO). The assessee was expected to establish dependable means for receiving such notices, as the non-communication of notices cannot be ascribed to the Department. Consequently, the bench deemed it appropriate to impose costs on the assessee for their failure to respond to the notices.

The appellant/assessee maintains tax residency in the United States. Operating as a registered Foreign Portfolio Investor, the entity primarily engages in investments within the stock market with the aim of accruing long-term capital gains (LTCG) and dividend income.

The assessee executed the sale of equity shares belonging to Stride Aerolabs Ltd., fetching a cumulative sum of ₹1,99,94,497. These transactions resulted in the acquisition of Long-Term Capital Gains (LTCG), which were duly asserted for tax exemption under Section 10(38). Given the absence of any taxable income during the pertinent fiscal year, the assessee abstained from submitting an income tax return.

After responding to the notice under Section 148 by filing the income tax return on April 28, 2021, the assessee was later issued a show-cause notice under Section 142(1) on January 19, 2022.

The assessee provided a comprehensive response to the notice. However, purportedly, the AO issued subsequent notices under Section 142(1) on February 3, 2022, and March 22, 2022, which, it is claimed, were not received by the assessee.

On March 30, 2022, the AO issued the preliminary assessment order, dismissing the assessee's plea for exemption under Section 10(38).

The assessee's ability to present adequate submissions before the AO was hampered by the non-receipt of notices. Furthermore, the draft assessment order itself was not timely received by the assessee.

Upon becoming aware of the draft assessment order, the assessee promptly submitted objections before the Dispute Resolution Panel (DRP). The DRP, however, dismissed the assessee's objections citing limitations as the basis for their decision.

The assessee argued that due to the inadequate communication of notices, they were unable to present their submissions before the AO, leading to the delayed objections filed before the DRP. The assessee further emphasised that given the opportunity, they can demonstrate that no tax is liable on the Long-Term Capital Gains (LTCG) derived from the share sales.

The department stressed that the AO extended numerous opportunities to the assessee for submitting their inputs, yet the assessee opted not to collaborate and failed to furnish the requested information. As a result, the AO was left with no alternative but to conclude the assessment under Section 144 of the Income Tax Act.

The tribunal determined that the assessment conducted by the AO was based on a discretionary judgement under Section 144.

The tribunal stated that they deemed it suitable to impose a cost of ₹10,000 on the assessee, which is required to be remitted by the assessee in adherence to Rule 32A(2) of the Income Tax (Appellate Tribunal) Rules, 1963, within three weeks from the reception date of this ruling. Pending the cost payment, the appeal has been reinstated to the jurisdiction of the AO for a fresh assessment, the ITAT added.