ITAT Imposes Cost Of Rs.10K On Foreign Portfolio Investor For Not Responding To Section 142(1) Notices

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has imposed a cost of Rs.10,000 on a foreign portfolio investor (FPI) for not responding to notices under Section 142(1) of the Income Tax Act.

The bench of Vikas Awasthy (Judicial Member) and Padmavathy (Accountant Member) has observed that there is negligence on the part of the assessee in not responding to the notices issued by the AO. The assessee should have made reliable arrangements for the communication of notices. Non-communication of notices cannot be attributed to the Department. Therefore, it is a fit case for levying costs on the assessee for not responding to the notices.

The appellant/assessee is a tax resident of the USA. The assessee is a registered Foreign Portfolio Investor. The assessee primarily invests in shares to earn long-term capital gains (LTCG) and dividend income.

The assessee had sold equity shares of Stride Aerolabs Ltd. for a total consideration of Rs. 1,99,94,497/-. The assessee earned LTCG on the sale of shares; the LTCG was claimed as exempt from tax under Section 10(38). Because there was no taxable income during the relevant previous year, the assessee did not file any return of income.

A notice under Section 148 was issued to the assessee forthe non-filing of the return of income. In response to the said notice, the assessee filed a return of income on April 28, 2021; thereafter, the assessee received a show-cause notice under Section 142(1) dated January 19, 2022.

In response to the notice, the assessee furnished a detailed reply. The AO allegedly issued notices under Section 142(1) on February 3, 2022, and March 22, 2022; the notices were never received by the assessee.

The AO passed the draft assessment order on March 30, 2022, rejecting the assessee's claim of exemption under Section 10(38). The assessee could not make proper submissions before the AO due to the non-receipt of the notices. Even the draft assessment order was not received by the assessee in time.

As soon as the assessee learned about the draft assessment order, the assessee filed objections before the DRP. However, the DRP dismissed the objections of the assessee on the ground of limitation.

The assessee contended that in the absence of proper communication of notices, the assessee could not make submissions before the AO, and the objections filed before the DRP were belated. If an opportunity is granted, the assessee would be able to show that no tax is payable on LTCG earned on the sale of shares.

The department urged that multiple opportunities were granted to the assessee by the AO to make submissions, but the assessee chose not to cooperate and did not file the requisite information as sought by the AO. The AO had no option but to complete the assessment under Section 144 of the Income Tax Act.

The tribunal held that the AO made the assessment under Section 144 on a best judgement basis.

"We deem it appropriate to levy a cost of Rs. 10,000/- on the assessee. The cost shall be paid by the assessee in accordance with Rule 32A(2) of the Income Tax (Appellate Tribunal) Rules, 1963, within a period of 3 weeks from the date of receipt of this order. Subject to payment of cost, the appeal is restored to the file of the AO for denovo assessment," the ITAT said.

Case Title: Hunt International Investments LLC Versus DCIT

Case No.: ITA NO.916/MUM/2023 (A.Y.2015-16)

Date: 31/07/2023

Counsel For Appellant: A.N. Shah

Counsel For Respondent: Anil Sant

Click Here To Read The Order