Facts of the Case

Egis International S.A.S., a foreign company engaged in providing technical consultancy services to associated enterprises and third parties, filed its income tax return for the relevant assessment year declaring its income in India. The case was selected for scrutiny under the CASS system and statutory notices were issued electronically by the Assessing Officer.

During the course of assessment proceedings, the matter was referred to the Transfer Pricing Officer (TPO), who passed an order proposing transfer pricing adjustments. Based on the TPO’s order, the Assessing Officer issued a draft assessment order requiring the assessee to file objections before the Dispute Resolution Panel (DRP) within the prescribed time.

However, the assessee failed to file objections before the DRP or respond to the draft order within the stipulated period. Consequently, the Assessing Officer completed the assessment under the provisions of the Income Tax Act by including the proposed transfer pricing adjustments in the final assessment order.

Subsequently, the assessee challenged the order before the appellate authority, contending that the non-compliance occurred due to circumstances beyond its control. 

Issues Involved

  1. Whether non-compliance with electronic notices issued by the tax authorities can be justified when the employee handling the matter had left the company.
  2. Whether such circumstances constitute “reasonable cause” for failure to respond to statutory notices and appellate proceedings.
  3. Whether the ex-parte order passed by the appellate authority without considering the merits of the case was sustainable in law. 

Petitioner’s Arguments

The assessee contended that the failure to respond to notices was not deliberate. The employee responsible for handling the tax proceedings had left the organization, and the email address to which the notices were sent belonged to that employee. As a result, the notices did not reach the concerned officials of the company.

An affidavit from the authorized signatory of the company was submitted explaining the circumstances leading to the non-compliance. The assessee argued that the absence of response was due to genuine reasons and should be treated as a reasonable cause rather than willful negligence.

The assessee further submitted that the appellate authority had passed the order ex-parte without adjudicating the issues on merits, which resulted in denial of proper opportunity of being heard. 

Respondent’s Arguments

The Revenue authorities maintained that statutory notices were duly issued to the assessee electronically as per the prescribed procedure. Since the assessee failed to file objections before the DRP or respond within the stipulated time, the Assessing Officer proceeded with the assessment in accordance with law.

The department argued that compliance with notices is the responsibility of the assessee, and failure to monitor the official communication channel cannot absolve the assessee from statutory obligations. 

Court Order / Findings

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, observed that the non-compliance occurred because the employee who was handling the tax matters had left the company and the notices sent to his email address did not reach the concerned officials.

The Tribunal held that the non-compliance was not deliberate and constituted a reasonable cause under the circumstances. It further noted that the appellate authority had dismissed the matter without examining the issues on merits.

Accordingly, the Tribunal allowed the appeal of the assessee and directed that the matter be restored for proper adjudication after granting adequate opportunity to the assessee.

 Important Clarification

The ITAT clarified that when non-compliance with statutory notices occurs due to genuine and reasonable circumstances, such as the departure of the employee responsible for handling the matter, the same may be considered a valid reason.

The Tribunal emphasized that appellate authorities should decide matters on merits rather than dismissing appeals merely on technical grounds when sufficient cause for non-compliance is demonstrated.

Sections Involved

  • Section 92CA(3) – Order of Transfer Pricing Officer
  • Section 144C(2) – Filing of objections before Dispute Resolution Panel
  • Section 144C(3) – Final assessment order after DRP procedure
  • Section 143(3) – Scrutiny assessment under the Income Tax Act, 1961 

Link to download the order -  https://itat.gov.in/public/files/upload/1704279529-ITA%20No.2333-Del-2022-Egis%20International%20SAS.pdf

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