COMMISSIONER OF INCOME-TAX VS SHANKAR D. DHANWATEY AND OTHERS
1996 P T D 654
[212 I T R 150]
[Bombay High Court (India)]
Before V. A. Mohta and G. D. Patil, JJ
COMMISSIONER OF INCOME-TAX
versus
SHANKAR D. DHANWATEY and others
Income-tax Reference No.393 of 1980, decided on 15/01/1992.
Income-tax---
----Transfer of case---Penalty---Failure to file returns in time---Transfer of case during pendency of penalty proceedings---No notice or intimation given by succeeding officer---Levy of penalty not valid---Indian Income Tax Act, 1961, .Ss.129 & 271(1)(a).
The principle underlying section 129 of the Income Tax Act, 1961, is that the succeeding officer has authority to continue the proceedings from the stage at which they are left by his predecessor and the assessee may demand that before the proceeding is so continued, the previous proceeding or any part thereof may be reopened or that he may be reheard before passing the assessment order. The use of the word "may" in the section indicates that continuation from that stage is within the authority of the officer and not his obligation. In an appropriate case he is free of his own accord to reopen even the earlier stages. The proviso gives a right to the assessee to demand reopening of the previous stages before the proceeding is so continued.
The Income Tax Officer, Bombay, initiated proceedings under section 271(1)(a) against the assessee and issued notice under section 274 for showing cause as to why penalty should not be levied for the delay in filing returns. No reply was filed by the assessee. Under the orders of the Central Board of Direct Taxes, the assessment jurisdiction over the assessee was transferred from Bombay to Nagpur with effect from January 12, 1976, under section 126 of the Income Tax Act. The Income Tax Officer, Nagpur, passed an order dated March 26, 1977, imposing the penalty. No notice was given by the Income Tax Officer, Nagpur, before imposing the penalty. The Appellate Assistant Commissioner quashed the order of penalty on the ground that the Income Tax Officer, Nagpur, the succeeding authority, had failed to intimate his intention to continue the penalty proceedings from the stage at which they were left by his predecessor, the Income Tax Officer, Bombay, as mandated by section 129. The Tribunal upheld the order of the Appellate Assistant Commissioner. On a reference:
Held, that the penalty order passed by the Income Tax Officer, Nagpur, was wholly unauthorised and void.
Anantha Naganna Chetty v. C.I.T. (1970) 78 ITR 743 (AP) and C.I.T. v. Chitra Mukherjee (Smt.) (1981) 127 ITR 252 (Cal.) fol.
P.N. Chandurkar for the Commissioner.
Mr. Thakkar for the Assessee.
JUDGMENT
V. A. MOHTA, J.----The following question has been referred for the opinion of this Court at the instance of the Commissioner of Income Tax, Nagpur, under section 256(1) of the Income Tax Act, 1961 ("the I. T. Act"):
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that penalty levied under section 271(1)(a) was not legal since no fresh hearing was provided in view of section 129 of the Income Tax Act, 1961?"
The basic backdrop against which the point arises is very short and it is this:
A notice under section 139(2) of the Income-tax Act was served by the Income Tax Officer, Bombay, on the assessee. The assessee requested for time to file the return of the income. Time was granted up to November 30, 1972. The return was not filed within time. It was filed on March 16, 1974. Assessment was completed on February 11, 1975, by the Income Tax Officer, Bombay, who initiated proceedings under section 271(1)(a) and issued notice under section 274 for showing cause as to why penalty should not be levied for the delay. No reply was filed by the assessee. Under the orders of the Central Board of Direct Taxes, the assessment jurisdiction over the assessee was transferred from Bombay to Nagpur with effect from January 12, 1976 under section 126 of the Income-tax Act. The Income Tax Officer, Nagpur, passed an order dated March 26, 1977, imposing a penalty of Rs.50,310 observing that there was neither a reply by the assessee nor did he attend the proceedings in person or through a representative to explain the delay. No notice or intimation of any nature was given by the Income Tax Officer, Nagpur, before imposing the penalty. The Appellate Assistant Commissioner quashed the order of penalty on the ground that the Income Tax Officer, Nagpur, the succeeding authority, had failed to intimate his intention to continue the penalty proceedings from the stage at which they were left by his predecessor--the Income Tax Officer, Bombay, as mandated by section 129. The Tribunal upheld the, order of the Appellate Assistant Commissioner.
The finding of fact recorded by the Tribunal is that the assessee had no knowledge of the transfer of penalty proceedings from Bombay to Nagpur. In our view, that factor alone is sufficient to quash the order of penalty. But mere knowledge or intimation of transfer was by itself not sufficient to meet the requirements of section 129, which reads thus:
" 129. Whenever in respect of any proceeding under this Act an income? tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor:
Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard. "
The principle underlying is that the succeeding officer has authority to continue the proceedings from the stage at which they are left by his predecessor and the assessee may demand that before the proceeding is SO Continued, the previous proceeding or any part thereof may be reopened or that he may be reheard before passing the assessment order. The use of the word "may" in the section indicates that continuation from that stage is within the authority of the officer and not his obligation. In an appropriate case, he is free on his own accord to reopen even the earlier stages. The proviso gives a right to the assessee to demand reopening of the previous stages before the proceeding is s0 continued. Whether at all to continue with the proceeding or not is again for the said officer w decide, but the assessee cannot know the mind of the authority to continue the proceeding further unless he is communicated the intention of the authority to do so. This provision thus gives one more right pertaining to an opportunity of being heard contemplated under section 274 when the incumbent changes It is trite to observe that either section 274 or section 129 is based on the principles of natural justice which do not have any strait jacket formula. Opportunity of hearing is not always exhausted by giving or not giving a written reply. Even without written reply the assessee can explain the adverse circumstances alleged against him. It is true that this is not a case of refusing to reopen the proceeding despite demand by the assessee. But that is a different aspect. Here is a case where there was no opportunity to exercise that right to demand. Under the circumstances, the penalty order passed by the Income Tax Officer, Nagpur, was wholly unauthorised and void.
In the view we are taking, we are fortified by at least the two following decisions: (i) the case of Anantha Naganna Chetty v. C.I.T. (1970) 78 ITR 743 (AP), and (ii) the case of C.I.T. v. Snit. Chitra Mukherjee (1981) 127 ITR 252 (Cal.). The former decision is under section 5(7C) of the old Income Tax Act (which is in part materia with section 129) read with section 28(3) (which is in pari materia with section 274). The latter decision is under sections 271(1)(a), 274 and 275 of the Income Tax Act. The former case lays down that even though section (5(7C) does not in terms provide for any notice to the assessee by the succeeding officer informing him of his intention to continue the proceedings from the stage at which his predecessor had left it, it provides for such an intimation by necessary implication. The latter case lays down that even when there was no response from the assessee to the notice under section 274 issued by the predecessor authority, the successor authority has no authority to pass an order of penalty without giving the assessee a fresh opportunity of being heard.
Hence, the question is answered in the affirmative., and in favour of the assessee. no order as to costs.
M.B.A./1072/F??????????????????????????????????????????????????????????????????????????????????? Reference answered.
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