1991 (3) TMI 126 - HC - Income Tax

Court Invalidates Penalty Orders; Assessee's Rights Upheld

The Court held that penalty orders under Sections 271(1)(a) and 271(1)(c) of the Income-tax Act were invalid as the successor-Income-tax Officer failed to ... Opportunity By New ITO, Penalty For Concealment Issues Involved:1. Interpretation of Section 129 of the Income-tax Act.2. Validity of penalty orders under Section 271(1)(a) and 271(1)(c) of the Income-tax Act without a fresh opportunity of being heard.Issue-Wise Detailed Analysis:1. Interpretation of Section 129 of the Income-tax Act:The primary issue was whether the successor-Income-tax Officer (ITO) must intimate the assessee of his intention to continue penalty proceedings from the stage left by his predecessor and whether the assessee should be given an opportunity to be reheard.The Court noted that Section 129 of the Income-tax Act stipulates that when an income-tax authority is succeeded by another, the successor may continue the proceedings from the stage at which it was left by his predecessor. However, it is implicit that the succeeding authority should inform the assessee of his intention to continue the proceedings. This right is crucial for the assessee to demand a rehearing or reopening of the case. The Tribunal and the Appellate Assistant Commissioner (AAC) held that the successor-ITO failed to provide such an opportunity, thus rendering the penalty orders invalid.2. Validity of Penalty Orders under Section 271(1)(a) and 271(1)(c) Without Fresh Opportunity:The Court examined whether the penalty orders under Sections 271(1)(a) and 271(1)(c) were valid when the successor-ITO did not provide a fresh opportunity of being heard to the assessee.The Court referred to the decisions of the Andhra Pradesh High Court in Anantha Naganna Chetty v. CIT [1970] 78 ITR 743 and the Calcutta High Court in Smt. Chitra Mukherjee's case [1981] 127 ITR 252, which emphasized the necessity for the successor-ITO to inform the assessee about his intention to continue the proceedings. The Court agreed with the Tribunal's view that the absence of such intimation is a significant factor, and the assessee cannot be deemed to have waived his right to a rehearing.The Court also considered the Revenue's argument that the opportunity to file objections was sufficient compliance with the provisions of Section 271 read with Section 274. However, it concluded that the absence of intimation to the assessee about the change in the incumbent and the successor's intention to continue the proceedings was a breach of the assessee's rights under Section 129.Conclusion:The Court held that the penalty orders were justifiably canceled by the AAC, and the Tribunal was correct in affirming these cancellations. The fundamental requirement under Section 129, read with Section 274, was not met, as the successor-ITO did not intimate the assessee of his intention to continue the proceedings, nor did he provide a fresh opportunity of being heard.The Court answered both questions in the affirmative, against the Revenue and in favor of the assessee. It emphasized that if an order is void for non-compliance with natural justice principles, the proceedings should be restored to the stage before the order was passed, without needing a specific direction for reconsideration.A copy of the judgment was ordered to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.