2020 (11) TMI 770 - AT - Income Tax

ITAT emphasizes natural justice in tax penalty case, directs fair hearing for assessee

The ITAT allowed the appeal of the assessee for statistical purposes, emphasizing the importance of adhering to natural justice principles in tax ... Levy of penalty u/s 271(1)(c) - principles of natural justice violated - ex parte order - no hearing provided - HELD THAT:- CIT(A) has passed an ex parte order without hearing the assessee. It is an established principle of natural justice that assessee should be heard before a decision is taken against it. A fair opportunity of hearing is essence of the principles of natural justice. An opportunity of hearing to the assessee before the levy of penalty is a statutory requirement, which has to be strictly complied with by the Revenue. In the present case since the order of CIT(A) has been passed in violation of principles of natural justice, we are of the view that one more opportunity needs to be granted to assessee to present its case - Appeal of Assessee is allowed for statistical purposes. Issues:Levy of penalty u/s 271(1)(c) of the Income Tax Act - violation of principles of natural justice.Analysis:The appeal was filed by the assessee against the order of the Commissioner of Income Tax (A)-2, New Delhi for Assessment Year 2007-08. The assessee, a company engaged in manufacturing paper-based packaging products and retail shopping bags, initially declared a loss in its return of income for the relevant year. The Assessing Officer (AO) determined the total income at a certain amount, which was disputed by the assessee. The case went through various stages of appeal, including before the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT). The ITAT, in a previous order, remanded the matter back to the AO for fresh consideration. Subsequently, the AO made certain additions and disallowances, leading to a revised income determination. The assessee then filed an application for rectification under section 154 of the Act, resulting in a recomputed total income of Nil. However, the AO levied a penalty under section 271(1)(c) of the Act based on the earlier additions made. The CIT(A) initially held that no penalty was leviable based on estimated additions but directed the AO to verify the rectification order. In a subsequent order, the CIT(A) upheld the penalty, citing a decision of the Supreme Court. The assessee appealed against this penalty order before the ITAT.During the hearing before the ITAT, the assessee's representative argued that the CIT(A)'s confirmation of the penalty was ex parte as no opportunity of hearing was granted. The representative contended that the order was void and requested either a remittal of the matter to the CIT(A) for a fresh hearing or a reversal of the penalty decision. The Departmental Representative (DR) supported the CIT(A)'s order. The ITAT considered the submissions and noted that the CIT(A) had indeed passed an ex parte order without hearing the assessee. The ITAT emphasized the importance of natural justice principles, stating that the assessee must be given a fair opportunity to present its case before any decision is made against it. The ITAT highlighted that providing an opportunity of hearing to the assessee before levying a penalty is a statutory requirement that must be strictly adhered to by the Revenue. Therefore, due to the violation of natural justice principles, the ITAT decided to grant the assessee another opportunity to present its case. The ITAT directed the matter to be restored back to the CIT(A) for a fresh order after ensuring adequate hearing for both parties. Consequently, the appeal of the assessee was allowed for statistical purposes.In conclusion, the ITAT's judgment focused on the violation of principles of natural justice in the levy of a penalty under section 271(1)(c) of the Income Tax Act. The decision emphasized the importance of providing a fair opportunity of hearing to the assessee before any adverse decision is taken. The ITAT's ruling highlighted the statutory requirement of granting an opportunity of hearing before imposing a penalty, reinforcing the significance of adhering to natural justice principles in tax proceedings.