Penalty for delayed PF/ESI deposits u/s36(1)(va) additions u/s270A quashed for no effective hearing, remanded.

Penalty under s.270A was challenged on the ground that it was imposed for additions relating to delayed deposit of PF/ESI under s.36(1)(va) without affording the assessee an effective opportunity of hearing, despite requests to keep proceedings in abeyance pending the appeal on the quantum additions. The HC held that denial of a fresh opportunity vitiated the penalty order to that extent, warranting interference in writ jurisdiction. The impugned penalty order was quashed and set aside, and the matter was remitted to the authority to pass a fresh order under s.270A limited to the additions covered by the show-cause notice, after granting a fresh hearing, within 12 weeks.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the penalty order under Section 270A of the Income-tax Act, 1961, in respect of addition on account of late payment of Provident Fund and Employee's State Insurance under Section 36(1)(va), was vitiated for having been passed without granting adequate opportunity of hearing.

1.2 Consequentially, whether the matter relating to penalty on such addition required remand to the competent authority for fresh adjudication in accordance with law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of penalty order under Section 270A in absence of adequate opportunity of hearing

Legal framework (as discussed)

2.1 The Court considered the imposition of penalty under Section 270A of the Income-tax Act, 1961, in relation to an addition made under Section 36(1)(va) towards late payment of PF and ESI, arising out of a show-cause notice.

Interpretation and reasoning

2.2 The Court recorded that two other additions forming part of the impugned penalty order, namely disallowance under Section 14A and disallowance of depreciation on goodwill under Section 32(1), had already been deleted by the Income Tax Appellate Tribunal, leaving only the issue of addition on account of late payment of PF and ESI under Section 36(1)(va) as surviving for consideration in relation to penalty.

2.3 It was noted that the assessee had requested that the penalty proceedings be kept in abeyance owing to pendency of appeal before the Appellate Tribunal and that the penalty order was alleged to have been passed without granting any further or effective opportunity to controvert the proposed penalty on the surviving addition.

2.4 Counsel for the revenue fairly stated before the Court that a fresh opportunity would be afforded to the assessee in respect of the penalty pertaining to the said addition of Rs. 1,46,79,870/- under Section 36(1)(va).

2.5 In view of this statement and the circumstances on record, the Court accepted that the impugned penalty order should not stand and that a fresh decision was warranted after granting adequate opportunity of hearing and considering the assessee's reply/representation.

Conclusions

2.6 The impugned penalty order and consequential demand notice, to the extent they related to penalty under Section 270A founded on the addition for late payment of PF and ESI under Section 36(1)(va), were quashed and set aside.

2.7 The matter was remitted to the concerned authority to pass a fresh order under Section 270A, confined to the said addition of Rs. 1,46,79,870/-, strictly in accordance with law and after affording adequate opportunity of hearing and considering the assessee's reply/representation/explanation.

2.8 The Court directed that the entire exercise of fresh adjudication be completed within 12 weeks from the date of receipt of the order, and that the assessee shall fully cooperate with the department in the proceedings.

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