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Wealth-tax Officer Vs. Tika Manjendra Shah - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)13ITD433(Delhi)
AppellantWealth-tax Officer
RespondentTika Manjendra Shah
Excerpt:
.....another set of notices on 22-2-1982. since no reply had been received by the wto to any one of the notices issued by him, penalties were imposed under section 18(1)(a) after holding that the assessee had no explanation to offer for the late submission of returns. the assessee appealed against the penalties imposed and it was contended before the aac that there had been no compliance of the provisions of section 18(2) inasmuch as the assessee had not been given an opportunity of being heard before the imposition of penalties in the three assessment years. with regard to the notices said to have been sent by the wto on 22-2-1982, it was contended that these had not been served upon the assessee. after considering the representation made, the aac cancelled the penalties as per his finding.....
Judgment:
1. These three appeals by the revenue are directed against the combined order of the AAC cancelling penalties imposed upon the respondent under Section 18(1)(a) of the Wealth-tax Act, 1957 ('the Act') in the assessment years 1973-74, 1974-75 and 1975-76. Since identical grounds have been raised by the revenue, we would conveniently consolidate them and dispose them of by a common order.

2. The returns of wealth for the assessment years 1973-74, 1974-75 and 1975-76 were filed by the assessee on 17-2-1979 resulting in delays of 67, 55 and 43 months respectively. Assessments for the assessment years 1973-74 and 1974-75 were completed on 12-2-1980 while that of the assessment year 1975-76 was completed on 11-3-1980. Along with the demand notices and the assessment orders for the three assessment years, the assessee had also been served notices under Section 18(2) calling upon him to explain why penalties be not imposed under Section 18(1)(a) for late submission of returns. In response to those show-cause notices, no replies had been sent by the assessee.

Subsequently, the WTO sent another set of notices on 22-2-1982. Since no reply had been received by the WTO to any one of the notices issued by him, penalties were imposed under Section 18(1)(a) after holding that the assessee had no explanation to offer for the late submission of returns. The assessee appealed against the penalties imposed and it was contended before the AAC that there had been no compliance of the provisions of Section 18(2) inasmuch as the assessee had not been given an opportunity of being heard before the imposition of penalties in the three assessment years. With regard to the notices said to have been sent by the WTO on 22-2-1982, it was contended that these had not been served upon the assessee. After considering the representation made, the AAC cancelled the penalties as per his finding contained in paragraph 6 of his order which is reproduced below: I have considered carefully the facts of the case, submissions made by the appellant and also examined the impugned letter dated 22-2-1982 and A.D. (in token of service of aforesaid letter). I am of the opinion that the submissions made by the appellant's counsels are factually based. The A.D. form indicates the date of issue as 6/2 whereas the letter is stated to have been issued on 22-2-1982 (i.e., it has been registered by post 16 days before the issue which is quite impossible). In the totality of the facts and circumstances of the case, I hold that no adequate opportunity, under Section 18(2), which is mandatory before imposition of any penalty, was afforded to the appellant. As such the orders imposing penalties, suffer from basic legal infirmity, and are bad in law. In view of the above situation, I am unable to sustain the orders, and the same are hereby directed to be cancelled.

3. Shri J.S. Rao, the senior departmental representative, has contended that there was no basic illegality attached to the orders passed by the WTO imposing penalties and that in fact the show-cause notices had been actually served upon the assessee which were defied inasmuch as the assessee never appeared to submit any replies thereto. On the other hand, Shri P.N. Monga, the learned authorised counsel of the respondent, has by his elaborate arguments supported the order of the AAC and assailed those passed by the WTO. Even though Shri Monga has on instruction from his client accepted the fact that the notices under Section 18(2) initially issued by the WTO along with copies of the assessment orders, demand notices and challans had been duly received by the assessee in all the three assessment years, it is contended by him that the penalties had not been imposed on account of the default committed with regard to the first set of notices and that since the penalties were imposed as a consequence of the alleged default and non-compliance of the second set of notices which were not served upon the assessee at all, the penalty proceedings were vitiated and bad in law. Apart from this basic argument, Shri Monga has made several other points. According to him, the facts which were found by the AAC having not been controverted by the revenue and no ground having been taken in that direction, there was no justification in baldly contending that the penalties had been wrongly cancelled by the AAC. It is next contended by Shri Monga that when the first set of notices were issued by the WTO, the officer concerned was one Mr. Karkara while when the penalties had been imposed, there had been a change in the incumbent and one Mr. A.N. Saxena had come to hold the charge of District X (15) in place of Mr. Karkara. According to him the second incumbent, i.e., Mr. Saxena, having failed to grant an opportunity of being heard, there was no justification for him to impose penalties which were rendered ab initio void on account of the violation of the principles of natural justice. Shri Monga maintains that it was incumbent upon the second WTO to have granted an opportunity of being heard before imposing any penalties and since he had failed to do so, no flaw could be found in the combined order of the AAC cancelling the penalties. Referring to the decision of the Hon'ble Supreme Court in the case of Guduthur Bros.

v. ITO [1960] 40 ITR 298, the learned Counsel submits that facts were wholly different in that case. It is also submitted by him that that decision would not be applicable under the provisions of the Income-tax Act, 1961 ('the 1961 Act') where the limitation provisions were brought on the statute book in contradistinction to the provisions of the Indian Income-tax Act, 1922 ('the 1922 Act') which did not provide any time limit for imposition of penalties. On being pointed out that the law of limitation applies to the original orders passed by the WTO and not to orders which may be directed to be made by him pursuant to an order of a higher authority, Shri Monga submits that in accordance with the principle of strict interpretation, the period of limitation cannot be extended in matters of penalty as a result of an order of a higher authority. In support of this contention Shri Monga has referred to Maxwell's commentary on the Interpretation of Statutes (Twelfth edn. by Langan, pages 238 & 245). In particular he has relied on the following views of the learned jurist: Similarly, statutes dealing with jurisdiction and procedure are, if they relate to the infliction of penalties, strictly construed: compliance with procedural provisions will be stringently exacted from those proceedings against the person liable to be penalised, and if there is any ambiguity or doubt, it will, as usual be resolved in his favour.

In the end Shri Monga has referred to a decision of the Hon'ble Allahabad High Court in the case of Rajeev Kumar Gupta v. CIT [1980] 123 ITR 907 in order to contend that the show-cause notice having not been issued and served by the WTO imposing penalties, the orders passed by him were bad in law and rightly cancelled by the AAC.4. We have very carefully considered the rival submissions. We have also carefully gone through the orders passed by the lower authorities.

The record of the wealth-tax proceedings for the assessment years 1973-74, 1974-75 and 1975-76 has also been perused by us. On going through the records of the WTO we have firstly satisfied ourselves that notices under Section 18(2) had been issued and served upon the assessee in respect of all the three assessment years. These notices under Section 18(2) had been sent along with copies of the assessment orders and demand notices for the three assessment years. Secondly, we find on examination of postal acknowledgement slip and the copies of the notices issued on 22-2-1982 that the latter had been served by the postal authorities on someone on 3-3-1982. The communication dated 22-2-1982 fixing hearing of the penalty proceedings on 4-3-1982 had been properly addressed to Shri T.M. Shah, the assessee, at 5, Bhagwan Das Road, New Delhi. According to us, when a notice is sent by registered post and is duly addressed and the postal acknowledgement is received after obtaining the signature of the recipient at the given address, the presumption is of proper service of notices. In any case, it appears to us that when the initial set of notices is admitted to have been received by the assessee for all the three assessment years, we would not be able to agree with the finding of the AAC that the penalty orders suffer from any 'basic legal infirmity'. Neither the AAC nor the learned counsel for the respondent would, in these circumstances, be justified in saying that the principles of natural justice had been violated by the WTO before imposing the penalties. On the other hand, it appears to us that the assessee altogether disregarded the notices of show cause issued by the WTO on both the occasions. As far as the contention of the learned Counsel that the WTO who actually imposed the penalties upon the assessee ought to have given an opportunity of being heard, the relevant provisions of the Act are contained in Section 39 of the Act thereof. These are in the following terms: Whenever in respect of any proceeding under this Act any wealth-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises such jurisdiction, the 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.

In the present case the succeeding WTO had, in accordance with the above provisions, jurisdiction to continue with the penalty proceedings from the stage at which the proceedings had been left by his predecessor-in-office. An assessee can demand that before the proceedings are continued by the successor-in-office he should be reheard. That situation, however, does not prevail in the present case.

Here as stated earlier the assessee had in spite of the fact that notices under Section 18(2) had been initially served upon it by the WTO, failed to submit any replies thereto. Even when the second set of notices were issued, there had been no compliance on the part of the assessee and no request had been made by him or on his behalf that succeeding officer must hear him before imposing any penalties. In these circumstances, we would not be able to agree with the representation made by Shri Monga that the penalties imposed by the successor WTO were bad in law. In the present case, the WTO had jurisdiction under the law to frame the assessment and to call upon the assessee to explain why penalties be not imposed upon him for inordinate delays in the submission of returns. Subsequently, even if the second set of notices were not served well within time or adequate opportunity was not made available to the assessee, the AAC could have at the best held that it was a case of an irregularity which supervened after the jurisdiction had been legally assumed. It was not at all a case of illegality permeating all through the proceedings but a case where some irregularity may at the best be alleged insofar as adequate opportunity was not available to the assessee when the notices fixing hearing for 4-3-1982 had been served upon it on 3-3-1982. According to us the law laid down by the Hon'ble Supreme Court in the case of Guduthur Bros. (supra) would squarely apply. The facts of that case and the present case may not be exactly similar but these were substantially similar. The mere fact that no limitation was provided for completion of penalty proceedings under the 1922 Act would not, according to us, make any difference to the applicability of the decision of the Hon'ble Supreme Court under the provisions of the 1961 Act. We have gone through the Maxwell's commentary on the Interpretation of Statutes and in particular through that portion of the book on which reliance has been placed by the learned Counsel of the assessee. We would agree that the provisions regarding penalty proceedings must be strictly construed and that the compliance of procedural provisions must be stringently exacted. But here in this particular case where in fact the notices to show cause had been admittedly received by the assessee in all the three assessment years, we do not see how the views of the learned author on which reliance has been placed can be said to operate against the viewpoint of the revenue. Similarly the decision of the Hon'ble Allahabad High Court in Rajeev Kumar Gupta's case (supra) also does not help the case of the assessee at all. There in that case the penalty proceedings had been quashed on account of the fact that no penalty notice had been issued after the assessment order had been rectified even though penalty had been imposed on the basis of the rectified order. In the present case both the sets of penalty notices were issued in respect of the orders of assessments framed by the WTO which were not modified or rectified and, therefore, the decision, relied upon by the learned Counsel, will not be applicable.

5. In the above facts and circumstances, we are of the considered view that the AAC had no justification in cancelling the orders imposing penalties. There was no basic legal infirmity attached to the penalty orders. The jurisdiction to frame the assessment and to initiate the penalty proceedings validly vested in the WTO and, therefore, on the grounds of alleged irregularity which supervened, the AAC could not have validly cancelled the penalties particularly when the notices initially issued by the WTO under Section 18(2) had been validly served upon the assessee. Since he acted in contravention of the law laid down by the Hon'ble Supreme Court in the abovementioned decision in Guduthur Bros.' case we restore the appeals to his file with a direction that he shall re-decide the appeals on merits after hearing the assessee and the WTO and after considering as to whether there were or there were not any reasonable grounds for the delayed submission of returns on the part of the assessee in the three assessment years.

6. The appeals filed by the revenue are allowed for the purposes of statistics.


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