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Commissioner of Income-tax Vs. Jaswantiraj and Bros. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 174 of 1982
Judge
Reported in[1990]182ITR151(Cal)
ActsIncome Tax Act, 1961 - Sections 123, 127 and 271(1)
AppellantCommissioner of Income-tax
RespondentJaswantiraj and Bros.
Advocates:S.K. Mitra and ;R.C. Prosad, Advs.
Excerpt:
- .....in the circumstances of the case, the tribunal was correct in law in holding that the inspecting assistant commissioner of income-tax, range-v, calcutta, had no jurisdiction to make the order of penalty under section 271(1)(c) of the income-tax act, 1961, in this case ? 2. whether, on the facts and in the circumstances of this case, the tribunal's finding that the assessee had not been heard before the order imposing the penalty was made was based on no evidence or based only on irrelevant materials and/or was otherwise unreasonable ?' 2. the controversy in this reference relates to the jurisdiction and validity of the penalty order under section 274(2) read with section 271(1)(c) passed by the inspecting assistant commissioner and the correctness of the finding of the tribunal that.....
Judgment:

Ajit K. Sengupta, J.

1. At the instance of the Commissioner ofIncome-tax, the following two questions of law have been referred to thiscourt under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1961-62 :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the Inspecting Assistant Commissioner of Income-tax, Range-V, Calcutta, had no jurisdiction to make the order of penalty under Section 271(1)(c) of the Income-tax Act, 1961, in this case ?

2. Whether, on the facts and in the circumstances of this case, the Tribunal's finding that the assessee had not been heard before the order imposing the penalty was made was based on no evidence or based only on irrelevant materials and/or was otherwise unreasonable ?'

2. The controversy in this reference relates to the jurisdiction and validity of the penalty order under Section 274(2) read with Section 271(1)(c) passed by the Inspecting Assistant Commissioner and the correctness of the finding of the Tribunal that the assessee was not heard before imposition of penalty. The assessee is a registered firm and the relevant assessment year is 1961 -62 for which the previous year is 2017 R. N. The return of income was filed on July 4, 1962, admitting an income of Rs. 1,99,386. The Income-tax Officer, 'A' Ward, Dist. III(3), Calcutta, completed the assessment on March 31, 1966, on a total income of Rs. 9,03,316, which included suppression of income, inflation of expenses, introduction of bogus cash credits and payment of interest thereon amounting in all to Rs. 6,31,896 and initiated penalty proceedings under Section 271(1)(c). As the quantum of penalty exceeded his limit, the Income-tax Officer referred the penalty proceedings to the Inspecting Assistant Commissioner, Range IV, Calcutta. Thereafter, the jurisdiction and the file of the assessee was transferred to the Income-tax Officer, 'C' Ward, Hundi Circle, and, consequently, the penalty proceedings were also transferred to the Inspecting Assistant Commissioner, Range V, for disposal. The Inspecting Assistant Commissioner continued the proceedings thereafter and imposed penalty of Rs. 7,65,400 as he was satisfied that the assessee had concealed income deliberately and wilfully.

3. The assessee preferred an appeal before the Tribunal and challenged the jurisdiction of the Inspecting Assistant Commissioner, Range V, Calcutta, to levy penalty. The assessee's counsel relied on the judgment of the Calcutta High Court in the assessee's own case relating to an earlier year which has been reported in [1975] 1 CLJ 372 (Jaswanti Rai and Bros. v. ITO). The Appellate Tribunal, accepting the contention of the assessee and feeling bound by the decision of the Calcutta High Court, held that the Inspecting Assistant Commissioner, Range-V, Calcutta, wrongly assumed jurisdiction. The Tribunal also observed that the notice dated January 6, 1968, issued by the Inspecting Assistant Commissioner was bad in law as the Income-tax Officer, Hundi Circle, had not made any reference to him and the notice in the printed form was issued in a mechanical way.

4. Before the Tribunal, the assessee had also raised a plea that it was not allowed reasonable opportunity of being heard before imposition of penalty. The grievance of the assessee related to obtaining of certified copies of statements and inspection of books of account impounded by the Income-tax Officer. After considering the rival submissions and facts of the case, the Tribunal upheld the contentions of the assessee that the penalty order was bad in law. However, on merits, the Tribunal upheld the levy, observing that it was a fit case for levy of penalty.

5. The first question relates to the jurisdiction of the Inspecting Assistant Commissioner to whom jurisdiction of the case was transferred to impose penalty. It is true that when an Inspecting Assistant Commissioner is already in seisin of a reference under Section 274(2) pending adjudication before him, the transfer of case from one Income-tax Officer to another Income-tax Officer under Section 127(1) by itself cannot take away or affect the jurisdiction of such Inspecting Assistant Commissioner excepting by a subsequent order under Section 123(1). In this case, the Income-tax Officer referred the penalty proceeding to the Inspecting Assistant Commissioner, Range IV. Thereafter, the jurisdiction of the Income-tax Officer over the case of the assessee was transferred to another Income-tax Officer and, as a consequence thereof, the proceedings before the Inspecting Assistant Commissioner, Range IV, were also transferred to the Inspecting Assistant Commissioner, Range V. The Inspecting Assistant Commissioner, Range V, was given exclusive jurisdiction over penalty proceedings. The jurisdiction of the Inspecting Assistant Commissioner, Range IV, was taken away. In other words, the Inspecting Assistant Commissioner, Range IV, was completely divested of the jurisdiction in respect of the case of the assessee and exclusive jurisdiction was conferred on the Inspecting Assistant Commissioner, Range V. It must, therefore, be held that the penalty proceeding of the assessee before the Inspecting Assistant Commissioner, Range IV, stood transferred to the Inspecting Assistant Commissioner, Range V. It is a matter of procedure and it does not, in any way, affect the assessee prejudicially so long as the successor-in-office gives reasonable opportunity to the assessee of being heard before any penalty is levied. In our view, having regard to the fact that not only the case was transferred from one Income-tax Officer to another but jurisdiction of the case was also transferred from one Inspecting Assistant Commissioner to another Inspecting Assistant Commissioner, the Inspecting Assistant Commissioner to whom the case was transferred was entitled to proceed with the penalty proceeding and to dispose of the same in accordance with law.

6. Our attention has been drawn to a decision of this court in Oriental Rubber Works v. ITO : [1987]166ITR387(Cal) . In that case, after the assessment was made and penalty proceeding was initiated and transferred to the Inspecting Assistant Commissioner, Range XIV, Calcutta, the file and records of the assessee were transferred to another Income-tax Officer. The Inspecting Assistant Commissioner, Range XVII, having jurisdiction over the assessee's case issued a notice under Section 274 read with Section 271. The validity of the penalty proceedings was challenged. It was contended that the successor Inspecting Assistant Commissioner being Inspecting Assistant Commissioner, Range XII, did not have any jurisdiction to impose penalty as the Income-tax Officer who completed the assessment did not refer the penalty proceeding to him. There, the court held as follows (at p. 390) :

'It is clear that the Income-tax Officer, 'F' Ward, District IV(3), Calcutta, during the assessment came to the conclusion that the assessee had concealed the particulars of its income and on March 24, 1966, before the assessment was completed, he issued a notice to the assessee and forwarded the same to the Inspecting Assistant Commissioner, Range IV(3), Calcutta, for necessary action. This notice is on record and has been set out earlier. The assessee duly received this notice as appears from an acknowledgment signed by the assessee which is also on record. The Inspecting Assistant Commissioner, in his order imposing the penalty has particularly noted this notice dated March 24, 1966.

In the notice dated February 28/29, 1968, the Inspecting Assistant Commissioner, Range XVII, Calcutta, has no doubt stated that the Income-tax Officer, Special Circle VII, has referred the matter for imposition of penalty. This, obviously, is incorrect. This, by itself, in our view, cannot vitiate the entire penalty proceeding inasmuch as the initial reference by the Income-tax Officer, 'F' Ward, District IV(3), Calcutta, was valid and lawful.'

7. In the premises, the first question is answered in the negative and in favour of the Revenue.

8. The second question pertains to the question whether the principles of natural justice had been violated or not in the penalty proceedings. In other words, whether reasonable opportunity was given to the assessee before the order of penalty was made.

9. The Inspecting Assistant Commissioner, in his order, has recorded as follows :

'In response to a notice under Section 274(2) read with Section 271 of the Income-tax Act issued by me, Shri R.N. Lakhotia, advocate, appeared on January 30, 1968, and submitted a written explanation dated January 27, 1968. He was informed by me that the assessee is at liberty to inspect the books and documents either before the Income-tax Officer or before the Inspecting Assistant Commissioner and also the assessment records of the case, if required. He was further informed that the assessee's request to supply copies of documents will be looked into by the Income-tax Officer.'

10. The hearing before me was adjourned to February 9, 1968, February 15, 1968, and February 22, 1968. These adjournments were taken to enable the assessee to obtain inspection of records and get certified copies of documents. The case was finally adjourned to March 1, 1968, but, on that date, no one appeared and no further reply was received from the assessee. On enquiry from the Income-tax Officer and after perusal of the records, I came to know that certified copies of documents were supplied to the assessee on February 27, 1968, and the assessee inspected the books of account on February 23, 1968, February 24, 1968, February 26, 1968, February 27, 1968, and February 28, 1968. It is clear that after going through the books of account and records and after obtaining certified copies of the documents, the assessee was convinced that the concealment has been conclusively established in this case by the Income-tax Officer.'

11. The Tribunal held :

12. After giving careful consideration to the rival submissions, we are of the opinion that the assessee was perfectly justified in its contentions. There is no evidence before us to the effect that the letter dated February 23, 1968, was served on the assessee. Moreover, the letter should have been issued by registered post with acknowledgment due in accordance with Section 282 of the Act. In the absence of observing proper procedure, the Inspecting Assistant Commissioner was wrong in passing the ex parte penalty order. Even otherwise, as the facts stand, we do not find any occasion nor has it been pointed out to us on behalf of the Revenue that the assessee had defaulted in complying with the notices issued either by the two Income-tax Officers or by the two Inspecting Assistant Commissioners except on March 1, 1968. Therefore, we uphold the contentions of the assessee.

13. Again, even if it is held that the letter dated February 23, 1968, was deemed to have been served on the assessee, the Inspecting Assistant Commissioner was not justified even in that case to pass the ex parte penalty order and that too on March 26, 1968, when the date of hearing fixed last was March 1, 1968. Moreover, from paragraph 7 of the Inspecting Assistant Commissioner's order, it is clear that the assessee was allowed inspection on February 28, 1968, last and the copies of some of the documents were given to the assessee on February 27, 1968. Considering the time gap between these dates and the date of hearing, we are of the opinion that the assessee was not allowed reasonable time to prepare its defence against the penalty proceeding. It may also be mentioned that even after March 1, 1968, the assessee was in correspondence with the Income-tax Officer for having inspection of the records and for obtaining certified copies of documents. In this connection, we must mention that the Income-tax Officer impounded all the account books of the assessee relevant to this assessment year on April 23, 1964. Thus, the assessee was not having the relevant accounts and documents without which it was not possible for the assessee to plead its case before the Inspecting Assistant Commissioner in the course of the penalty proceeding. On this context too, we held that the penalty order was bad in law and deserves to be cancelled.'

14. In our view, the Tribunal failed to take into account the findings of the Inspecting Assistant Commissioner. The view of the Tribunal is too technical. If the time was short, the assessee could have approached the Inspecting Assistant Commissioner. What is a reasonable opportunity would depend on the facts and circumstances of a case. The conclusion of the Tribunal is not warranted by the evidence on record.

15. On the facts of this case, we are of the view that the assessee was given reasonable opportunity of being heard. The assessee did not avail of the opportunity given and, accordingly, it cannot contend later before the Tribunal that reasonable opportunity was denied. The Tribunal, on merits, held that there was no case at all made by the assessee and it was a fit case for imposition of penalty. If, on merits, the Tribunal found that it was a fit case for imposition of penalty, more opportunity than given to the assessee would not have improved the assessee's case. The assessee did not contend that the documents of which inspection was not given would have established the falsity of the Department's case or established its innocence. No rigid formula should be followed in deciding whether the assessee in penalty proceedings was given reasonable opportunity of hearing. On a technical ground, the Tribunal set aside the order. Having regard to the facts and circumstances, it must be held that the assessee got more than a reasonable opportunity of being heard and, accordingly, the second question must be answered in the affirmative and in favour of the Revenue.

16. There will be no order as to costs.

17. Be it recorded that Ajoy De of Khaitan and Co. stated that he has no instruction in the matter. He has asked for leave to retire. Such leave is granted.

J.N. Hore, J.

18. I agree.


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