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Issues Involved:
1. Validity of penalty proceedings continuation without informing the assessee of the successor-ITO's intention. 2. Authority of the successor-ITO to impose a penalty without giving the assessee a fresh opportunity of being heard. Issue-wise Detailed Analysis: Issue 1: Validity of Penalty Proceedings Continuation without Informing the Assessee of the Successor-ITO's Intention The central question was whether the Income-tax Officer (ITO) erred in continuing the penalty proceedings from the stage left by his predecessor without specifically informing the assessee of his intention to do so. The court referred to Section 129 of the Income-tax Act, 1961, which allows a succeeding ITO to continue proceedings from where the predecessor left off, provided the assessee is informed and given an opportunity to demand a reopening of the proceedings or a re-hearing. The Tribunal found that the assessee had indeed received a notice under Section 274 from the predecessor-ITO. However, the Tribunal also noted that the assessee was not presumed to have knowledge of the change in the office or the successor-ITO's intention to continue the proceedings. The Tribunal upheld the Appellate Assistant Commissioner's (AAC) decision that the successor-ITO had no authority to pass the penalty order without informing the assessee, thus affirming the necessity for the assessee to be aware of the continuation of proceedings by the successor-ITO. Issue 2: Authority of the Successor-ITO to Impose a Penalty without Fresh Opportunity of Being Heard The second issue addressed whether the successor-ITO had the authority to impose a penalty under Section 271(1)(a) without giving the assessee a fresh opportunity of being heard, especially when no response was made to the notice issued by the predecessor-ITO. The court emphasized that penalty proceedings are quasi-judicial and quasi-criminal, requiring strict compliance with legal provisions. Section 274 mandates that no penalty order shall be made unless the assessee has been given a reasonable opportunity of being heard. The court referenced previous decisions, including the case of Sadhan Kumar Roy v. CIT, which dealt with similar issues under the Indian Income-tax Act, 1922. However, it was noted that the provisions under Section 33B of the 1922 Act did not extend the period of limitation for re-hearing by a succeeding officer, unlike Section 275 of the 1961 Act, which specifically provides for such an extension. The court also referred to the case of Kanailal Gatani v. CIT, where it was held that an order of penalty was not invalid merely because the successor-ITO did not hear the assessee himself, provided the matter depended on written objections and no witnesses were called. However, in the present case, the court highlighted the necessity of a fresh hearing due to the quasi-criminal nature of penalty proceedings. Ultimately, the court held that the successor-ITO had no authority to pass the penalty order without giving the assessee a fresh opportunity of being heard, even if no response was made to the initial notice. This decision underscores the importance of adhering to procedural fairness in penalty proceedings. Conclusion The court answered the first question in the affirmative, ruling in favor of the assessee, thereby affirming that the ITO erred in continuing the penalty proceedings without informing the assessee of his intention. Consequently, the second question became moot, but the court still clarified that the successor-ITO lacked the authority to impose a penalty without providing a fresh opportunity for the assessee to be heard. Each party was ordered to bear its own costs.
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