2023 (4) TMI 1115 - HC - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - shorter period of less than 24 hours - Non affording the opportunity of hearing to the parties, which has resulted into imposition of huge amount of penalty - HELD THAT - Notice u/s 274 read with section 271(1)(c) of the Act had been issued and the petitioner was asked to appear in person or through a duly authorised representative at 11 00 a.m. on 29.11.2022. This show cause notice as to why the order imposing penalty be not made u/s 271(1)(c) of the Act gives less than 24 hours to the petitioner, whereby it had asked the petitioner to appear in person or through a duly authorised representative. This shorter period of less than 24 hours can be termed as a pure and simple breach of principles of natural justice. It appears that on 28.11.2022, request was made for adjournment and the same is also reflected from the portal of the Tribunal and that such a request had been made to adjourn the hearing by few days. Without paying any heed to the same, when the order impugned has been passed, the Court requires to interfere. the petition is allowed. The impugned order of penalty is quashed and set aside.

Summary

Issues:
Challenge to penalty order under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2010-11 based on violation of principles of natural justice.

Analysis:
The petitioner filed a petition under Article 226 of the Constitution of India seeking to set aside a penalty order under section 271(1)(c) of the Income Tax Act, 1961, imposing a penalty of Rs. 53,36,430 for the Assessment Year 2010-11. The petitioner company was involved in a survey proceeding where an investment in property was questioned, leading to an addition in assessment. The CIT(Appeals) partly allowed the appeal, but the Income Tax Appellate Tribunal confirmed the addition and issued a penalty notice under section 271(1)(c) of the Act. The petitioner challenged the penalty order, alleging a violation of principles of natural justice due to inadequate time provided for response. The respondent denied the allegations, arguing that the penalty notice did not specify the grounds for initiating penalty proceedings. The High Court noted a serious flaw in the hearing process, as the petitioner was given less than 24 hours to respond, breaching principles of natural justice.

The Court observed that the short notice period for the petitioner to appear and respond to the penalty order was a clear violation of natural justice. Despite a request for adjournment, the penalty order was passed hastily, indicating a lack of fair opportunity for the petitioner to present their case. The Court held that such a breach of principles of natural justice warranted intervention, leading to the quashing and setting aside of the penalty order dated 30.11.2022. The Court directed that a fresh opportunity of hearing be provided, starting from where it was left off, within four weeks from the date of the order. The petitioner was instructed to cooperate, and the entire proceedings were to be completed within eight weeks thereafter. The petition was disposed of accordingly.