1996 (2) TMI 165 - AT - Income Tax

Assessing Officer Failure To Pay Advance Tax False Estimate Share Income Show-cause Notice

Issues Involved:
1. Validity of penalty under section 273(2)(c) of the Income Tax Act, 1961.
2. Requirement of fresh show-cause notice by the successor ITO.
3. Reasonableness of the estimate of income furnished by the assessee.

Issue-wise Detailed Analysis:

1. Validity of Penalty under Section 273(2)(c):
The Assessing Officer levied penalties under section 273(2)(c) on the grounds that the assessees failed to furnish a higher estimate of advance tax as required under section 209-A(4) of the Income Tax Act, 1961, without reasonable cause. The penalties were confirmed by the Dy. CIT(A).

2. Requirement of Fresh Show-Cause Notice by the Successor ITO:
The learned counsel for the assessee argued that the penalty was invalid as the nature of default was not indicated in the notice, and the successor ITO imposed the penalty without issuing a fresh show-cause notice. The original show-cause notice was issued by a different officer, and the successor ITO levied the penalty without providing a fresh notice or opportunity to the assessee. The counsel relied on various judgments, including N.N. Subramania Iyer v. Union of India, which supported the contention that a successor ITO cannot levy a penalty without issuing a fresh notice.

The departmental representative countered by referring to section 129 of the Income Tax Act, 1961, which allows a successor ITO to continue proceedings from the stage left by the predecessor. However, the proviso to section 129 states that the assessee may demand that previous proceedings be reopened and reheard before any order is passed. The representative cited several judgments, including CWT v. Umrao Lal, to support the continuation of proceedings without a fresh notice.

The tribunal found that the successor ITO did not inform the assessee of the succession and the intention to continue the proceedings, which deprived the assessee of the right to demand a rehearing. This omission rendered the penalty contrary to section 129 and principles of natural justice. The tribunal preferred the Full Bench judgment of the Patna High Court in Jagdish Prasad Choudhary, which supported the assessee's contention and invalidated the penalties.

3. Reasonableness of the Estimate of Income Furnished by the Assessee:
The assessee argued that the estimate was bona fide, based on the previous year's income, and that the substantial increase in share income from the partnership firm was unforeseen. The counsel cited decisions like CIT v. S.B. Electric Mart (P.) Ltd., which held that no penalty could be levied for failure to file a higher estimate under such circumstances.

The departmental representative contended that the estimate was not bona fide and highlighted the assessee's habitual defaults. The representative relied on CIT v. Raja Corpn. to argue against the bona fides of the estimate.

The tribunal found the assessee's explanation plausible, noting that the substantial increase in share income from the partnership firm could not have been foreseen. The Dy. CIT(A) failed to provide convincing reasons to reject the assessee's explanation. The tribunal concluded that the assessee had a reasonable cause for not submitting a higher estimate of income.

Conclusion:
The tribunal directed the Assessing Officer to cancel the penalties, finding that the penalties were invalid due to the lack of a fresh show-cause notice by the successor ITO and that the assessee had a reasonable cause for the estimate furnished. The appeals were allowed in favor of the assessee.

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