1969 (9) TMI 27 - HC - Income Tax

Transfer of officer - pending penalty proceedings - imposition of penalty by the succeeding officer without giving notice to the assessee - validity of levy of penalty

Summary

Issues Involved:
1. Validity of penalty levy by the succeeding Income-tax Officer without giving notice to the assessee.

Issue-Wise Detailed Analysis:

1. Validity of Penalty Levy by the Succeeding Income-tax Officer Without Notice:

The primary issue in this case was whether the levy of penalty by the succeeding Income-tax Officer without giving notice to the assessee is valid. The court examined the relevant provisions of the Income-tax Act, 1922, particularly Section 28(3) and Section 5(7C).

Section 28(3):
This section mandates that no order imposing a penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. This embodies the principle of audi alterim partem, ensuring that the assessee is provided with an opportunity to present their case before any penalty is imposed.

Section 5(7C):
This provision allows a succeeding income-tax authority to continue proceedings from the stage left by their predecessor. However, it includes a proviso that the assessee may demand that the previous proceedings be reopened or that they be reheard before any order is passed.

The court emphasized that the proviso to Section 5(7C) is crucial as it grants the assessee the right to demand reopening or rehearing of the case. This right must be communicated to the assessee, and the succeeding officer must notify the assessee of their intention to continue the proceedings. The court stated, "The compliance of the first proviso is a condition precedent for the exercise of the power to continue the proceedings by the succeeding officer."

The court further elaborated that the notice under Section 5(7C) is implied and necessary to provide the assessee an opportunity to exercise their right to reopen or rehear the case. Without such notice, the proceedings conducted by the succeeding officer would be invalid.

Case Law Analysis:
The court reviewed several cases to support its interpretation:

- Calcutta Tanneries (1944) Ltd. v. Commissioner of Income-tax: The court noted that the issue of notice under Section 5(7C) was raised but not decided due to procedural reasons.
- Murlidhar Tejpal v. Commissioner of Income-tax: This case emphasized the combined effect of Sections 28(3) and 5(7C), recognizing the assessee's right to demand reopening or rehearing.
- Kanailal Gatani v. Commissioner of Income-tax: The court distinguished this case, noting it did not address the implications of Section 5(7C).
- Shop Siddegowda and Family v. Commissioner of Income-tax: The court acknowledged this case but noted it did not fully consider the implications of Section 5(7C).
- Hulekar & Sons v. Commissioner of Income-tax: The court found this case unhelpful as it did not address the necessity of notice under Section 5(7C).
- A. C. Meld Works v. Commissioner of Income-tax: The court recognized the assessee's right to demand rehearing under Section 5(7C) but noted the case did not address the necessity of notice.
- Satprakash Ram Naranjan v. Commissioner of Income-tax: The court noted this case but could not fully rely on it due to incomplete reporting.

Conclusion:
The court concluded that the succeeding Income-tax Officer must give notice to the assessee before continuing the proceedings from the stage left by their predecessor. The absence of such notice invalidates the penalty proceedings. The court stated, "The assessee must, therefore, be told about the intention of the succeeding officer to continue the proceedings... This intimation alone would provide the assessee with an opportunity to exercise or decline to exercise the right given to him by the first proviso to section 5(7C)."

Final Judgment:
The court answered the question in the negative, ruling in favor of the assessee and against the department. The assessee was entitled to costs from the department. The judgment emphasized the necessity of notice under Section 5(7C) for the validity of penalty proceedings conducted by a succeeding Income-tax Officer.