2023 (7) TMI 177 - HC - Income Tax

Penalty u/s 271(1)(c) - revised return was submitted pursuant to the proceedings U/s 153A of the IT Act and the same was accepted - violation of principles of natural justice depriving the petitioner of personal hearing - HELD THAT - It is true that in the instant case there is no complete deprival of principles of natural justice, inasmuch as, while initiating penalty proceedings, the respondent authorities indeed invited the reply from the petitioner to the show cause notices issued. Respondents have not considered the crucial and important pleas and contentions raised by the petitioner before passing the impugned penalty orders. Needless to emphasize that non consideration and discussion of the crucial pleas raised by a party would also amount to negation of principles of natural justice. That apart, though in the reply notice dated 31.05.2021 the petitioner sought for personal hearing, same was not accorded to the petitioner. If such a gracious act was done, we are sure, the petitioner would have been in a position to explain the substance of his contentions before the respondent authorities. Hence the conduct of respondents would depict there is a partial violation of principles of natural justice. Thus on a conspectus of facts, circumstances, law and conduct of both parties, we, in the interest of justice, are of considered view, the impugned orders can be set aside and the respondents can be directed to accord personal hearing to the petitioner in respect of the contentions raised and pass fresh orders on suitable terms. Accordingly, the writ petitions are allowed setting aside the impugned penalty orders passed by the 1st respondent and matters are remitted back to the 1st respondent with a direction to consider the reply notices submitted by the petitioner and after affording an opportunity of personal hearing to the petitioner pass appropriate orders in accordance with governing law and rules

Summary

Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Application of Explanation 5A to Section 271.
3. Violation of principles of natural justice.
4. Availability of alternative remedy.

Summary:

1. Validity of the Penalty Order under Section 271(1)(c):
The petitioner challenged the penalty order dated 21.03.2022, proposing to impose a penalty of Rs. 58,72,241/- under Section 271(1)(c) r/w Section 274(2) of the Income Tax Act, 1961. The petitioner argued that the penalty proceedings were initiated based on an inadvertent error in the books of accounts corrected in the revised return filed pursuant to a notice under Section 153A. The revised return was accepted by the Department, and thus, the penalty based on the earlier return filed under Section 139 was not maintainable. The respondents contended that the petitioner had an effective alternative remedy of appeal and that the penalty was rightly imposed for furnishing inaccurate particulars of income.

2. Application of Explanation 5A to Section 271:
The petitioner argued that Explanation 5A to Section 271 was not applicable as there was no discovery of undisclosed assets or incriminating evidence during the search operations. The petitioner claimed that the excess depreciation was a voluntary rectification of a mistake, not a result of any search findings. The respondents maintained that the penalty was justified as the petitioner had admitted to claiming bogus depreciation during the search operations.

3. Violation of Principles of Natural Justice:
The petitioner contended that the penalty order was passed without granting an opportunity for a personal hearing, despite a specific request made in the supplemental reply dated 31.05.2021. The court observed that the respondents did not consider the crucial pleas raised in the reply notices and did not accord a personal hearing, amounting to a partial violation of principles of natural justice.

4. Availability of Alternative Remedy:
The respondents argued that the writ petition was not maintainable due to the availability of an effective alternative remedy of appeal. The court, however, held that the writ petition was maintainable as there was a partial violation of principles of natural justice, citing the precedent set in Whirlpool Corporation v. Registrar of Trade Marks, Mumbai.

Conclusion:
The court allowed the writ petitions, setting aside the impugned penalty orders dated 16.03.2022 and 21.03.2022. The matters were remitted back to the first respondent with directions to consider the reply notices dated 26.05.2021 and 31.05.2021, afford an opportunity of personal hearing to the petitioner, and pass appropriate orders expeditiously. This was conditional on the petitioner depositing 25% of the penalty amount within six weeks from the date of receipt of the order. No costs were awarded, and pending interlocutory applications were closed.