2025 (1) TMI 1190 - HC - Income Tax

Penalty order u/s 270A during the pendency of an appeal - as submitted penalty proceedings should have awaited the outcome of the appeal which had already been entertained and the appellate authority was in seisin of the matter - HELD THAT -Department submits that in course of the penalty proceeding the competent authority was not informed that the appeal preferred by this petitioner before the appellate authority has been entertained and notice has been issued after condonation of delay. Had this been brought to the notice of the competent authority who was in seisin of the penalty proceeding that would have been definitely considered and an appropriate view would have been taken. Having regard to the aforementioned submissions on behalf of the petitioner as well as the Department we set aside the Order under Section 270A and the notice of demand under Section 156. The matter is remitted to the National Assessment Unit NFAC for passing a fresh order.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the penalty imposed under Section 270A of the Income Tax Act, 1961, was validly issued during the pendency of an appeal and in compliance with the principles of natural justice.

2. Whether the respondent authority erred in considering the delay in filing the appeal, despite the High Court's prior direction to exclude a specific period when calculating such delay.

3. Whether the petitioner was denied a reasonable opportunity of being heard as mandated under Section 274 of the Income Tax Act, 1961.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Penalty Imposition under Section 270A

Relevant legal framework and precedents: Section 270A of the Income Tax Act, 1961, deals with the imposition of penalties for underreporting or misreporting of income. Section 275(1)(a) restricts the imposition of penalties during the pendency of an appeal.

Court's interpretation and reasoning: The Court noted that the penalty was imposed while the appeal was pending, which contravenes the statutory provisions. The Court emphasized that the penalty proceedings should have awaited the appeal's outcome.

Application of law to facts: The Court found that the penalty was imposed prematurely, as the appeal had been filed and was pending before the appellate authority.

Treatment of competing arguments: The Department argued that the penalty was valid as the delay in appeal filing was not communicated. However, the Court held that the penalty's imposition was improper given the pending appeal.

Conclusions: The Court set aside the penalty order and remitted the matter for reconsideration, emphasizing the need for compliance with statutory provisions.

2. Consideration of Delay in Appeal Filing

Relevant legal framework and precedents: The High Court previously directed that the period from 10.04.2024 to 22.04.2024 be excluded when calculating the delay in filing the appeal.

Court's interpretation and reasoning: The Court observed that the respondent authority overlooked the High Court's directive regarding the exclusion of time, leading to an erroneous assessment of delay.

Key evidence and findings: The appellate authority had condoned the delay and issued a notice, indicating that the appeal was validly entertained.

Application of law to facts: The Court found that the respondent's consideration of delay was flawed as it ignored the High Court's exclusion directive.

Treatment of competing arguments: The Department acknowledged the oversight and agreed that a fresh view was necessary.

Conclusions: The Court remitted the matter for a fresh assessment, instructing adherence to the High Court's previous order.

3. Opportunity of Being Heard under Section 274

Relevant legal framework and precedents: Section 274 of the Income Tax Act, 1961, mandates a reasonable opportunity of being heard before imposing penalties.

Court's interpretation and reasoning: The Court highlighted the statutory requirement for a hearing and noted the Department's concession that such an opportunity was not provided.

Application of law to facts: The Court determined that the petitioner was not afforded the opportunity to be heard, violating Section 274.

Treatment of competing arguments: The Department did not dispute the lack of opportunity and agreed to comply with the statutory mandate.

Conclusions: The Court directed the Department to provide the petitioner with a hearing opportunity through the faceless facility.

SIGNIFICANT HOLDINGS

Core principles established:

• The imposition of penalties under Section 270A during the pendency of an appeal contravenes statutory provisions and principles of natural justice.
• Authorities must adhere to judicial directives regarding the exclusion of specific periods when calculating delays.
• Compliance with Section 274's mandate for a hearing is essential before imposing penalties.

Final determinations on each issue:

• The penalty order under Section 270A and the demand notice were set aside.
• The matter was remitted to the National Assessment Unit, NFAC, for a fresh order, ensuring adherence to judicial directives and statutory requirements.
• The petitioner was granted the liberty to seek a hearing through the faceless facility, as mandated by Section 274.