Cases have come to the notice of the Board where the IAC passed penalty orders without giving a reasonable opportunity of being heard to the assessee, with the result that orders were challenged and struck down in appeal. - Income Tax - 862/CBDT

INSTRUCTION NO. 862/CBDT Dated : August 8, 1975 Section(s) Referred: 271 ,274(1) Statute: Income - Tax Act, 1961 Cases have come to the notice of the Board where the IAC passed penalty orders without giving a reasonable opportunity of being heard to the assessee, with the result that orders were challenged and struck down in appeal. 2. In one cases, the notice fixing the date of hearing on 18-1-1972 was served on the assessee on 19-1-1972. The fact of service on 19-1-1972 came to the IAC's notice only on 21-2-1972, after the penalty proceedings had been finalised by him. The assessee's application for adjournment was also received on 21-2-1972 that is after the finalisation of the proceedings. 3. In another cases, the hearing for finalisation of penalty proceedings was fixed for 9th March, 1972. The assessee informed that the notice had been received after expiry of the time fixed for hearing. The assessee applied for adjournment and this was duly indicated on the order sheet on 10-3-1972. The penalty order in this case was passed by the I.A.C. on 27-3-1972. The case was, however, not fixed for hearing again before passing the penalty order. From the available information, it is evident that the I.A.C. sent for the authorised representative on 25-3-1972 and the latter had promise that he would try and contact the assessee. However, the authorised representative did not report verbally or otherwise to the I.A.C. While levying the penalty on 27-3-1972 the I.A.C. was of the view that the minimum penalty leviable was equivalent to the income concealed and he took the addition sustained by the A.A.C. as the income concealed by the assessee. 4. The I.T.A.T., while deciding the appeal filed against the IAC's penalty order, observed as under:- "It is indeed unfortunate that a senior officer like the Inspecting Asst. Commissioner who levied the penalties failed to comply with the express requirements of law. It is unfortunate for two reasons. First, when the assessee informed him that the notice fixing the hearing on 9-3-1972 was received after the expiry of the time fixed for hearing, he had sufficient time to give another hearing to the assessee. It is true that the penalty proceedings were getting time-barred by 31-3-1972, but he had three weeks before him by that time and in fact he waited till 27-3-72 to finalise the penalty proceedings. Within that time he could have easily given a notice of another hearing to the assessee. Second, from the material on record and the Appellate Asst. Commissioner has thrown away the case by what we may describe as his negligence to comply with an express requirement of law." The above cases have been adversely commented on by the Audit. No remedial action is possible. 5. Attention is incited to the Board's Circular No. 25-D(XLV-15) of 1963 dated 1-10-63 under which the maintenance of a Register of Penalties was prescribed. Proper maintenance and adequate scrutiny of this register would ensure that cases where penalty orders have to be passed are not lost sight of. In the same circular, it is also advised that- "....The Board have decided that in actual practice penalty proceedings should be completed by the ITO or the IAC, as the case may be, within one year of the completion of the relevant assessment proceedings. For this purpose, penalty cases should be entered in the penalty register as soon as the assessment is completed and the progress of the cases should be watched from time to time by the Income-tax Officer or the Inspecting Asst. Commissioner, as the case may be". The above instructions have been reiterated in para 19(vii)(b) of the Office Manual, Vol. II Section II (1967 Edition). 6. In order to ensure that the assesses can be given reasonable opportunity as per the provisions of the section 274(1) of the Income-tax Act, 1961, and adjournments can be granted, wherever called for, it is essential that the instructions referred to in para 5 above are strictly adhered to by all the Officers of the Department. 7. The above instructions should be brought to the notice of all the Officers working in your charge.