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2023 Supreme(AP) 860
IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
U. DURGA PRASAD RAO, T. MALLIKARJUNA RAO, JJ.
Divine Chemtec Limited – Petitioner
Versus
Income Tax Department, New Delhi – Respondent
W.P. Nos. 11593, 11596, 11604, 11818, 11923 of 2022
Decided On : 14-06-2023
Advocate Appeared:
For the Petitioners: B. Adinarayana Rao, Javvaji Sarath Chandra, B. Ravi Kiran Singh.
For the Respondent: M. Kiranmayee.
The main legal point established in the judgment is the violation of principles of natural justice by the respondent authorities, leading to the setting aside of the penalty orders and a direction to consider the petitioner's replies and afford a personal hearing before passing fresh orders.
Headnote:
Penalty - Income Tax Act - Section 271(1)(c) r/w Section 274(2) - The court considered the challenge to the penalty order imposed under Section 271(1)(c) r/w Section 274(2) of the Income Tax Act, 1961. The petitioner, a company, had filed a revised return of income pursuant to a notice issued under Section 153A of the IT Act, which was accepted by the Department. The penalty proceedings were initiated based on the earlier return filed under Section 139 of the IT Act. The court found that the respondent authorities did not consider crucial contentions raised by the petitioner and violated principles of natural justice by not granting a personal hearing. The court set aside the penalty orders and directed the authorities to consider the petitioner's replies and afford a personal hearing before passing fresh orders.
Fact of the Case:
The petitioner, a company, filed a writ petition challenging the penalty order imposed under Section 271(1)(c) r/w Section 274(2) of the Income Tax Act, 1961. The petitioner had filed a revised return of income pursuant to a notice issued under Section 153A of the IT Act, which was accepted by the Department. The petitioner contended that the penalty proceedings were initiated based on the earlier return filed under Section 139 of the IT Act. The petitioner also argued that the respondent authorities violated principles of natural justice by not considering crucial contentions and not granting a personal hearing.
Finding of the Court:
The court found that the respondent authorities did not consider crucial contentions raised by the petitioner and violated principles of natural justice by not granting a personal hearing. The court set aside the penalty orders and directed the authorities to consider the petitioner's replies and afford a personal hearing before passing fresh orders.
Issues: The issues before the court included the validity of the penalty order imposed under Section 271(1)(c) r/w Section 274(2) of the Income Tax Act, 1961, and the violation of principles of natural justice by the respondent authorities.
Ratio Decidendi: The court held that the respondent authorities violated principles of natural justice by not considering crucial contentions raised by the petitioner and not granting a personal hearing. The court set aside the penalty orders and directed the authorities to consider the petitioner's replies and afford a personal hearing before passing fresh orders.
Final Decision: The court allowed the writ petitions, set aside the penalty orders, and remitted the matters back to the authorities with a direction to consider the petitioner's replies and afford a personal hearing before passing fresh orders. The court also directed the petitioner to deposit 25% of the penalty amount in each case within six weeks from the date of receipt of the order, failing which the order shall stand cancelled.
ORDER :
1. Challenge in the writ petition No. 11604 of 2022 is to the order in DIN No. ITBA/PNL/F/271(1)(c)/ 2021-22/ 1041194359(1), dated 21.03.2022 passed by National Faceless Assessment Centre, Delhi of the respondents whereunder it was proposed to impose a penalty of Rs.58,72,241/- U/s 271(1)(c) r/w Section 274(2) of Income Tax Act, 1961 (for short “IT Act”).
2. Petitioner’s case succinctly is thus:
(a) Petitioner is a company incorporated and registered under the provisions of Companies Act, 2013.
(b) On 20.09.2017 search operations were conducted in the premises of the petitioner U/s 132 of IT Act and notice was issued on 30.08.2018 U/s 153A of the IT Act calling for its return from income.
(c) During search operation, the Managing Director of petitioner, on verification of Audit and Balance Sheet of the petitioner company noticed an inadvertent error in the books of accounts in the Financial Year ending 31.03.2009 wherein a Foreign Investment was capitalized against Plant and Machinery, though the same did not materialize for various reasons. Since mistake was occurred in the Financial Year ending 31.03.2009, it was continued unnoticed and same was corrected in the Financial Year ending 31.03.2015 for the Assessment Year 2015-16.
(d) Pursuant to the notice U/s 153A, the petitioner on 23.09.2018 filed return declaring therein a loss of Rs.5,50,06,514/- and the same was assessed U/s 143(3) r/w Section 153A of the IT Act by the order dated 30.12.2019 accepting the income in the return filed in the assessment order. The AO through recorded his satisfaction, however initiated penalty proceedings U/s 271(1)(c) r/w explanation 5A for furnishing inaccurate particulars of income by placing the reliance on original return of income filed U/s 139(1) of the IT Act.
(e) Accordingly, a show cause notice dated 03.01.2020 was issued U/s 274 of IT Act to which the petitioner submitted its reply dated 03.02.2020 denying all the allegations. The petitioner has specifically drawn the attention about the satisfaction of the AO which is a sine quoa non for levying the penalty for furnishing inaccurate particulars of income whereas show cause notice was issued for concealment of income thereby rendering the show cause notice baseless.
(f) On 19.02.2020 the petitioner filed additional reply to the show cause notice dated 03.01.2020. However, 1st respondent failed to take cognizance of both the replies.
(g) In terms of the notification dated 12.01.2021, Faceless Penalty Scheme - 2021 was notified by the Central Board of Direct Taxes and accordingly a show cause notice was issued on 24.05.2021 by the National Faceless Assessment Centre to the petitioner. The petitioner submitted reply on 26.05.2021 and also a supplemental reply dated 31.05.2021. Thereafter the petitioner did not receive any communication but a penalty order dated 21.03.2022 was received without granting opportunity of hearing though in the supplemental reply dated 31.05.2021, a specific request was made for personal hearing.
(h) The imposition of penalty is in total violation of Sub Clause-XV of Clause-I of para-5 of the Faceless Assessment Scheme. The petitioner submitted its grievance on the portal maintained by respondent No. 2 on 26.03.2022 but same remained un-responded.
Hence the writ petition.
3. It may be noted that with the identical averments the petitioner filed W.P.Nos.11593, 11818, 11596 and 11923 of 2022. The only difference in all the above five writ petitions is the assessment year and loss claimed and penalty levied which are shown in a tabular form as below:
| S. No. | W.P. No. | Assessment Year | Loss claimed in the return filed under Sec. 153A of the Act (Rs.) | Tax Liability Determined in Rs. | Penalty levied under Sec. 271(1) of the Act on the basis of return filed under Sec. 139 (Earlier Return) in (Rs) | Depreciation claimed |
| 1. | 11593/2022 | |||||
