Penalty Order Remanded for Granting Opportunity of Hearing to Assessee

Issue: Whether a penalty order passed under Section 271(1)(c) of the Income-tax Act, 1961, is valid when the assessee was not given an opportunity to be heard due to non-disposal of their application for consolidation of appeals.

Facts:

The Income Tax Appellate Tribunal (ITAT) passed an order imposing a penalty on the assessee under Section 271(1)(c).
The assessee had filed an application seeking consolidation of appeals.
The application was neither disposed of nor was a fresh hearing date communicated to the assessee.
As a result, the assessee could not appear before the ITAT.

Decision:

The court held that the assessee should be given an opportunity to be heard before the ITAT.
The court emphasized the principles of natural justice, which require that parties be given a fair chance to present their case.
The matter was remanded back to the ITAT with directions to provide the assessee an opportunity to be heard and present their arguments regarding the penalty.

Key Takeaways:

This case highlights the importance of adhering to principles of natural justice in penalty proceedings.
The ITAT’s failure to dispose of the assessee’s application for consolidation and communicate a fresh hearing date deprived the assessee of a fair opportunity to be heard.
The court’s decision to remand the matter ensures that the assessee’s rights are protected and that the penalty is imposed only after proper consideration of their arguments.

HIGH COURT OF BOMBAY

Hicons Developers

Deputy Commissioner of Income-tax, Central Circle-36

M.S. Sonak and Jitendra Jain, JJ.

INCOME TAX APPEAL NO. 877, 879 and 746 OF 2018

JANUARY 23, 2025

Jitendra Singh, Ms. Neha Paranjpe, Om Kandalkar and Ms. Shivali Mhatre for the Appellant. N.C. Mohanty for the Respondent.

ORDER

1. Heard learned Counsel for the parties.

2. The learned Counsel for the parties agree that a common order can dispose of these three appeals.

3. These appeals are admitted on the following substantial question of law:-

” A. Whether the Appellate Tribunal is right in law in passing the impugned order dated 31.03.2017 in breach of principles of natural justice?”

4. At the request of and with the consent of the learned Counsel for the parties we proceed to dispose of these appeals finally.

5. The impugned order dated 31 March 2017 was admittedly made without hearing the Petitioners. Mr Mohanty, the learned Counsel for the Respondents, submits that nothing prevented the Appellants from attending the hearing, and therefore, it is not correct to say that there was any breach of the principles of natural justice.

6. Mr Mohanty also points out that the Appellants did not contest the additions. The only issue involved imposing a penalty on such additions. Therefore, he submits that since the additions were not contested, there was no error in imposing the penalties.

7. The records, however, show that the Appellants filed an application/letter dated 19 October 2016 seeking consolidation of appeals. The Appellants have pleaded that neither this application was disposed of nor was a fresh hearing date communicated to them. They have pleaded that they learned about the impugned order only after they received notice of prosecution.

8. Upon receiving the notice for prosecution, the Appellants obtained a certified copy of the order sheet from which they noticed that the appeals were consolidated vide order dated 10 November 2016 and fixed for hearing on 22 December 2016. However, this order or the hearing date was never communicated to the Appellants. The order sheet also notes that the bench clerk was directed to serve a notice on the Appellants, but no such notice was served to the Appellants or their Counsel. Thus, on 12 January 2017, neither the Appellants nor their Counsel could appear.

9. Though we agree with Mr Mohanty that the Appellants should have pursued the matter, given the peculiar facts of this case, the argument made on their behalf is not entirely unreasonable. Besides, the argument on the disproportionality of the proposed action could not be advanced.

10. The Appellants may not have contested the additions. Still, that does not mean that the penalty has to be imposed automatically once there is no contest. In any event, given the peculiar facts of this case, the appellants should be given an opportunity to hear and attempt to convince the tribunal that no penalty or reduced penalties ought to have been imposed in these matters.

11. Based on instructions, the learned counsel for the appellants has offered to pay a consolidated cost of Rs 1,50,000/-. Based on this, the learned Counsel has urged that the interest of justice would be met if an additional opportunity is granted to the Appellants to argue the matter before the tribunal.

12. After considering the above circumstances and the peculiar facts of this case, we agree that the interest of justice would be met if the appellants were granted an additional opportunity to argue the matter before the tribunal.

13. Accordingly, we dispose of these Appeals by passing the following order: –

The impugned orders dated 31 March 2017 are set aside, and the matter is remanded to the tribunal for fresh consideration in accordance with law and on its own merits;

The above is subject to the Appellants paying a consolidated amount of Rs 1,50,000/- to the Government KEM Hospital within 2 weeks of uploading this order and filing proof of payment in this Court and before the tribunal. The account details are as follows :-

Bank Account of Hospital	:	Poor Box Charity Fund, K.E.M. Hospital, Mumbai
Bank Account Number of Hospital	:	99350100000877 (S.B.)
Bank and Branch	:	Bank of Baroda, Parel Branch
Address, Tel. No., Fax No. and e-mail of the concerned Bank	:	Bank of Baroda, Madina Manzil, 88, Dr. Ambedkar Road, Mumbai – 400 012, Maharashtra, 02224713820, dbpare@bankofbaroda.com
MICR Code Number	:	400012246
IFSC Number	:	BARB0DBPARE (5TH Letter is Zero)
PAN	:	AAATK3087D
Type of Account	:	Saving A/C

The Appellants to file an authenticated copy of this order after payment as above and apply to the tribunal for a date for hearing. The learned Counsel for the Appellants states that such application will be filed within two weeks of the payment to the Government KEM Hospital;

If within two weeks of the uploading of the order, no payment is made to the Government KEM Hospital, then these appeals shall be deemed to have been dismissed without any reference to this Court but with consolidated cost of Rs 1,50,000/-;

The parties’ contentions on merits are left open as we have not decided on the merits of the matter but set aside the impugned order on the ground of violation of natural justice.

All concerned to act on an authenticated copy of this order.