Ita/350/2009 Of The Commissioner Of Income Tax v. M/S H.e.distillery Pvt Ltd

1ITA 3950/2009 | IN THB HIGH COURT OF KARNATAKA AT BANGALORE DATEKD THIS THE O DAY OF AUGUST, 2014| PRESENT: THR HON BLE Mr.JUSTICE N.KUMAR| AND THR HON'BLE Mr.JUSTICHK B.MANOHAR Income.Tax Appeal No : 350 of 2009 BETWEEN 1.THE COMMISSIONER OF INCOME-TAX, 284/1, PARK VIEW BUILDING, 4 MAIN, P.J.EXTENSION, DAVANGERE —- 577 OO2. Oo.THER ASSISTANT COMMISSIONBR OF| INCOME TAX, CENTRAL CIRCLE — 2(2), BANGALORE. ..Appellant (By Sri.JEEVAN.J.NEERALGI, Adv.) AND M/s.H.E.DISTILLERY PRIVATE LIMITED,B.H.ROAD,OPP.MEENAKSHI BHAVAN, |SHIMOGA. ..Respondent (By Sri.A.SHANKAR & Sri.M.LAVA, Advs.) This Appeal is filed under Section 260-A of I.T. Act, 1961arising out of order dated 30.01.2009 passed in IT (SS)A.No.28/Bang/2008,for.theBlockAssessment.Period|01.04.1990 to 18.01.2001, praying to formulate the substantial|question of law stated therein and allow the appeal and set asidetheorderpassedby|theITATBangalore1n TT|(SS)A.No.28/Bang/2008 dated 30.01.2009 and confirm the order|passed by the Assessing Officer. ThisAppealcomingOT)forHearing,this|day,N.KUMAR, J.,delivered the following: | JU DGMENT The Revenue has preferred this appeal against theorder passed by the Tribunal upholding the order)passed by the First Appellate Authority setting aside)the imposition of penalty under Section 198-BFA(2) of|the Income Tax Act, 1961. oDThe assessee filed returns in response to a|notice under Section 158BC of the Income Tax Act,|1961 (for short, hereinaiter referred to as the ‘Act’ for|the block period on 13.08.2001 admitting undisclosed| 3ITA 3950/2009 | income of Rs./73,80,526/-. However, the Assessing|officerassessedtheundisclosedincomeAT.Rs.2,42,47,6058/-. The assessee’s appeal against the|said order came to be rejected, which order has been|attirmedbytheTribunal.TheHigh|Court|subsequently modified the said order. | 3.The undisclosed income was reduced to’1,20,61,900/- and tax on the said income has been|paid. After the order of the Tribunal, penalty|proceedings were initiated. By sending a letter dated|15.12.2005, penalty of Rs.1,18,40,726/- was imposed|by the Assessing Officer. The said imposition was|Challenged before the Commissioner of Income Tax|(Appeals). The said Commissioner cancelled the said|penalty proceedings on the ground as Section 158-BFA(3) mandates that no order imposing a penalty|under sub-section (2) shall be made usnless the)assessee has been given a reasonable opportunity of|being heard. vITA 3950/2009 | 4In the instant case, merely issuing a letter|and no reasons being recorded for the non-appearance|of the assessee before the Assessing Authority cannot|be considered as a reasonable opportunity of being|heard and therefore, the order imposing penalty was|cancelled. Aggrieved by the said order, the Revenue|preferred an appeal to the Tribunal. The Tribunal was|of the view that issuance of notice is a pre-requisite for|assuming jurisdiction for levying penalty under Section|158-BFA(2) of the Act. Issuance of notice is|mandatory. In the absence of issuance of pre-requisite|notice, the entire penalty proceedings are illegal and|without jurisdiction. Therefore, it was held that the|order passed by the Appellate Authority is justified and|accordingly, dismissed the appeal. Aggrieved by the|said order, the Revenue iS in appeal. 5The substantial question of law that arise for|our consideration in this appeal is: “Whether issue of notice is mandatory forlevy ofpenalty under Section 158-BFA(2) or thesatisfactionof|theAssessingOfficer1S.sufficient to meet the said requirement?| 5The substantial question of law that arise for|our consideration in this appeal is: “Whether issue of notice is mandatory forlevy ofpenalty under Section 158-BFA(2) or thesatisfactionof|theAssessingOfficer1S.sufficient to meet the said requirement?| 6.|From the material on record, it is not|possible to make out whether any letter dated|15.12.2005 was sent from the Department and it was|served on the assessee. The assessee has denied such)a notice and therefore the assessee was not present|before the Assessing Authority. If we look into the|scheme ot the entire block assessment and in/particular, Section l1o8-BFA, though the power isconferred on the Assessing Officer to impose by way of|penalty, a sum which shall not be less than the)amount of tax leviable but which shall not exceed threetimes the amount of tax so leviable in respect of the.undisclosed income. The proviso to Section 158-BFA.mandates that no order imposing penalty shall be|made in respect of a person, i he satisfies the. >ITA 3950/2009 | condition mentioned in the said proviso. Therefore,|imposition of penalty is not automatic. If the assessee|files returns declaring the undisclosed income and|pays tax thereon and if the Assessing Authority accepts|the said undisclosed income, then the question of|imposing any penalty would not arise. Imposition of|penalty would arise only if the undisclosed income|determined by the Assessing Authority is 1n excess of|the amount of undisclosed income shown in £thereturns filed by the assessee. Even then, sub-section|(3) mandates that no order imposing penalty under|sub-section (2) shall be made unless an assessee has|been given a reasonable opportunity of being heard and|a period of limitation is prescribed for imposition of,such penalty under the said sub-section. Therefore, if|the Assessing Authority intends to impose penalty|under sub-section (2), he has to hear the assessee, it|necessarily follows that a notice demanding the penalty|or a notice calling upon the assessee to show-cause| *ITA 3950/2009 | why penalty should not be imposed is to be issued.Then, sufficient opportunity should be given to the)assessee to reply to such notice. It is only aiter)hearing, the Assessing Authority can proceed to impose|any penalty. Penalty proceedings are penal in nature)and the said penalty being not automatic and the)orders in such penalty proceedings is to be passed|within the time stimulating in sub-section (3) of|section 158-BFA and in absence of any express)provision stating that no such notice is not required, it)necessarily follows that a notice to the assessee is a)must before any penalty is imposed under sub-section|(3). TTAdmittedly, in this case, no such notice is|issued. What is issued, according to the Revenue is a)letter for change in incumbent in office. In order to)find out whether that letter satisfies requirements of anotice under law, we called upon the Revenue to makeavailable that letter. It is submitted that the letter is &ITA 3950/2009 | not available in their records. The said letter is said tohave been issued on 15.12.2005, served on 15.12.2005 andfor non-appearance of the respondent, the order waspassed on 15.12.2005 itself. — 8.|The aforesaid facts speaks for itself and the saidletter is not available on record. Therefore, in the facts ofthe case, the contention of the assessee that he has not|been heard, no opportunity was provided to him and_therefore, the mandatory requirements of sub-section (3) ofsection 158-BFA are not complied with is fully justified. |Both the Appellate Authorities were justified in setting|aside the order of penalty. QO Therefore, the substantial question of law isanswered in favour of the assessee and against the|Revenue. We do not see any merits in this appeal. |Accordingly, the appeal is dismissed. dah Sd/-| JUDGE Sd/-. JUDGE