Sharmila Vikram Mahurkar v. Assistant Commissioner Of Income Tax, Circle 1(1)(1), Vadodara

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 26444 of 2022 ========================================================== SHARMILA VIKRAM MAHURKAR VersusASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1),VADODARA ========================================================== Appearance: MR. HARDIK V VORA(7123) for the Petitioner(s) No. 1MR NIKUNT K RAVAL(5558) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MS. JUSTICE SONIA GOKANIandHONOURABLE MR. JUSTICE SANDEEP N. BHATT Date : 06/02/2023 ORAL ORDER (PER : HONOURABLE MR. JUSTICE SANDEEP N. BHATT) 1 Petition is preferred under Article 226 of theConstitution of India seeking to set aside thepenalty order under section 271(1)(c) of theIncome Tax Act, 1961 (“the Act” for short) forthe Assessment Year 2010-11 imposing penalty ofRs. 53,36,430/- under section 271(1)(c) of the Act. 2 Brief facts leading to the present petition are as follows: 2.1 A survey proceeding under section 133A of the 2.2 Act was carried out in the business premises ofthe petitioner company on 06.12.2010. It wasurged during the course of survey that thepetitioner company had made investment ofRs.1.57 crores in the property of Gurgaon throughMrs. Sharmila Mahurkar, who is one of theDirectors of the petitioner company videMemorandum of Understanding executed betweenthem with an intention to become major partnerof the firm. The case was selected for scrutiny.The petitioner company is averred to have beenengaged in the guarding business. As per theprevailing practice in the State of Haryana, assecurity company cannot directly purchase theland in an industrial area, the amount wasconsidered as deemed dividend in the hands ofMrs. Sharmila Mahurkar and had offered to taxfor Assessment Year 2010-11. The Assessing Officer made addition ofRs.5,44,46,334/- on account of delayed payment ofemployees contribution and finalized assessmentunder section 143(3) of the Act by passing order 2.3 on 18.03.2013. Aggrieved petitioner preferred an appeal beforethe CIT(Appeals). The petitioner company hadcontended that it had taken the said investmentin its books, as the investment was made in thename and style of M/s. Checkmate Apparels, aproprietorship concern of Mrs. SharmilaMahurkar. CIT(Appeals) partly allowing theappeal on 02.05.2014. The challenge was made before the Income TaxAppellate Tribunal (“the Tribunal” for short),which also confirmed the addition on 30.03.2022.The show cause notice came to be issued undersection 274 read with section 271 (1)(c) of theAct on 28.11.2022 at 2:40 p.m. requesting toappear in person or through a duly authorisedrepresentative, the very next day i.e on29.11.2022. As it was not practicably possible toappear in person within 24 hours, a letter dated29.11.2022 was addressed to the AssistantCommissioner of Income Tax, Circle 1(1)(1),Vadodara pointing out the practical difficulty to appear in such a short time; that `short notice’ is `no notice’; it is impossible to collect the papersin such a short period and therefore adjournmentwas sought and also request was made to dropthe proposed penalty. However, the AssessingOfficer passed a penalty order under section271(1)(c) of the Act along with notice of demandunder section 156 of the Act levying penalty ofRs. 53,36,430/-. This has severely aggrieved thepetitioner, who is before this Court with thefollowing prayers: “5.The Petitioner accordingly prays that thisHon’ble Court may kindly be pleased to issue: The Petitioner accordingly prays that this appear in such a short time; that `short notice’ is `no notice’; it is impossible to collect the papersin such a short period and therefore adjournmentwas sought and also request was made to dropthe proposed penalty. However, the AssessingOfficer passed a penalty order under section271(1)(c) of the Act along with notice of demandunder section 156 of the Act levying penalty ofRs. 53,36,430/-. This has severely aggrieved thepetitioner, who is before this Court with thefollowing prayers: “5.The Petitioner accordingly prays that thisHon’ble Court may kindly be pleased to issue: The Petitioner accordingly prays that this a.A Writ of Certiorari or writ, order, ordirection in the nature of Certiorari quashing/setaside the Penalty Order passed u/s. 271(1)(c) of theAct for A.Y.2010-11 levying huge penalty ofRs.53,36,430/-withoutprovidingreasonableopportunity of being heard (Annexure-A) b.Pending hearing and final decision of thewrit petition, to stay the penalty order and/ordemand of Rs.53,36,430/-. 4 c.Pass any other order(s) as this Hon’ble Court maydeem fit and more appropriate in order to grantinterim relief to the Petitioner; d.Any other and further relief deemed justand proper be granted in the interest of justice;e.To provide for the cost of this petition.” Affidavit-in-reply on behalf of the respondent isfiled denying all allegations. The sole ground ofchallenge, according to the respondent, is theviolation of principles of natural justice. Thepenalty notice under section 271(1)(c) of the Actissued on 18.03.2013 and subsequently furthernotice on 28.11.2022 under section 274 of the Actread with section 271(1)(c) of the Act was issuedcalling upon the petitioner to respond by 11:00a.m. on 29.11.2022. It is the say of therespondent that the penalty notice issued by theAssessing Officer does not mention as to underwhich limb of section 271(1)(c) of the Act,penalty proceedings has been initiated i.e.whether for concealment of particulars of incomeor furnishing of inaccurate particulars of income, and, therefore, the penalty order is bad in law. Itis further the say of the respondent that duringthe assessment proceedings, the Assessing Officerhas made addition on the issue of loan andadvance given to Mrs.Sharmila Mahurkar ofRs.1,57,00,000/-. According to the respondent,CIT(Appeals) in its order dated 02.05.2014, hasdiscussed the issue of loan and advances and inabsence of any documentary evidence and details,the addition of Rs.1.57 crores was made asunexplained investment. We have heard Mr. Hardik Vora, learnedadvocate for the petitioner and Mr.Nikunt Raval,learned Senior Standing Counsel with Mr.KaranSanghani, learned Standing Counsel for therespondent. Without entering into the merits of the matter,we notice that there has been a serious flaw inaffording the opportunity of hearing to theparties, which has resulted into imposition ofhuge amount of penalty on 28.11.2022. Notice under section 274 read with section 271(1)(c) of the Act had been issued and the petitioner was asked to appear in person or through a dulyauthorised representative at 11:00 a.m. on29.11.2022. This show cause notice as to whythe order imposing penalty be not made undersection 271(1)(c) of the Act gives less than 24hours to the petitioner, whereby it had asked thepetitioner to appear in person or through a dulyauthorised representative. This shorter period ofless than 24 hours can be termed as a pure andsimple breach of principles of natural justice. Itappears that on 28.11.2022, request was made foradjournment and the same is also reflected fromthe portal of the Tribunal and that such arequest had been made to adjourn the hearing byfew days. Without paying any heed to the same,when the order impugned has been passed, theCourt requires to interfere. was asked to appear in person or through a dulyauthorised representative at 11:00 a.m. on29.11.2022. This show cause notice as to whythe order imposing penalty be not made undersection 271(1)(c) of the Act gives less than 24hours to the petitioner, whereby it had asked thepetitioner to appear in person or through a dulyauthorised representative. This shorter period ofless than 24 hours can be termed as a pure andsimple breach of principles of natural justice. Itappears that on 28.11.2022, request was made foradjournment and the same is also reflected fromthe portal of the Tribunal and that such arequest had been made to adjourn the hearing byfew days. Without paying any heed to the same,when the order impugned has been passed, theCourt requires to interfere. Resultantly, the petition is allowed. The impugnedorder of penalty dated 30.11.2022 is quashed andset aside. Let an opportunity of hearing be givenfrom the stage where it was left. Thecommunication in this respect shall need to bemade within four weeks from the date of receipt 9 SRILATHA of the copy of this order. The petitioner shallcooperate. Let the entire proceedings be completedin eight weeks thereafter. Petition stands disposed of accordingly. (SONIA GOKANI, J) (SANDEEP N. BHATT,J)