IBS SOFTWARE PRIVATE LIMITED, V. THE UNION OF INDIA,

WP(C)/14278/2023

AI Insights

The case involves IBS Software Private Limited, which filed a writ petition against the penalty order issued by the Assistant Commissioner of Income Tax under Section 270A of the Income Tax Act, 1961, concerning the assessment year 2018-19. The penalty was related to underreporting of income following an assessment order that included Transfer Pricing adjustments. The petitioner had previously filed a rectification application and an appeal against the assessment order, which was pending at the time of the penalty proceedings. The main contention was the lack of an opportunity for a hearing before the penalty was imposed, which the court found to be a violation of the principles of natural justice.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 687027 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 06-12-2023
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM
• Assessee Lawyers: RAJAKANNAN; M GOPIKRISHNAN NAMBIAR; K MATHAI; JOSON MANAVALAN; KURYAN THOMAS; PAULOSE ABRAHAM
• Keywords: Natural Justice; Penalty; Rectification Application; Transfer Pricing Adjustments; Under reporting of income
• Section: 154; 274; 14A; 270A

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH WEDNESDAY, THE 6TH DAY OF DECEMBER 2023 / 15TH AGRAHAYANA, 1945 WP(C) NO. 14278 OF 2023 PETITIONER: IBS SOFTWARE PRIVATE LIMITED, 521-524 NILA, TECHNOPARK CAMPUS, THIRUVANANTHAPURAM,695581 REPRESENTED BY ITS CHIEF FINANCIAL OFFICER - MR. ASHISH NANDA. BY ADVS. SRI. RAJA KANNAN SRI. M. GOPIKRISHNAN NAMBIAR SRI. K. JOHN MATHAI SRI. JOSON MANAVALAN SRI. KURYAN THOMAS SRI. PAULOSE C. ABRAHAM RESPONDENTS: 1 THE UNION OF INDIA, REPRESENTED BY ITS REVENUE SECRETARY, MINISTRY OF FINANCE, NEW DELHI – 110004. 2 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), AAYAKAR BHAWAN, KAWADIAR P. O., THIRUVANANTHAPURAM - 695003. 3 ASSESSMENT UNIT, INCOME TAX DEPARTMENT,NATIONAL FACELESS ASSESSMENT CENTRE, ROOM NO. 401, 2ND FLOOR, E-RAMP, JAWAHARLAL NEHRU STADIUM, NEW DELHI -110003. BY ADV. SRI. CHRISTOPHER ABRAHAM – SC -INCOME TAX DEPARTMENT THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 06.12.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 14278 OF 2023 2 DINESH KUMAR SINGH, J. -------------------------- W.P.(C) No.14278 of 2023 ------------------------- Dated this the 6th day of December, 2023 JUDGMENT 1. The present writ petition has been filed impugning Exhibit P-17 order of penalty issued by the 3rd respondent under Section 270A of the Income Tax Act, 1961. 2. The assessment order in respect of the assessment year 2018-19 got finalised by making additions in respect of the “Transfer Pricing adjustments” under Section 14A of the Act. The petitioner thereafter filed rectification application under Section 154 of the Income Tax Act, 1961 before the 2nd respondent. The rectification petition was allowed to an extent that the petitioner was refunded an amount of Rs. 1,75,,00,619/-. However, what order was passed on the rectification application has not been placed on record. 3. The petitioner had filed an appeal before the Income Tax Appellate Tribunal against the assessment order on 23.09.2022. The 2nd respondent had issued notice on 08.07.2022 under Section 274 read with Section 270A of the Income Tax Act, 1961 for under reporting of WP(C) NO. 14278 OF 2023 3 the income. Three notices were issued to the petitioner. However, the petitioner did not file reply on merit but, sought deferment of the penalty proceedings on the ground of pendency of the appeal against the assessment order. When the petitioner did not file any reply on merit, the impugned order has been passed. 4. In all three replies to the the Show Cause Notices though the petitioner had requested for deferment of the penalty proceedings but, he had asked for hearing before finalising the order. It is not in dispute that no opportunity of hearing was provided before the impugned order came to be passed. 5. Section 274 of the Income Tax Act provides an opportunity of hearing before the order under Section 270A is required to be passed. Section 274 which prescribes the procedure for finalising the penalty proceedings on reproduction read as under; 274. (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) No order imposing a penalty under this Chapter shall be made- (a) by the Income-tax Officer, where the penalty exceeds ten thousand rupees; WP(C) NO. 14278 OF 2023 4 (b) by the Assistant Commissioner or Deputy Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Joint Commissioner. (3) An income-tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer. 6. Considering the fact that there is mandatory requirement of giving an opportunity of hearing before final order under Section 270A passed and no opportunity of hearing was provided to the petitioner, there has been a violation of the principles of natural justice. In view thereof, the present writ petition is allowed. The impugned order in Exhibit P-17 is set aside. The respondents are directed to provide the link to the petitioner for uploading the reply to the Show Cause Notice on merit. It is directed that within one week from the date of link being provided to the petitioner, the petitioner must upload the reply to the Show Cause Notice and he should be afforded online opportunity of hearing before final order under 270A is passed. Sd/- DINESH KUMAR SINGH JUDGE Svn WP(C) NO. 14278 OF 2023 5 APPENDIX OF WP(C) 14278/2023 PETITIONER’S EXHIBITS EXHIBIT P1 THE TRUE COPY OF THE ORDER OF ASSESSMENT DATED 18.07.2022 PASSED BY THE 2ND RESPONDENT FOR A.Y. 2018-19 EXHIBIT P2 THE TRUE COPY OF THE RECTIFICATION APPLICATION (WITHOUT ANNEXURES) DATED 17.08.2022 FILED BY THE PETITIONER UNDER SECTION 154 OF THE ACT EXHIBIT P3 THE TRUE COPY OF THE COVERING LETTER (WITHOUT ANNEXURES) DATED 14.09.2022, EVIDENCING THE FILING OF APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL, KOCHI, AGAINST EXT. P1 ORDER EXHIBIT P4 THE TRUE COPY OF THE APPEAL MEMORANDUM (WITHOUT ANNEXURES) DATED 14.09.2022 FILED BY THE PETITIONER FOR THE A.Y. 2018-19 EXHIBIT P5 THE TRUE COPY OF THE NOTICE DATED 18.07.2022 ISSUED BY THE 2ND RESPONDENT FOR A.Y. 2018-19 EXHIBIT P5(a) THE TRUE COPY OF THE INTIMATION LETTER DATED 29.07.2022 CORRESPONDING TO EXT.P5 NOTICE ISSUED BY THE 2ND RESPONDENT EXHIBIT P6 THE TRUE COPY OF THE LETTER DATED 16.08.2022 FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT, IN RESPONSE TO EXT. P5 NOTICE EXHIBIT P6(a) THE TRUE COPY OF THE E-ACKNOWLEDGEMENT DATED NIL, GENERATED AT THE TIME OF UPLOADING OF EXT.P6 LETTER IN THE WEB PORTAL OF THE INCOME TAX DEPARTMENT EXHIBIT P7 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 27.09.2022 FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT EXHIBIT P7(a) THE TRUE COPY OF THE E-ACKNOWLEDGEMENT DATED NIL, GENERATED AT THE TIME OF UPLOADING OF EXT.P7 LETTER IN THE WEB PORTAL OF THE INCOME TAX DEPARTMENT EXHIBIT P8 THE TRUE COPY OF THE PENALTY NOTICE DATED 17.02.2023 ISSUED BY THE 3RD RESPONDENT UNDER SECTION 270A OF THE ACT WP(C) NO. 14278 OF 2023 6 EXHIBIT P9 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 22.02.2023 FILED BY THE PETITIONER BEFORE THE 3RD RESPONDENT EXHIBIT P9(a) THE TRUE COPY OF THE E-ACKNOWLEDGEMENT DATED NIL, GENERATED AT THE TIME OF UPLOADING OF EXT.P9 LETTER IN THE WEB PORTAL OF THE INCOME TAX DEPARTMENT EXHIBIT P10 THE TRUE COPY OF THE PENALTY NOTICE DATED 22.03.2023 ISSUED BY THE 3RD RESPONDENT UNDER SECTION 270A OF THE ACT EXHIBIT P11 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 23.03.2023 FILED BY THE PETITIONER BEFORE THE 3RD RESPONDENT EXHIBIT P11(a) THE TRUE COPY OF THE E-ACKNOWLEDGEMENT DATED NIL, GENERATED AT THE TIME OF UPLOADING OF EXT.P11 LETTER IN THE WEB PORTAL OF THE INCOME TAX DEPARTMENT EXHIBIT P12 THE TRUE COPY OF THE NOTICE DATED 18.07.2022 ISSUED BY THE 2ND RESPONDENT FOR A.Y. 2018-19 EXHIBIT P12(a) THE TRUE COPY OF THE INTIMATION LETTER DATED 29.07.2022 CORRESPONDING TO EXT.P12 NOTICE ISSUED BY THE 2ND RESPONDENT EXHIBIT P13 THE TRUE COPY OF THE LETTER DATED 16.08.2022 FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT, IN RESPONSE TO EXT. P12 NOTICE EXHIBIT P13(a) THE TRUE COPY OF THE E-ACKNOWLEDGEMENT DATED NIL, GENERATED AT THE TIME OF UPLOADING OF EXT.P13 LETTER IN THE WEB PORTAL OF THE INCOME TAX DEPARTMENT EXHIBIT P14 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 27.09.2022 FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT EXHIBIT P14(a) THE TRUE COPY OF THE E-ACKNOWLEDGEMENT DATED NIL, GENERATED AT THE TIME OF UPLOADING OF EXT.P14 LETTER IN THE WEB PORTAL OF THE INCOME TAX DEPARTMENT EXHIBIT P15 THE TRUE COPY OF THE PENALTY NOTICE DATED 17.02.2023 ISSUED BY THE 3RD RESPONDENT UNDER SECTION 270A OF THE ACT WP(C) NO. 14278 OF 2023 7 EXHIBIT P16 THE TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 22.02.2023 FILED BY THE PETITIONER BEFORE THE 3RD RESPONDENT EXHIBIT P16(a) THE TRUE COPY OF THE E-ACKNOWLEDGEMENT DATED NIL, GENERATED AT THE TIME OF UPLOADING OF EXT.P16 LETTER IN THE WEB PORTAL OF THE INCOME TAX DEPARTMENT EXHIBIT P17 THE TRUE COPY OF THE ORDER OF PENALTY DATED 28.03.2023 PASSED BY THE 3RD RESPONDENT UNDER SECTION 270A OF THE ACT, PERTAINING TO THE A.Y 2018-19 "