The DCIT, Circle-1, Rajahmundry V. Sri K Lakshminarayan, Yanam, Kakinada

ITSSA 89/VIZ/2002

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9257 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 8 year(s) 3 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 19-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-04-2010
• Assessment Year: misc
• Appeal Filed On: 16-05-2002
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Keywords: Opportunity of being heard; Principle of natural justice; Block assessment

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(SS)A NO.89 /VIZAG/2002 ASSESSMENT YEAR : 1989-90 TO 1999-2000 DCIT, RAJAHMUNDRY VS. SRI KANCHERLA LAXMINARAYANA HUF, YANAM. (APPELLANT) (RESPONDENT) GIR NO.L-229 IT(SS)A NO.90/VIZAG/2002 ASSESSMENT YEAR : 1989-90 TO 1999-2000 DCIT, RAJAHMUNDRY VS. SRI KANCHERLA LAXMINARAYANA YANAM. (APPELLANT) (RESPONDENT) GIR NO.L-748 APPELLANT BY : SHRI SUBRATA SARKAR, DR RESPONDENT BY : SHRI GVN HARI, CA O R D E R PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THESE TWO APPEALS FILED AT THE INSTANCE OF THE REVENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A), RAJAHMUNDRY DELETIN G THE PENALTY LEVIED U/S 221(1) OF THE ACT. SINCE THE ISSUE AGITATED IN THE SE TWO APPEALS IS IDENTICAL IN NATURE, WE ARE DISPOSING THEM OF BY THIS COMMON ORD ER. 2. THE APPEAL NUMBERED AS ITSSA 89/V/02 RELATES TO HUF STATUS OF SRI KACHERLA LAXMINARAYANA AND THE APPEAL NUMBERED AS I TSSA 90/V/02 RELATES TO 2 THE INDIVIDUAL STATUS OF THE SAME ASSESSEE. CONSEQ UENT TO THE PASSING OF BLOCK ASSESSMENT ORDER, A TAX DEMAND OF RS.1,15,29,873/- WAS RAISED IN THE HANDS OF THE HUF OF THE ASSESSEE. SIMILARLY A TAX DEMAND OF RS.33,85,100/- WAS RAISED IN THE HANDS OF THE INDIVIDUAL STATUS OF THE ASSESSEE. THE DEMAND NOTICES FOR BOTH THE ASSESSEES WERE SERVED ON 28.3.2001. SINCE THE ASSESSEE DID NOT PAY THE ABOVE SAID TAXES WITHIN THE TIME LIMIT OF 30 DAYS P RESCRIBED UNDER THE ACT, THE AO ISSUED SHOW CAUSE NOTICE TO BOTH THE ASSESSEES U /S 221(1) OF THE ACT PROPOSING TO LEVY OF PENALTY AND THE DATE OF HEARIN G WAS FIXED ON 14.9.2001. HOWEVER, THE SAID NOTICES WERE SERVED UPON THE ASSE SSEES ON THE HEARING DATE ONLY, I.E.14.9.2001. THE ASSESSEES DID NOT APPEAR BEFORE THE AO ON THE HEARING DATE. INSTEAD, SUBSEQUENTLY BOTH THE ASSESSEES FIL ED LETTERS STATING THEREIN THE FACT OF BELATED SERVICE OF NOTICE ON THE HEARING DA TE AND ALSO REQUESTED FOR STAY OF COLLECTION OF TAX. HOWEVER, THE AO LEVIED A PEN ALTY OF RS,11,52,987/- IN THE HANDS OF HUF AND A SUM OF RS.3,50,000/- IN THE HAN DS OF THE INDIVIDUAL. THE LD CIT(A) DELETED THE PENALTIES AND HENCE THE REVEN UE IS IN APPEAL BEFORE US. 3. THE MAIN CONTENTION OF THE LD DR IS THAT THE LD CIT(A) HAS CONSIDERED IRRELEVANT CONSIDERATIONS VIZ., LACK OF SUFFICIENT OPPORTUNITY; RELIEF GIVEN BY LD CIT(A) IN THE QUANTUM APPEALS AND GRANTING OF INSTA LMENTS BY THE ADDL. CIT. ACCORDING TO LD DR, THE ASSESSEE IS NOT AGGRIEVED F OR LACK OF OPPORTUNITY AND THE OTHER TWO REASONS CITED ABOVE RELATE TO THE EVENTS THAT HAVE OCCURRED AFTER THE DATE OF PENALTY ORDER. ACCORDINGLY THE LD DR CONTE NDED THAT THE ORDER OF LD CIT(A) SHOULD BE REVERSED IN BOTH THE CASES. 4. ON THE CONTRARY, THE LD AR, BESIDES SUPPORTI NG THE ORDER OF LD CIT(A), SUBMITTED THAT THE ASSESSEE WAS NOT GIVEN SUFFICIEN T OPPORTUNITY TO REPRESENT HIS CASE AND FURTHER THE AO HAS ALSO NOT DISPOSED OF T HE STAY PETITION FILED BEFORE HIM. THE LD AR ALSO RELIED ON THE DECISION OF HON BLE MADRAS HIGH COURT IN THE CASE OF NACHIMUTHU INDUSTRIAL ASSOCIATION V CIT (12 3 ITR 611) AND SUBMITTED 3 THAT THE AO CANNOT LEVY PENALTY IF HE IS SATISFIED THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS. ACCORDING TO LD AR, THE AP PEAL FILED BEFORE THE LD CIT(A) IS ONE OF THE GOOD AND SUFFICIENT REASONS FOR THE D EFAULT. THE LD AR ALSO RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT I N THE CASE OF OM PRAKASH AGARWAL VS. ITO (66 ITR 175) IN THIS REGARD. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PERUSED THE RECORD CAREFULLY. THE FACT WHICH IS NOT DISPUTED BY BOTH THE PARTIES IS THAT THE SHOW CAUSE NOTICE ISSUED U/S 221(1) OF THE ACT BY FIXING THE DATE OF HEARING ON 14.9,2001 WAS SERVED UPON THE ASSESSEE ONLY ON 14.9.2001, I.E. ON LY ON THE DATE OF HEARING. ANOTHER IMPORTANT FACT REMAINS THAT BEFORE THE PASS ING OF THE IMPUGNED PENALTY ORDER, THE ASSESSEES HEREIN HAVE FILED THEIR RESPEC TIVE APPLICATIONS BEFORE THE AO SEEKING STAY OF COLLECTION OF TAX. THE AO DID NOT DISPOSE OF THOSE APPLICATIONS BEFORE PASSING THE PENALTY ORDER. 6. THE PENALTY U/S 221(1) SHALL BE LEVIED BY TH E AO WHEN AN ASSESSEE IS IN DEFAULT IN MAKING A PAYMENT OF TAX. HOWEVER, THE A CT MANDATES THAT THE ASSESSEE SHOULD BE GIVEN A REASONABLE OPPORTUNITY O F BEING HEARD BEFORE LEVYING THE PENALTY. THE AO SHALL NOT LEVY THE PENALTY IF HE IS SATISFIED THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS. 7. AS PER SECTION 220(4), AN ASSESSEE SHALL BE DEEMED TO BE IN DEFAULT IF HE FAILS TO PAY THE AMOUNT OF TAX WITHIN THE TIME LIMI T PROVIDED U/S 220(1) OR WITHIN THE EXTENDED TIME LIMIT GIVEN U/S 220(3). AN OPTIO N IS GIVEN TO THE AO U/S 220(6) PERMITTING HIM NOT TO TREAT THE ASSESSEE AS AN ASSESSEE IN DEFAULT DURING THE PERIOD OF PENDENCY OF APPEAL. 4 8. ON A PLAIN READING OF THE PROVISIONS OF SECT ION 220 AND 221 OF THE ACT, WE NOTICE THAT THE ACT PROVIDES MANY CONDITIONS THAT S HOULD BE TAKEN CARE OF BEFORE IMPOSING A PENALTY U/S 221. THE FIRST CONDITION IS THAT THE AO MAY NOT TREAT AN ASSESSEE AS AN ASSESSEE IN DEFAULT, IF AN APPEAL IS PREFERRED AGAINST THE ASSESSMENT ORDER. OF COURSE, THIS IS ONLY AT THE DI SCRETION OF THE AO. IN THE INSTANT CASES, THE ASSESSEES HAD PREFERRED APPEAL A GAINST THEIR RESPECTIVE ASSESSMENT ORDERS BEFORE LD CIT(A). HOWEVER, THE AO DID NOT EXERCISE HIS POWER, STATED ABOVE, WHICH IS GIVEN U/S 220(6) BUT PROCEEDED TO INITIATE PENALTY PROCEEDINGS U/S 221 OF THE ACT. 9. THE NEXT CONDITION IS THAT THE ASSESSEE SHAL L BE GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE LEVYING THE PENAL TY. IN THE INSTANT CASES, THE SHOW CAUSE NOTICES WERE SERVED UPON THE ASSESSEES O NLY ON THE DATE FIXED FOR HEARING AND HENCE, FOR THE REASONS BEST KNOWN TO TH E ASSESSEE, HE COULD NOT APPEAR BEFORE THE AO ON THAT DATE. THEREAFTER, THE AO DID NOT CHOOSE TO GIVE ANY FURTHER OPPORTUNITY BY FIXING ANOTHER DATE OF H EARING. THIS ACTION OF THE AO, IN OUR OPINION, IS NOT IN ACCORDANCE WITH THE PRINC IPLES OF NATURAL JUSTICE. IT IS NOT THE CASE THAT THE SHOW CAUSE NOTICE WAS SERVED UPON THE ASSESSEE WELL BEFORE THE DATE OF HEARING. UNDER THE PECULIAR CIRCUMSTAN CES OF THE CASE, AS NARRATED ABOVE, THE NATURAL JUSTICE DEMANDS THAT THE AO SHOU LD HAVE GIVEN ONE MORE OPPORTUNITY TO THE ASSESSEE. 10. THE NEXT CONDITION IS THAT THE PENALTY SHAL L NOT BE LEVIED IF THE ASSESSEE PROVES TO THE SATISFACTION OF THE AO THAT THE DEFAU LT WAS FOR GOOD AND SUFFICIENT REASONS. AS NOTICED EARLIER, THE ASSESSEES HAVE FI LED LETTERS SEEKING STAY OF COLLECTION OF TAX PRIOR TO THE DATE OF PASSING PENA LTY ORDER. HOWEVER, THE AO HAS IGNORED THE SAID PETITION AND PROCEEDED TO LEVY PEN ALTY, WHICH IN OUR OPINION, IS NOT IN ACCORDANCE WITH THE SECOND PROVISO TO SECTIO N 221(1). THE AO SHOULD HAVE DISPOSED OF THE PETITION FILED BY THE ASSESSEE BEFORE LEVYING THE PENALTY. 5 11. IN VIEW OF THE REASONS GIVEN IN PARA 9 AND PARA 10, SUPRA, WE ARE OF THE VIEW THAT THE PENALTY LEVIED U/S 221 OF THE ACT IN BOTH THE CASES WAS NOT IN ACCORDANCE WITH THE MANDATE OF THE ACT AND ACCORDIN GLY WE UPHOLD THE ORDER OF LD CIT(A) IN DELETING THE PENALTY IN BOTH THE CAS ES. 12. IN THE RESULT, BOTH THE APPEALS FILED BY TH E REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 19.5.2010 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM DATE : 19 TH MAY, 2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 DCIT, CIR-1, RAJAHMUNDRY. 02 SRI KANCHERLA LAXMINARAYANA HUF, S/O VEERAIAH, D NO.3-276, PYDIKONDALAVARI STREET, YANAM. 03 THE CIT (A), RAJAHMUNDRY. 04 THE CIT, RAJAHMUNDRY. 05 THE DR, ITAT, VISAKHAPATNAM. 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH