SHARMILA VIKRAM MAHURKAR V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), VADODARA

SCA/26444/2022

AI Insights

The case involves Sharmila Vikram Mahurkar, who challenged a penalty order imposed by the Assistant Commissioner of Income Tax under section 271(1)(c) of the Income Tax Act, 1961, for the Assessment Year 2010-11. The penalty of Rs. 53,36,430 was levied following a survey and subsequent assessments that deemed certain investments as unexplained. The petitioner argued that the penalty was imposed without a reasonable opportunity to be heard, citing a violation of natural justice due to the short notice period provided for the hearing. The respondent contested the allegations but did not provide sufficient evidence to counter the claim of procedural impropriety.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 756206 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 06-02-2023
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL
• Assessee Lawyers: HARDIK VORA
• Keywords: Deemed dividend; Natural Justice; Penalty order; Unexplained investment
• Section: 143(3); 271(1)(c); 274; 133A

Judgement Text

"C/SCA/26444/2022 ORDER DATED: 06/02/2023 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 26444 of 2022 ========================================================== SHARMILA VIKRAM MAHURKAR Versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), VADODARA ========================================================== Appearance: MR. HARDIK V VORA(7123) for the Petitioner(s) No. 1 MR NIKUNT K RAVAL(5558) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MS. JUSTICE SONIA GOKANI and HONOURABLE 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 the Constitution of India seeking to set aside the penalty order under section 271(1)(c) of the Income Tax Act, 1961 (“the Act” for short) for the Assessment Year 2010-11 imposing penalty of Rs. 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 Page 1 of 8 C/SCA/26444/2022 ORDER DATED: 06/02/2023 Act was carried out in the business premises of the petitioner company on 06.12.2010. It was urged during the course of survey that the petitioner company had made investment of Rs.1.57 crores in the property of Gurgaon through Mrs. Sharmila Mahurkar, who is one of the Directors of the petitioner company vide Memorandum of Understanding executed between them with an intention to become major partner of the firm. The case was selected for scrutiny. The petitioner company is averred to have been engaged in the guarding business. As per the prevailing practice in the State of Haryana, as security company cannot directly purchase the land in an industrial area, the amount was considered as deemed dividend in the hands of Mrs. Sharmila Mahurkar and had offered to tax for Assessment Year 2010-11. 2.2 The Assessing Officer made addition of Rs.5,44,46,334/- on account of delayed payment of employees contribution and finalized assessment under section 143(3) of the Act by passing order Page 2 of 8 C/SCA/26444/2022 ORDER DATED: 06/02/2023 on 18.03.2013. 2.3 Aggrieved petitioner preferred an appeal before the CIT(Appeals). The petitioner company had contended that it had taken the said investment in its books, as the investment was made in the name and style of M/s. Checkmate Apparels, a proprietorship concern of Mrs. Sharmila Mahurkar. CIT(Appeals) partly allowing the appeal on 02.05.2014. 3 The challenge was made before the Income Tax Appellate Tribunal (“the Tribunal” for short), which also confirmed the addition on 30.03.2022. The show cause notice came to be issued under section 274 read with section 271 (1)(c) of the Act on 28.11.2022 at 2:40 p.m. requesting to appear in person or through a duly authorised representative, the very next day i.e on 29.11.2022. As it was not practicably possible to appear in person within 24 hours, a letter dated 29.11.2022 was addressed to the Assistant Commissioner of Income Tax, Circle 1(1)(1), Vadodara pointing out the practical difficulty to Page 3 of 8 C/SCA/26444/2022 ORDER DATED: 06/02/2023 appear in such a short time; that `short notice’ is `no notice’; it is impossible to collect the papers in such a short period and therefore adjournment was sought and also request was made to drop the proposed penalty. However, the Assessing Officer passed a penalty order under section 271(1)(c) of the Act along with notice of demand under section 156 of the Act levying penalty of Rs. 53,36,430/-. This has severely aggrieved the petitioner, who is before this Court with the following prayers: “5. The Petitioner accordingly prays that this Hon’ble Court may kindly be pleased to issue: a. A Writ of Certiorari or writ, order, or direction in the nature of Certiorari quashing/set aside the Penalty Order passed u/s. 271(1)(c) of the Act for A.Y.2010-11 levying huge penalty of Rs.53,36,430/- without providing reasonable opportunity of being heard (Annexure-A) b. Pending hearing and final decision of the writ petition, to stay the penalty order and/or demand of Rs.53,36,430/-. Page 4 of 8 C/SCA/26444/2022 ORDER DATED: 06/02/2023 c.Pass any other order(s) as this Hon’ble Court may deem fit and more appropriate in order to grant interim relief to the Petitioner; d. Any other and further relief deemed just and proper be granted in the interest of justice; e. To provide for the cost of this petition.” 4 Affidavit-in-reply on behalf of the respondent is filed denying all allegations. The sole ground of challenge, according to the respondent, is the violation of principles of natural justice. The penalty notice under section 271(1)(c) of the Act issued on 18.03.2013 and subsequently further notice on 28.11.2022 under section 274 of the Act read with section 271(1)(c) of the Act was issued calling upon the petitioner to respond by 11:00 a.m. on 29.11.2022. It is the say of the respondent that the penalty notice issued by the Assessing Officer does not mention as to under which limb of section 271(1)(c) of the Act, penalty proceedings has been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income, Page 5 of 8 C/SCA/26444/2022 ORDER DATED: 06/02/2023 and, therefore, the penalty order is bad in law. It is further the say of the respondent that during the assessment proceedings, the Assessing Officer has made addition on the issue of loan and advance given to Mrs.Sharmila Mahurkar of Rs.1,57,00,000/-. According to the respondent, CIT(Appeals) in its order dated 02.05.2014, has discussed the issue of loan and advances and in absence of any documentary evidence and details, the addition of Rs.1.57 crores was made as unexplained investment. 5 We have heard Mr. Hardik Vora, learned advocate for the petitioner and Mr.Nikunt Raval, learned Senior Standing Counsel with Mr.Karan Sanghani, learned Standing Counsel for the respondent. 6 Without entering into the merits of the matter, we notice that there has been a serious flaw in affording the opportunity of hearing to the parties, which has resulted into imposition of huge amount of penalty on 28.11.2022. 7 Notice under section 274 read with section 271(1) (c) of the Act had been issued and the petitioner Page 6 of 8 C/SCA/26444/2022 ORDER DATED: 06/02/2023 was asked to appear in person or through a duly authorised representative at 11:00 a.m. on 29.11.2022. This show cause notice as to why the order imposing penalty be not made under section 271(1)(c) of the Act gives less than 24 hours to the petitioner, whereby it had asked the petitioner to appear in person or through a duly authorised representative. This shorter period of less than 24 hours can be termed as a pure and simple breach of principles of natural justice. It appears that on 28.11.2022, request was made for adjournment and the same is also reflected from the portal of the Tribunal and that such a request had been made to adjourn the hearing by few days. Without paying any heed to the same, when the order impugned has been passed, the Court requires to interfere. 8 Resultantly, the petition is allowed. The impugned order of penalty dated 30.11.2022 is quashed and set aside. Let an opportunity of hearing be given from the stage where it was left. The communication in this respect shall need to be made within four weeks from the date of receipt Page 7 of 8 C/SCA/26444/2022 ORDER DATED: 06/02/2023 of the copy of this order. The petitioner shall cooperate. Let the entire proceedings be completed in eight weeks thereafter. 9 Petition stands disposed of accordingly. (SONIA GOKANI, J) (SANDEEP N. BHATT,J) SRILATHA Page 8 of 8 "