M/S Maharaj Garage & Co.Nagpur vs Commissioner Of Income ...
2017 Latest Caselaw 6432 Bom

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   IN THE HIGH COURT OF JUDICATURE AT BOMBAY
             NAGPUR BENCH, NAGPUR


             Income Tax Reference No.21 of 2008


  M/s. Maharaj Garage & Company,
  Mirchi Bazar, Itwari, Nagpur.                     ... Applicant

        Versus

  The Commissioner of Income Tax,
  Vidarbha, Nagpur,
  Now
  Commissioner of Income Tax-II,
  Nagpur.                                           ... Respondent



  Shri K.P. Dewani, Advocate for Applicant.
  Shri S.N. Bhattad, Advocate for Respondent.




               Coram : R.K. Deshpande & Manish Pitale, JJ.

th Date of Reserving the Judgment : 11 August, 2017

Date of Pronouncing the Judgment : 22nd August, 2017

Judgment (Per R.K. Deshpande, J.) :

1. The proceedings under Section 143(3) read with

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Section 147(a) of the Income Tax Act, 1961 for the Assessment

Year 1987-88, completed on 30-3-1988, declaring the total

income of Rs.1,12,380/- on 1-10-1987, were re-opened by the

Department of Income Tax. In the order dated 30-9-1988 passed

in such proceedings, two crucial findings were recorded - (i) that

the assessee has concealed the particulars of his income for the

Assessment Year 1987-88; and (ii) that he has furnished the

inaccurate particulars of such income. It holds that against the

net profit of Rs.11,02,329.38, the assessee has declared the net

profit of Rs.1,90,808.38 in the return of income filed on

1-10-1987. Thus, there was clear suppression of income by the

assessee to the extent of Rs.9,11,521/-.

2. The Income Tax Officer, who made this assessment,

issued the notice dated 30-9-1988 to the assessee proposing to

impose the penalty under Section 271 of the Income Tax Act and

initiated the proceedings. The assessee filed the reply through

his counsel on 17-2-1989 denying that he has committed any

offence within the meaning of Section 271(1)(c) of the Income

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Tax Act and urging that there is no evidence on record to hold

that the assessee has either concealed the particulars of his

income for the Assessment Year 1987-88 or has furnished the

inaccurate particulars of such income. Apart from this, there

were other contentions, which were raised.

3. The Income Tax Officer, considering the facts and

circumstances of the case, held that this is a fit case of levy of

penalty under Section 271(1)(c) of the Income Tax Act for the

act of concealing particulars of income by the assessee by

furnishing inaccurate particulars of income in the return filed on

1-10-1987. The maximum penalty imposable under the said

provision was 200%; however, the Income Tax Officer imposed

minimum penalty equivalent to the tax sought to be evaded of

Rs.4,60,000/-. Accordingly, the order was passed on 3-3-1989

after seeking prior approval of the Deputy Commissioner of

Income Tax, as required by the said provision.

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4. The Commissioner of Income Tax (Appeals), Nagpur,

entertained the statutory appeal and reduced the ultimate

penalty imposed to Rs.3,95,367/- in further appeal before the

Income Tax Appellate Tribunal, Nagpur, which has maintained

the order passed by the Commissioner of Income Tax (Appeals)

by dismissing the appeal on 7-1-1994.

5. In this reference under Section 256(1) of the Income

Tax, the Income Tax Appellate Tribunal referred the following

questions as the questions of law for determination of this Court

arising out of its order dated 7-1-1994.

"1. Whether on the facts and in the circumstances of the case, the levy of penalty is legal and justified?

2. Whether on the facts and in the circumstances of the case, the assessee was given a reasonable opportunity of being heard?

3. Whether on the facts and in the circumstances of the case, the approval of Deputy Commissioner of

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Income Tax, Range-1, is in accordance with law?

4. Whether on the facts and in the circumstances of the case it was necessary for the Deputy Commissioner of Income Tax to give an opportunity to the assessee before granting approval to the order imposing penalty?"

6. The basic question, which falls for consideration of this

Court, as has been urged, is, while granting previous approval by

the Inspecting Assistant Commissioner, as required under the

proviso below Section 271(1)(c)(iii) of the Income Tax Act, the

assessee was required to be given a reasonable opportunity of

being heard?

7. Shri K.P. Dewani, the learned counsel appearing for the

assessee; and Shri S.N. Bhattad, the learned counsel appearing

for the Department, have cited before us several decisions of the

Apex Court as well as of the different High Courts in support of

their rival contentions. Shri Dewani urged that the grant of

approval by the Inspecting Assistant Commissioner results in civil

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consequences of imposition and recovery of penalty, which could

only be done after giving a reasonable opportunity to furnish an

explanation and of being heard in the matter. According to him,

the power to grant prior approval conferred upon the Inspecting

Assistant Commissioner is quasi judicial in nature, and even if it

is considered to be an administrative power, the requirement of

following the principles of natural justice is implicit in it.

Shri Bhattad, on the other hand, urged that the power of

granting previous approval is purely administrative in nature and

there is no question of granting an opportunity to explain and of

being heard before granting such approval. He further urged

that there is no specific requirement under the Statute and,

therefore, such requirement cannot be read in it.

8. In order to consider the rival contentions, we have to

see the provision of Section 271 of the Income Tax Act to the

extent relevant in the present case, as it stood on the date of

passing of the order of imposing the penalty. Hence, the said

provision is reproduced below :

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"Failure to furnish returns, comply with notices, concealment of income, etc.

271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person--

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,--

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent, but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income :

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Provided that, if in a case falling under clause (c), the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees, the Income-tax Officer shall not issue any direction for payment by way of penalty without the previous approval of the Inspecting Assistant Commissioner."

9. The aforesaid provision confers a discretion upon the

competent authority (in the present, the Income Tax Officer) in

respect of the quantum of penalty, which ranges between twenty

per cent to twice (i.e. 200%) of the amount of tax sought to be

levied. While imposing penalty, the competent authority has to

be satisfied that a person has concealed the particulars of his

income or furnished the inaccurate particulars of such income.

Such satisfaction has to be arrived at on the basis of the objective

assessment of the material available on record. The power of

adjudication of penalty under the said provision is quasi judicial

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in nature.

10. Section 274 of the Income Tax Act deals with the

procedure for imposing penalty and sub-section (1) therein

states that 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 in the matter. If any

order is passed imposing the penalty, it can be the subject-matter

of statutory appeal under Section 246 of the said Act before the

Commissioner of Income Tax (Appeals) and thereafter a further

appeal to the Income Tax Appellate Tribunal.

11. In the case of concealment of particulars of income and

furnishing of inaccurate particulars of such income, clause (iii)

under Section 271(1)(c) of the Income Tax Act empowers the

imposition of penalty in addition to any tax payable by the

assessee, a sum which shall not be less than, but which shall not

exceed twice, the amount of tax sought to be evaded. If the

amount of income concealed or in respect of which inaccurate

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particulars have been furnished exceeds a sum of Rs.25,000/-,

the competent authority, viz. the Income Tax Officer, cannot

issue any direction for payment by way of penalty without the

previous approval of the Inspecting Assistant Commissioner.

12. The provision of Section 271(1)(c)(iii) of the Income

Tax does not attract the rule of presumption of mens rea and it

cannot be equated with the provision in the Criminal Statute.

The penalty is for default in complying with the provision, i.e. of

furnishing true and correct particulars of the income in the

return. The penalty is imposable for breach of the civil

obligation. It is only the reasonable opportunity of being heard

in the matter, which is required to be provided to the assessee.

The enquiry seems to be of summary in nature, which does not

even call for issuance of show cause notice in respect of the

quantum of penalty proposed to be imposed. While exercising

the discretion in respect of the quantum of penalty, the

explanation furnished by the assessee to mitigate the rigour of

penalty has to be considered, having regard to the intention of

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the assessee, if any, to evade the tax, as one of the factors.

13. The provision of Section 271(1)(c)(iii) of the Income

Tax Act contemplates only one and not the dual proceedings of

imposition of the penalty in respect of the notice issued therein.

The provision has to be read as a whole and it cannot be split up.

The requirement of obtaining previous approval of the Inspecting

Assistant Commissioner is a step in such proceedings to be

mandatorily complied with by the competent authority (in the

present case, the Income Tax Officer). The non-compliance of it

may vitiate the order imposing the ultimate penalty. The

provision nowhere contemplates another opportunity of being

heard in the matter before granting approval. The power to

grant previous approval is purely administrative in nature. The

object is to safeguard the interest of assessee against arbitrary

exercise of power by the competent authority while imposing

penalty. It is in the nature of control over the action of the

subordinate authority. While granting previous approval, the

higher authority can see whether the procedure prescribed for it,

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is followed and that there is a material available on record for

imposing the penalty and the extent of penalty imposed is

proportionate to the act of default. If the ultimate imposition of

penalty under Section 271 of the Income Tax Act is found to be

bad in appeal under Section 246 of the said Act or thereafter, the

previous approval granted therein shall collapse or would not

survive, even in the absence of specific challenge to it.

14 We have gone through the several decisions cited before

us by the learned counsels appearing for the assessee and the

Department of Income Tax. The decisions cited by Shri Dewani

for the assessee are not on the provision of Section 271 of the

Income Tax Act, as it existed when the order of penalty was

passed. It is not possible for us to accept the contention that

wherever the Act prescribes the requirement of obtaining

previous approval, the compliance of the principles of natural

justice of being heard in the matter is called for. No such

universal principle can be laid down and it depends upon the

language of the provision and the object and purpose of it. We,

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therefore, hold that the requirement of following the principles

of natural justice before granting approval cannot be imported in

the proviso below Section 271(1)(c)(iii) of the Income Tax Act.

The questions of law at serial Nos.2 and 4 are, therefore,

answered in the negative.

15. The requirement of Section 274 of the Income Tax Act

for granting reasonable opportunity of being heard in the matter

cannot be stretched to the extent of framing a specific charge or

asking the assessee an explanation in respect of the quantum of

penalty proposed to be imposed, as has been urged. The assessee

was supplied with the findings recorded in the order of

re-assessment, which was passed on the same date on which the

notice under Section 271(1)(c) was issued, initiating the

proceedings of imposing the penalty. The assessee had sufficient

notice of the action of imposing penalty. We, therefore, do not

find either any jurisdictional error or unjust exercise of power by

the authority.

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16. It is not in dispute that a reasonable opportunity of

being heard in the matter, as required by Section 274 of the said

Act was given to the assessee before imposing the penalty by the

Income Tax Officer. The assessee furnished his explanation,

which has been taken into consideration in the order. The

mandatory requirement of obtaining the previous approval of the

Inspecting Assistant Commissioner was followed. The penalty

imposed by the Income Tax Officer was reduced by the Appellate

Authority. There was no arbitrary exercise of discretion and the

reasons are recorded after taking into consideration the

explanation submitted by the assessee. The exercise of

jurisdiction in respect of quantum of penalty is neither unjust nor

beyond jurisdiction. The questions of law at serial Nos.1 and 3

are, therefore, answered in the negative.

17. The reference is answered in the negative, as above.

No order as to costs.

               (Manish Pitale, J.)                      (R.K. Deshpande, J.)