The Bombay High Court ruled that the foundation to initiate a proceeding under Section 271(1)(c) of the Income Tax Act in invoking a penal provision cannot be premised on a prejudice being suffered by the taxpayer. The Court thus clarified that the basic principles of fairness and natural justice, which would be required to be adhered to by the AO to furnish any adverse material and grant sufficient opportunity to the taxpayer to meet the case of the department, when it comes to the levy of penalty, which by its nature are penal proceedings.
The Division Bench comprising Justice G.S. Kulkarni and Justice Aaarti Sathe observed that the materials which were obtained from the Sales Tax Department to make additions in the ITR and conclusively levy penalty, were in fact not furnished to the appellant-taxpayer and no adequate opportunity was granted to the appellant to meet the case of Revenue.
The Bench thus stated that the ITAT had rightly found this approach of the AO and the CIT(A) to be an unacceptable and incorrect approach, and accordingly, dismissed the appeal in favour of the appellant-taxpayer.
Briefly, in this case, the appellant, an individual running a proprietary business of civil construction in the name of Sai Siddhanath Construction, filed his return declaring the total income of Rs. 87.53 lacs. Even though his assessment was processed, the AO issued notice under Section 148 and commenced re-assessment proceedings on the grounds of data provided by the Sales Tax Department about non-genuine purchases from one entity. In response, the appellant added the purchases made from the alleged hawala parties by filing a revised return to buy peace.
The appellant’s case was that the filing of a return declaring such income was on such understanding that no penal action under Section 271(1)(c) for concealment of income would be taken. Accordingly, the assessment under the provisions of Section 148 read with Section 143 was accepted. However, based on the said assessment order and the additions made, the AO initiated penalty proceedings under Section 271(1)(c) read with Section 274 of the Act. Resultantly, the AO levied a penalty of Rs. 93,801 on account of the disallowance of purchases. Though the CIT(A) confirmed the penalty, the ITAT, however, deleted the penalty.
Appearances:
Advocate Akhileshwar Sharma, for the Appellant/ Revenue
NA, for the Respondent/ Taxpayer
