COMMISSIONER OF INCOME TAX vs. SCIENTIFIC CHEMICALS

ITR/182/1993HC GujaratGJHC24021236199321 June 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI5 pages
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What were the facts?

The assessee, a registered partnership firm, filed its income tax return for Assessment Year 1982-83 on May 31, 1983, instead of the due date of June 30, 1982. The Income Tax Officer (ITO) initiated penalty proceedings under Section 271(1)(a) of the Income Tax Act, 1961, for late filing. The ITO levied a penalty of Rs. 14,730, stating that no reply was received from the assessee. The assessee appealed to the CIT (Appeals), arguing that an extension application was not dealt with and that explanations for the delay were submitted but not considered. The CIT (Appeals) partly allowed the appeal, confirming the penalty for the period from October 1, 1982, to the filing date, citing a High Court decision on the extension application. The assessee appealed to the Income Tax Appellate Tribunal (ITAT), which cancelled the penalty, holding the penalty order was bad in law due to non-application of mind. The revenue has filed a reference to the High Court.

What did the High Court hold?

The High Court held that the Tribunal was justified in cancelling the penalty. The Court reasoned that the Income Tax Officer (ITO) had proceeded to levy penalty stating that no explanation was tendered by the assessee, despite the assessee having admittedly filed an explanation. This constituted a violation of the principles of natural justice and a vice of non-application of mind by the ITO. The Court emphasized that the discretion vested in the ITO under Section 271(1)(a) to levy penalty must be exercised judicially, which requires granting a reasonable opportunity to the assessee, including considering any explanation tendered. The failure to consider the explanation meant the ITO's discretion was not exercised properly. The Court also referred to the Apex Court's decision in Tin Box Company, stating that if the ITO did not give a proper opportunity of being heard, it was of no consequence whether the assessee could place evidence before appellate authorities. The Court found no legal infirmity in the Tribunal's reasoning. The question referred was answered in the affirmative, in favour of the assessee. The penalty order was vitiated and could not be sustained.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in cancelling the penalty levied under Section 271(1)(a) of the Income Tax Act, 1961, for the Assessment Year 1982-83? Assessee's Contentions: - The assessee argued that the penalty order was bad in law as it was passed without application of mind by the Income Tax Officer (ITO). - The assessee contended that it had filed an extension application which was not dealt with by the ITO. - The assessee further argued that its explanations for the late filing were submitted but not considered by the ITO. - The assessee relied on the decisions in Commissioner of Income Tax v. Textile And General Engineer Co., [2003] 259 ITR 735 (Gujarat), Commissioner of Income Tax v. G.R.Rajendran, [2003] 259 ITR 109 (Madras), and Tin Box Company v. Commissioner of Income Tax, [2001] 249 ITR 216 (SC). Revenue's Contentions: - The revenue argued that once both the CIT (Appeals) and the Tribunal found no reasonable cause for the delay, the Tribunal erred in cancelling the penalty. - The revenue submitted that the assessee's explanation was considered on merits by the appellate authority, thus no prejudice was caused. - The revenue contended that the satisfaction for penalty levy could be of the ITO or the appellate authority, and if the CIT (Appeals) considered the explanation, the assessee was not denied an opportunity. - The revenue argued that the ITO's order merged with the CIT (Appeals)'s order, making it impossible for the Tribunal to strike down the ITO's order independently.

Which sections of the Income-tax Act were involved?

Section 271(1)(a),Section 274,Section 256(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 182 of 1993 For Approval and Signature: THE HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI ============================================================== ============================================================== COMMISSIONER OF INCOME TAX - Petitioner(s) Versus SCIENTIFIC CHEMICALS - Respondent(s) ============================================================== Appearance : MR MANISH R BHATT for Petitioner No(s).: 1. MR NR DIVETIA for Respondent No(s).: 1. ============================================================== CORAM :THE HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI Date : 21/06/2005

ORAL JUDGMENT 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 of any order made thereunder ? 5 Whether it is to be circulated to the civil judge ?

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(Per : THE HON'BLE MR.JUSTICE D.A.MEHTA)

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