M/S INDUSTRIAL CABLES ( INDIA ) LTD. vs. COMMR. OF INCOME TAX PATIALA & ANR.

Facts

The appellant, M/s. Industrial Cables (India) Ltd., filed an appeal against an order dated 23.09.2002 passed by the Income Tax Appellate Tribunal (ITAT). The ITAT's order dealt with cross-appeals for assessment year 1988-89. The revenue's appeal was partly allowed, and the assessee's appeal was dismissed. The core issue revolved around a penalty levied by the Assessing Officer (AO) under Section 273(2)(aa) of the Income Tax Act. The AO had issued a notice under Section 273(2)(aa) on 16.10.1995, which was served on the assessee on 29.10.1995. The assessee responded on 31.10.1995, addressing the default under Section 273(2)(aa). The ITAT noted a clerical mistake in mentioning Section 273(2)(a) in the assessment order and the initial notice, but found it did not vitiate the penalty proceedings as the assessee was aware of the actual charge and had responded accordingly. The penalty was imposed after due opportunity and application of mind by the AO.

Held

The Tribunal held that the mistake in mentioning the wrong section (273(2)(a) instead of 273(2)(aa)) in the assessment order and the first notice was merely of a clerical nature and was subsequently rectified. The Tribunal observed that the Assessing Officer had issued a subsequent notice under Section 273(2)(aa) which was duly served on the assessee, and the assessee had filed a reply with reference to the default under Section 273(2)(aa). Therefore, the assessee was fully aware of the actual charge. The Tribunal further noted that the penalty was imposed after allowing a proper opportunity to the assessee with respect to the specific default under Section 273(2)(aa) and after due application of mind. The initial notice under Section 273(2)(a) could not be a ground for quashing the penalty levied under Section 273(2)(aa). The CIT(A) had rightly set aside the earlier order and directed the AO to recompute the penalty at 10% of the difference in tax, taking the assessed income as Rs. 2,82,16,541/-. The High Court found no substantial question of law arising and dismissed the appeal.

Key Issues

1. Whether the Assessing Officer was justified in levying penalty under Section 273(2)(aa) of the Income Tax Act, 1961, despite a clerical error in mentioning Section 273(2)(a) in the initial notice and assessment order? Assessee's Contention: The assessee argued that the penalty proceedings were vitiated due to the incorrect mention of Section 273(2)(a) in the initial notice and assessment order, which did not accurately reflect the default for which the penalty was sought to be imposed under Section 273(2)(aa). Revenue's Contention: The revenue contended that the clerical mistake in mentioning the section did not prejudice the assessee, as a subsequent notice under Section 273(2)(aa) was issued, and the assessee had responded to the default specified therein. The penalty was imposed after due process and opportunity.