COMMISSIONER OF INCOME TAX Vs. SHANKAR D DHANWATEY

JUDGEMENT

(1.) THE following question has been referred for the opinion of this Court at the instance of the CIT, Nagpur, under S. 256(1) of the IT Act, 1961 ("the IT Act") :

(2.) THE basic backdrop against which the point arises is very short and it is this : A notice under S. 139(2) of the IT Act was served by the ITO, Bombay, on the assessee. The assessee requested for time to file the return of the income. Time was granted up to 30th Nov., 1972. The return was not filed within time. It was filed on 16th March, 1974. Assessment was completed on 11th Feb., 1975, by the ITO, Bombay, who initiated proceedings under S. 271(1)(a) and issued notice under S. 274 for showing cause as to why penalty should not be levied for the delay. No reply was filed by the assessee. Under the orders of the CBDT, the assessment jurisdiction over the assessee was transferred from Bombay to Nagpur w.e.f. 12th Jan., 1976, under S. 126 of the IT Act. The ITO, Nagpur, passed an order dt. 26th March, 1977, imposing a penalty of Rs. 50,310 observing that there was neither a reply by the assessee nor did he attend the proceedings in person or through a representative to explain the delay. No notice or intimation of any nature was given by the ITO, Nagpur, before imposing the penalty. The AAC quashed the order of penalty on the ground that the ITO, Nagpur, the succeeding authority, had failed to intimate his intention to continue the penalty proceedings from the stage at which they were left by his predecessor the ITO, Bombay, as mandated by S. 129. The Tribunal upheld the order of the AAC.

(3.) The principle underlying is that the succeeding officer has authority to continue the proceedings from the stage at which they are left by his predecessor and the assessee may demand that before the proceeding is so continued, the previous proceeding or any part thereof may be reopened or that he may be reheard before passing the assessment order. The use of the word "may" in the section indicates that continuation from that stage is within the authority of the officer and not his obligation. In an appropriate case, he is free on his own accord to reopen even the earlier stages. The proviso gives a right to the assessee to demand reopening of the previous stages before the proceeding is so continued. Whether at all to continue with the proceeding or not is again for the said officer to decide, but the assessee cannot know the mind of the authority to continue the proceeding further unless he is communicated the intention of the authority to do so. This provision thus gives one more right pertaining to an opportunity of being heard contemplated under S. 274 when the incumbent changes. It is trite to observe that either S. 274 or S. 129 is based on the principles of natural justice which do not have any strait jacket formula. Opportunity of hearing is not always exhausted by giving or not giving a written reply. Even without written reply the assessee can explain the adverse circumstances alleged against him. It is true that this is not a case of refusing to reopen the proceeding despite demand by the assessee. But that is a different aspect. Here is a case where there was no opportunity to exercise that right to demand. Under the circumstances, the penalty order passed by the ITO, Nagpur, was wholly unauthorised and void.