Commissioner of Income Tax vs F.E. Patanwalla

D.R. Dhanuka, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal has referred the following question to this Court for its opinion :

"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the penalty order imposed on the basis of the rectification assessment order in respect of which no fresh show cause notice was issued to the assessee was bad in law and so cancelling the penalty?"

The assessee did not file his Income Tax return in time. The assessee filed the necessary return on 17th March 1976. Returns ought to have been on 15th August, 1975. By assessment order dated 29th March, 1976, the assessment was completed. The Income Tax Officer determined total loss for the Assessment year 1975-76 at Rs. 17,708/-. The said assessment was later on rectified u/s 155 of the Income Tax Act, 1961 by an order dated 30th March, 1978, assessing total income of the assessee at Rs. 1,51,580/-. At one stage, a show cause notice was issued to the assessee calling upon him as to why penalty should not be imposed on him on late filing of the return. It was held that no penalty was leviable on the basis of the original assessment as the assessee has suffered loss of Rs. 17,708/- and assessee had no taxable income. After the assessment order was rectified as stated above, no fresh show cause notice was issued to the assessee before imposing penalty in question. Penalty in question was imposed straightway and without issuing any show cause notice. Without issuing any fresh show cause notice and without giving any opportunity to the assessee to show cause in the matter, the Income Tax Officer straight away levied penalty in sum of Rs. 14,496/-.

We have carefully gone through the order of the Income Tax Officer levying penalty of Rs. 14,496/- on the assessee. The said order of penalty was upheld by Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal rightly came to the conclusion that no penalty could be imposed on the assessee unless a fresh show cause notice was issued to the assessee in view of the changed circumstances. We are in agreement with the view taken by the Tribunal. The Tribunal was justified in cancelling the order of penalty in view of the fact that no fresh show cause notice was issued to the assessee in the matter after the assessment order was rectified.

In the result, we answer the question referred to us in the affirmative i.e. in favour of the assessee and against the revenue. No costs.