TMI Blog2005 (6) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... e order levying the penalty was bad in law - - - - - Dated:- 21-6-2005 - Judge(s) : D. A. MEHTA., MS. H. N. DEVANI. JUDGMENT The judgment of the court was delivered by D.A. Mehta J.- The following question has been referred at the instance of the Revenue by the Income-tax Appellate Tribunal, Ahmedabad Bench "C", under section 256(1) of the Income-tax Act, 1961 ("the Act"). "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?" The assessment year is 1982-83. The assessee, a registered partnership firm, was required to file the return of income on June 30, 1982, whereas the same was filed on May 31, 1983. The Income-tax Officer issued notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with the return of income. The Commissioner of Income-tax (Appeals) followed the decision of this High Court in the case of CIT v. Gordhanbhai Jethabhai [1983] 142 ITR 84, and held that the assessee had valid reason up to September 30, 1982, considering the fact that the extension application was not responded to by the Income-tax Officer. However, without dealing with the submission made on behalf of the assessee regarding non-consideration of the explanation tendered, the Commissioner of Income-tax (Appeals) proceeded to consider the explanation of the assessee on the merits and held that the explanation was not plausible in his opinion. He, therefore, confirmed the penalty for the period of default from October 1, 1982, till the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further submitted that the order of the Income-tax Officer levying the penalty had merged with the order of the appellate authority and hence, it was not possible for the Tribunal to strike down the order of the Income-tax Officer as the same did not exist independently. She, therefore, urged that the Tribunal's order be reversed and the order of the Commissioner of Income-tax (Appeals) be restored, answering the reference in favour of the Revenue. Mr. S.N. Divetia, learned counsel appearing on behalf of the respondent-assessee, submitted that the Tribunal's order was required to be upheld in the light of the principles laid down in the following decisions: (a) CIT v. Textile and General Engineer Co. [2003] 259 ITR 735 (Guj); (b) CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the explanation tendered, he would drop the penalty proceedings, and then there would be no occasion to go in appeal. The Tribunal has, therefore, held that such a right of an assessee cannot be taken away by exercise of any appellate jurisdiction. The Tribunal has further approached the issue from a slightly different angle inasmuch as it has held that, in such a case, where the assessee's explanation is not considered by the Income-tax Officer and is taken into consideration by the appellate authority for the first time, it would mean that the appellate authority has proceeded on the footing that the explanation has been rejected by the Income-tax Officer, whereas in fact the same has not been considered at all. It has further b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only the right of reasonable opportunity, but also the right of being heard. The right of being heard would encompass the factum of the explanation tendered being considered before the assessing authority decides to pass an order. Section 271(1)(a) of the Act grants discretion to the Income-tax Officer to levy or not to levy penalty. This is clear from the phrase, "he may direct that such person shall pay by way of penalty" namely, the Income-tax Officer may direct or may not direct levy of penalty considering the fact that he is required to be satisfied whether any person has committed the stipulated default without reasonable cause. Such a satisfaction can be recorded only if proper and adequate opportunity is accorded to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands vitiated for non-application of mind. If a statute invests a public officer with the authority to do an act in a specified set of circumstances, it is imperative upon him to exercise the authority in a manner appropriate to the facts and circumstances of the case when a party interested and having a right takes appropriate steps in that regard and circumstances for exercise of authority with the discretion are shown to exist. The exercise of discretion has to be in a judicial manner, namely, fairly and reasonably. Applying the aforesaid principles to the facts of the case, it is apparent that the assessee had tendered an explanation before the Income-tax Officer in response to the show-cause notice issued by him, such explanation has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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