Law:

Section:

Section 274(1) of the Income-tax Act, 1961 [Corresponding to section 28(3) of the Indian Income-tax Act, 1922] - Penalty - Procedure for imposition of - ITO initiated penalty proceedings against assessee and issued a show cause notice - Assessee did not care to appear personally or through his counsel on fixed date of hearing or on any other date - However, assessee had sent a cryptic written reply in answer to notice - No opportunity of hearing was requested by assessee before ITO - Meanwhile, ITO was transferred and his successor continued proceedings and passed an order of imposition of penalty on assessee - Whether, on facts, it was obligatory on succeeding ITO to give another opportunity of hearing to assessee before imposing penalty - Held, no - Whether, therefore, successor ITO was competent to pass penalty order after taking into consideration written explanation filed by assessee - Held, yes FACTS The assessee was in the business of manufacturing and sale of umbrellas. The assessee also had income from sale of the aero scraps. For the relevant assessment year, out of the amount realised from the sale of the aero scraps, the assessee credited some portion to the machinery account and balance to the capital account. The assessee was asked to explain the entries. The assessee stated it as sales of unutilised construction materials. The invoices of the sales showed as sales of the machinery parts. The ITO initiated the penalty proceedings against the assessee and issued a show cause notice. The notice was served on the assessee. There was no appearance on behalf of the assessee on the date of hearing. The assessee had sent a written reply in answer to the notice. Before the order could be passed, the ITO was transferred. The succeeding ITO continued with the proceedings and passed an order of imposition of penalty on the assessee. On appeal, the AAC confirmed the order of the ITO. On second appeal, the Tribunal confirmed the order of the AAC. On reference : HELD In a case where on ITO issues a notice under section 28(3) of the 1922 Act to an assessee calling upon him to show cause why penalty should not be imposed under section 28(1) of the 1922 Act and…

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