HIGH COURT OF ANDHRA PRADESH AT AMARAVATI

W.P.Nos.11604, 11593, 11818, 11596 and 11923 of 2022

Between:

DIVINE CHEMTEC LIMITED

(A company incorporated and

Registered under the provisions

Of Companies Act 2013)

Having its registered office at:-

Plot No.H, K, L, Phase-II, Duvvada,

Visakhapatnam – 530 049, Andhra Pradesh,

Rep. by its Authorized Signatory,

Moturi Srinivas Prasad.

..Petitioner

And

Income Tax Department,

National Faceless Assessment Center Delhi,

4

th

Floor, Mayur Bhawan,

Connaught Circus, New Delhi – 110 001 and one another

.. Respondents

DATE OF JUDGMENT PRONOUNCED: 14.06.2023

SUBMITTED FOR APPROVAL:

HON’BLE SRI JUSTICE U. DURGA PRASAD RAO

HON’BLE SRI JUSTICE T. MALLIKARJUNA RAO

1. Whether Reporters of Local newspapers Yes/No

may be allowed to see the Judgments?

2. Whether the copies of judgment may be Yes/No

marked to Law Reporters/Journals?

3. Whether Their Ladyship/Lordship wish to Yes/No

see the fair copy of the Judgment?

_________________________

U. DURGA PRASAD RAO, J

________________________

T. MALLIKARJUNA RAO, J

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*HON'BLE SRI JUSTICE U.DURGA PRASAD RAO

AND

HON’BLE SRI JUSTICE T. MALLIKARJUNA RAO

+ W.P.Nos.11604, 11593, 11818, 11596 and 11923 of 2022

%14.06.2023

# DIVINE CHEMTEC LIMITED

(A company incorporated and

Registered under the provisions

Of Companies Act 2013)

Having its registered office at:-

Plot No.H, K, L, Phase-II, Duvvada,

Visakhapatnam – 530 049, Andhra Pradesh,

Rep. by its Authorized Signatory,

Moturi Srinivas Prasad.

..Petitioner

Vs.

$ Income Tax Department,

National Faceless Assessment Center Delhi,

4

th

Floor, Mayur Bhawan,

Connaught Circus, New Delhi – 110 001 and one another

.. Respondents

<GIST:

>HEAD NOTE:

! Counsel for the petitioner: Sri B. Adinarayana Rao for Sri Javvaji Sarath

Chandra and B. Ravi Kiran Singh learned

counsel representing the petitioner.

Counsel for respondents: Smt. M. Kiranmayee, learned Standing Counsel for

respondents

? CASES REFERRED:

1. AIR 1999SC 22 = MANU/SC/0664/1998

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HON’BLE SRI JUSTICE U. DURGA PRASAD RAO

AND

HON’BLE SRI JUSTICE T. MALLIKARJUNA RAO

W.P.Nos. 11604, 11593, 11818, 11596 and 11923 of 2022

COMMON ORDER : (Per Hon’ble Sri Justice U. Durga Prasad Rao)

Challenge in the writ petition No.11604 of 2022 is to the order

in DIN No. ITBA/PNL/F/271(1)(c)/ 2021-22/ 1041194359(1), dated

21.03.2022 passed by National Faceless Assessment Centre, Delhi of

the respondents whereunder it was proposed to impose a penalty of

Rs.58,72,241/- U/s 271(1)(c) r/w Section 274(2) of Income Tax Act,

1961 ( for short “IT Act”).

2. Petitioner’s case succinctly is thus:

(a) Petitioner is a company incorporated and registered under

the provisions of Companies Act, 2013.

(b) On 20.09.2017 search operations were conducted in the

premises of the petitioner U/s 132 of IT Act and notice was

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issued on 30.08.2018 U/s 153A of the IT Act calling for its

return from income.

(c) During search operation, the Managing Director of

petitioner, on verification of Audit and Balance Sheet of the

petitioner company noticed an inadvertent error in the books of

accounts in the Financial Year ending 31.03.2009 wherein a

Foreign Investment was capitalized against Plant and

Machinery, though the same did not materialize for various

reasons. Since mistake was occurred in the Financial Year

ending 31.03.2009, it was continued unnoticed and same was

corrected in the Financial Year ending 31.03.2015 for the

Assessment Year 2015-16.

(d) Pursuant to the notice U/s 153A, the petitioner on

23.09.2018 filed return declaring therein a loss of

Rs.5,50,06,514/- and the same was assessed U/s 143(3) r/w

Section 153A of the IT Act by the order dated 30.12.2019

accepting the income in the return filed in the assessment order.

The AO through recorded his satisfaction, however initiated

penalty proceedings U/s 271(1)(c) r/w explanation 5A for

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furnishing inaccurate particulars of income by placing the

reliance on original return of income filed U/s 139(1) of the IT

Act.

(e) Accordingly, a show cause notice dated 03.01.2020 was

issued U/s 274 of IT Act to which the petitioner submitted its

reply dated 03.02.2020 denying all the allegations. The

petitioner has specifically drawn the attention about the

satisfaction of the AO which is a sine quoa non for levying the

penalty for furnishing inaccurate particulars of income whereas

show cause notice was issued for concealment of income

thereby rendering the show cause notice baseless.

(f) On 19.02.2020 the petitioner filed additional reply to the

show cause notice dated 03.01.2020. However, 1

st

respondent

failed to take cognizance of both the replies.

(g) In terms of the notification dated 12.01.2021, Faceless

Penalty Scheme – 2021 was notified by the Central Board of

Direct Taxes and accordingly a show cause notice was issued

on 24.05.2021 by the National Faceless Assessment Centre to

the petitioner. The petitioner submitted reply on 26.05.2021

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and also a supplemental reply dated 31.05.2021. Thereafter the

petitioner did not receive any communication but a penalty

order dated 21.03.2022 was received without granting

opportunity of hearing though in the supplemental reply dated

31.05.2021, a specific request was made for personal hearing.

(h) The imposition of penalty is in total violation of Sub

Clause-XV of Clause-I of para-5 of the Faceless Assessment

Scheme. The petitioner submitted its grievance on the portal

maintained by respondent No.2 on 26.03.2022 but same

remained unresponded.

Hence the writ petition.

3. It may be noted that with the identical averments the petitioner

filed W.P.Nos.11593, 11818, 11596 and 11923 of 2022. The only

difference in all the above five writ petitions is the assessment year

and loss claimed and penalty levied which are shown in a tabular

form as below:

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4. Respondents filed counters and opposed the writ petition inter

alia contending thus:

(a) As against the impugned order passed under Section

271(1)(c) of the IT Act, the petitioner has got an effective

alternative remedy of appeal to the Commissioner of Income

Tax (Appeals), hence the writ petition is not maintainable.

(b) During the search operations conducted U/s 132 of the IT

Act on 20.09.2017, the Assessee admitted that for Assessment

Year 2015-16 while filing return of income they claimed bogus

S.No.

W.P

No.

Assessment

Year

Loss claimed in the

return filed under

Sec.153A of the Act

(Rs.)

Tax

Liabilit

y

Determ

ined in

Rs.

Penalty levied under

Sec.271(1)c of the Act

on the basis of return

filed under Sec.139

(Earlier Return) in

(Rs)

Depreciation

claimed

1.

11593/

2022

2012-13 Rs.8,89,23,021/- NIL Rs.95,80,943/-

Rs.2,95,29,796/-

2.

11818/

2022

2013-14 Rs.17,25,82,489/- NIL Rs.81,03,222/-

Rs.2,49,75,258/-

3.

11596/

2022

2014-15 Rs.7,78,64,975/- NIL Rs.69,23,083/-

Rs.2,13,37,907/-

4.

11604/

2022

2015-16 Rs.5,50,06,514/- NIL Rs.58,72,241/-

Rs.1,80,99,062/-

5.

11923/

2022

2016-17 Rs.2,19,34,189/- NIL Rs.5,213/-

Rs.16,871/-

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depreciation of Rs.1,80,99,062/-. In response to the notice U/s

153A of the IT Act, the assessee had withdrawn the excess

depreciation and filed revised return of income and the

assessment was completed by accepting the income returned.

However, since the assessee has furnished inaccurate

particulars of income, the AO has initiated penalty proceedings

U/s 271(1)(c) of the IT Act vide notice dated 03.01.2020 but in

the said notice it was inadvertently mentioned as “for

concealment of particulars of income”. Having noticed the

mistake, the AO has immediately cancelled the notice and

issued fresh notice dated 31.01.2020 wherein it has been

clearly mentioned that “for furnishing inaccurate particulars of

income” and the notice was served on assessee on 31.01.2020.

Subsequently, the penalty proceedings were completed basing

on the 2

nd

notice dated 31.01.2020. The petitioner has

conveniently omitted to refer to the fresh penalty notice dated

31.01.2020 and is trying to take shelter under the earlier notice

dated 03.01.2020. In fact, the penalty proceedings were

completed basing on the 2

nd

notice dated 31.01.2020. The

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reply dated 03.02.2020 filed by the petitioner in response to the

notice dt: 03.01.2020 is redundant as the said notice was

withdrawn.

(c) The contention of the petitioner that the penalty order was

passed without following the procedure prescribed in the

Faceless Penalty Scheme is incorrect. The order imposing

penalty U/s 271(1)(c) was passed by National Faceless

Assessment Centre but not National Faceless Penalty Centre.

(d) The contention of the petitioner that the order was passed in

violation of principles of natural justice is untenable. The

assessee was put on notice before levying penalty vide notices

dated 03.01.2021, 31.01.2021 and 24.05.2021 and the assessee

availed the said opportunity and submitted a detailed

explanation in support of its case. The submission of the

assessee was considered by National Faceless Assessment

Centre and the penalty was initiated for furnishing inaccurate

particulars. There are no faults in the penalty order. The writ

petition may be dismissed.

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5. Heard arguments of learned Senior Counsel Sri B. Adinarayana

Rao for Sri Javvaji Sarath Chandra and B. Ravi Kiran Singh learned

counsel representing the petitioner and Smt. M. Kiranmayee, learned

Standing Counsel for respondents.

6. Learned Senior Counsel would argue that in spite of the fact

that the petitioner, pursuant to the notice issued U/s 153A of the IT

Act, filed revised returns and same were approved by the Department

by order dated 30.12.2019, the impugned penalty proceedings were

taken up contrary to Section 271(1)(c) of the IT Act as there is neither

concealment of income nor furnishing of inaccurate particulars of the

income. Learned counsel would further argue that imposition of

penalty is not a matter of course but the department shall establish

that there was a wilful concealment of particulars of the income or

wilful furnishing of inaccurate particulars which is not the case in the

present instance. Learned counsel would formidably argue that when

once the previous mistaken return was permitted to be substituted

with revised return and same was accepted, the department cannot

impose penalty basing on the earlier return. Learned Senior Counsel

would thus reemphasize that when the revised return was filed

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pursuant to the notice U/s 153A of the IT Act and the said revised

return was accepted, the earlier return filed U/s 139 of the Act pales

into insignificance, which cannot be made as a basis to take up

penalty proceedings U/s 271(1)(c) of the IT Act. To buttress his

argument learned Senior Counsel relied upon Judgment dated

09.02.2017 of a Division bench of High Court of Delhi in ITA

No.463/2016 & CM No.26604/2016 and batch.

(a) Learned Senior Counsel further argued that in the instant

case explanation 5A to Section 271 has no application for the reason

that as per Clause 1 of explanation 5A, during the course of a search

initiated U/s 132, if any money, bullion, jewellery or other valuable

article or things were found to be acquired by the assessee by utilizing

his income for any previous year or under Clause-ii, the assessee

obtained income based on any entry in any books of accounts or other

documents or transactions which the assessee claims that such entry

in the books of accounts etc., represents his income for any previous

year but the same has not been declared in the return of any of the

previous year, Clause 5(A) can be invoked. However, that is not the

case in the present instance. In the absence of any incriminating

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evidence disclosing the particulars of income or money, bullion,

jewellery or other valuable articles, the question of application of

explanation 5A does not arise even remotely. What all found was,

learned Senior Counsel would emphasize, a mere claim of excess

depreciation which was admitted voluntarily and said mistake was

permitted to be rectified by filing revised return. Hence explanation

5A had no application was his argument.

(b) The next important argument of learned Senior Counsel is

that as against the show cause notice dated 24.05.2021 issued by the

National Faceless Assessment Centre directing the petitioner to show

cause why penalty should not be imposed, the petitioner submitted a

reply dated 26.05.2021 and a supplemental detailed reply dated

31.05.2021 wherein the later reply, the petitioner while exhaustively

submitting his case that neither the Section 271(1)(c) nor explanation

5A has any application and requested the authorities for personal

hearing but none the less, the impugned order came to be passed ten

months thereafter on 21.03.2022 without granting an opportunity of

personal hearing and thereby the petitioner was deprived of the

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principles of natural justice. Learned counsel thus prayed to set aside

the impugned penalty order.

7. Per contra, Smt. M. Kiranmayee, learned Standing Counsel for

respondents while opposing the writ petition would predominantly

argue that as against the impugned order the petitioner has got an

effective and alternative remedy of appeal to the Commissioner of

Income Tax (Appeals) and hence the writ petition is not maintainable.

(a) Nextly while supporting the penalty order, learned Standing

Counsel would strenuously argue that since the petitioner in the

earlier return filed U/s 139 of the IT Act for the Assessment Year

2015-16, wrongly and mischievously claimed high amounts of bogus

depreciation against a non existing Plant and Machinery which was

admitted only during the search and seizure operations conducted

subsequently. In that view, the penalty was rightly imposed and that

has nothing to do with the acceptance of the revised returns. Nextly

learned Standing Counsel argued that impugned penalty orders were

passed only on thorough consideration of the replies dated 26.05.2021

and 31.05.2021 and therefore the petitioner cannot claim that

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principles of natural justice were violated. Learned Standing Counsel

thus prayed to dismiss the writ petition.

8. The point for consideration is whether there are merits in the

writ petition to allow?

9. POINT: We deeply cogitated on the respective arguments of

both the learned counsel. As can be seen, precisely the contention of

the petitioner is that since the revised return was submitted pursuant

to the proceedings U/s 153A of the IT Act and the same was

accepted, the penalty proceedings U/s 271(1)(c) basing on the

previous return filed U/s 139 of the IT Act are not maintainable and

the proceedings under explanation 5A of Section 271 are also not

maintainable since none of the grounds mentioned therein is attracted

in the instant case. That apart, the contention of the petitioner is that

in spite of submission of aforesaid contentions in his reply notices

dated 26.05.2021 and 31.05.2021 and a personal hearing was sought

for, neither the contentions in those notices were considered nor

petitioner was given an opportunity of personal hearing and therefore

principles of natural justice were violated. Whereas the contention of

learned Standing Counsel is that the petitioner has deliberately

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concealed the true facts and furnished inaccurate particulars in his

earlier return and unduly claimed excess depreciation amounts and

later, the same were rectified not by a voluntary confession but only

after search proceedings were conducted. Therefore, the respondent

authorities have rightly initiated penalty proceedings U/s 271(1)(c) of

the IT Act. It is also the contention of learned Standing counsel that

the contents in both the reply notices were well considered and

rejected and thereafter the impugned penalty order was passed.

10. In the light of above contentions, we perused the record to

know whether the petitioner had raised the contentions now raised

before us in its reply notices. A perusal of reply notice dated

31.05.2021 would depict that the petitioner has firstly taken up the

contention that explanation 5A has no application to their case

inasmuch as, the penalty notice can be issued only if “assets or any

“entry in any books of account or other documents or transactions”

are discovered in the search conducted U/s 132 of the IT Act which

were hitherto not disclosed or declared. The petitioner has further

contended that a deeper analysis of provisions of explanation 5A

would show that the expressions used in Clause-I and II therein such

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as discovery of money, bullion, jewellery, or other valuables referred

to as tangible assets and similarly income pertaining to the entries

also point to concrete evidence arising out of entry in the books,

documents and transactions found in the course of search. The

petitioner would contend that those expressions were used in

unequivocal terms and there is no scope to include voluntary

rectification of any mistake which was crept into the records. There

is no search or seizure of undisclosed assets, hence explanation 5A

has no application.

11. We have also noticed that the petitioner has taken another plea

to the effect that the return that was filed U/s 153A of the IT Act was

the only relevant return of income for the purpose of assessment U/s

153. As such, since the AO has accepted the revised return filed U/s

153A, there can be no occasion to refer to the previous return filed

U/s 139 of the IT Act for any purpose including levying of penalty

U/s 271(1)(c) of the IT Act. The petitioner referred to the judgment

of High Court of Delhi (supra 1) in this context. Finally, the

petitioner submitted as follows:

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“In view of all the above relevant submissions, judicial precedents

and pronouncements along with all the facts and merits of the case,

we submit that the penalty proceedings be dropped. Should there be

an occasion for your good selves for any further information and

justification that may be required from our end we would be obliged

if a personal hearing is accorded.”

12. Thus, we are convinced that indeed the petitioner has taken the

two contentious pleas in his reply notice dated 31.05.2021. Then a

perusal of counter filed by the respondents in the writ petition would

show that they admitted to have received the reply notices dated

26.05.2021 and 31.05.2021. Of course, they contended that one of

the pleas taken in the reply notice dated 31.05.2021 to the effect that

the petitioner did not receive the notice dated 31.01.2020 was not

correct. Except that the respondents did not deny either receiving of

the reply notice dated 31.05.2021 or petitioner’s taking the two

crucial pleas as narrated supra.

13. Then we referred to impugned penalty orders dated 16.03.2022

and 21.03.2022. In Para 3 of four orders, though reference was made

about the reply notices dated 03.02.2020 and 26.05.2021, curiously

there was no reference about the crucial reply notice dated

31.05.2021. On one order, of course the reply dated 31.05.2021 was

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referred. However, we noticed that in the impugned orders the

authority of National Faceless Assessment Centre, Delhi, did not

mention the two contentions raised by the petitioner and there was no

discussion about those pleas. Therefore, there is no occasion for us to

know the mind of respondent authorities on the two crucial legal

pleas raised by the petitioner. It is true that in the instant case there is

no complete deprival of principles of natural justice, inasmuch as,

while initiating penalty proceedings, the respondent authorities indeed

invited the reply from the petitioner to the show cause notices issued.

However, the respondents have not considered the crucial and

important pleas and contentions raised by the petitioner before

passing the impugned penalty orders. Needless to emphasize that non

consideration and discussion of the crucial pleas raised by a party

would also amount to negation of principles of natural justice. That

apart, though in the reply notice dated 31.05.2021 the petitioner

sought for personal hearing, same was not accorded to the petitioner.

If such a gracious act was done, we are sure, the petitioner would

have been in a position to explain the substance of his contentions

before the respondent authorities. Hence the conduct of respondents

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would depict there is a partial violation of principles of natural

justice.

14. Then the petitioner is concerned, in the reply notice dated

31.05.2021 the petitioner has not requested for personal hearing in

clear terms but on the other hand, he only mentioned that if there be

an occasion for the respondents seeking for further information and

justification from the petitioner, the petitioner would be obliged if a

personal hearing is accorded. It would connote as if the personal

hearing can be extended by the respondents if they needed further

information from the petitioner or justification of his contentions. So

petitioner’s request is also somewhat obscure without making a clear

prayer for according personal hearing.

15. Thus on a conspectus of facts, circumstances, law and conduct

of both parties, we, in the interest of justice, are of considered view,

the impugned orders can be set aside and the respondents can be

directed to accord personal hearing to the petitioner in respect of the

contentions raised and pass fresh orders on suitable terms.

16. We also considered the argument of learned Standing Counsel

regarding the availability of efficacious alternative remedy in the

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form of appeal and non-maintainability of the writ petition on that

count. We are unable to countenance the said argument in view of

the fact that though alternative remedy of appeal is available, still in

the instant case we have noticed partial violation of principles of

natural justice by the respondent authorities by depriving the

petitioner of personal hearing. It is needless to emphasize, in the

cases where the principles of natural justice are on casualty, the

constitutional Courts can entertain the writ petitions despite the

availability of alternative remedy. There are a slew of legal

pronouncements in this regard of which, we can refer to Whirlpool

Corporation v. Registrar of Trade Marks, Mumbai

1

wherein it is

held thus:

“15. Under Article 226 of the Constitution, the High Court, having

regard to the facts of the case, has discretion to entertain or not to

entertain a writ petition. But the High Court has imposed upon

itself certain restrictions one of which is that if an effective and

efficacious remedy is available, the High Court would not

normally exercise its jurisdiction. But the alternative remedy has

been consistently held by this court not to operate as a bar in at

least three contingencies, namely, where the Writ Petition has been

filed for the enforcement of any of the Fundamental rights or

where there has been a violation of the principle of natural justice

or where the order or proceedings are wholly without jurisdiction

or the vires of an Act is challenged.”

1

AIR 1999SC 22 = MANU/SC/0664/1998

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17. Accordingly, the writ petitions are allowed setting aside the

impugned penalty orders dated 16.03.2022 and 21.03.2022 passed by

the 1

st

respondent and matters are remitted back to the 1

st

respondent

with a direction to consider the reply notices dated 26.05.2021 and

31.05.2021 submitted by the petitioner and after affording an

opportunity of personal hearing to the petitioner, pass appropriate

orders in accordance with governing law and rules expeditiously on

the condition of petitioner depositing 25% of the penalty amount in

each case within six (6) weeks from the date of receipt of copy of this

order, failing which this order shall stand cancelled. No costs.

As a sequel, interlocutory applications, pending if any shall

stand closed.

_________________________

U. DURGA PRASAD RAO, J

__________________________

T. MALLIKARJUNA RAO, J

14.06.2023

krk

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HON’BLE SRI JUSTICE U. DURGA PRASAD RAO

AND

HON’BLE SRI JUSTICE T. MALLIKARJUNA RAO

W.P.No.11604 of 2022

14

th

June, 2023

krk