SUPREME COURT IN SMT. AZIZUNNISA BEGAM’S CASE - WHETHER SLAMS THE DOOR ON NATURAL JUSTICE
Whether fresh notice of penalty is required on changed incumbent of office - Azizunnisa Begum’s case
1. The Supreme Court of India has recently, in CWT v. Smt. Azizunnisa Begum  243 ITR 852 , affirmed the judgment of the Andhra Pradesh High Court in CWT v. Smt. Azizunnissa Begum  119 ITR 376 . But the affirmation of the Andhra Pradesh High Court judgment has been done by the Supreme Court sans the reasoning given by the former. Brief facts of the case before the Andhra Pradesh High Court were that the WTO had issued penalty notice under the Wealth-tax Act but subsequently there was a change of incumbent of office and the new officer imposed penalty without issuing a fresh notice of hearing to the assessee. The Andhra Pradesh High Court, relying upon an earlier judgment of the same Court, dismissed the revenue’s appeal, holding that the penalty was not sustainable in law. On the revenue’s appeal, the Supreme Court did not agree with the reasoning given by the Andhra Pradesh High Court but dismissed the revenue’s appeal on the ground that the penalty amount involved was very small and considerable time has elapsed. The Supreme Court, in a brief judgment, observed—
"These matters arise under the Wealth-tax Act, 1957. It appears that on late filing of the return, the Wealth-tax Officer issued a notice proposing to levy penalty. There was no response from the assessee to the said notice. At that stage, it appears, the incumbent Income-tax Officer was transferred and another person succeeded him in the office. The succeeding Income-tax Officer completed the penalty proceedings and levied penalty. The High Court says that the succeeding Income-tax Officer should also have given a fresh notice proposing to levy penalty and that not giving such a notice vitiates the order levying penalty. We do not think that we can agree with this proposition. Once a notice is given by the Income-tax Officer, that is good enough. It is not necessary for each succeeding Income-tax Officer to go on issuing fresh notices on the same subject. . . ." (p. 853)
Finally, dismissing the revenue’s appeal, the Supreme Court observed that it was correcting the proposition of law.
A pertinent question arises here is as to whether this judgment is of universal application and whether in all cases of change of incumbent of office, no fresh notice is required. Before coming to the conclusion, it is important to analyse the relevant legal provisions and the judicial precedents available on the issue.
Change of incumbent of office - Legal provisions
2. The relevant provision in the Income-tax Act, 1961 is contained in section 129 which runs as follows :
" Change of incumbent of an office. —Whenever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor :
Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard."
The above provision is in pari materia with section 39 of the Wealth-tax Act, 1957 and section 38 of the Gift-tax Act, 1958 (now repealed) and corresponds to section 5(7C) of the Income-tax Act, 1922.
The use of the term ‘any proceedings’ signifies both assessment and penalty proceedings.
3. There are a number of reported judgments available on this issue from almost all the High Courts of the country and a sole judgment from the Supreme Court (subject-matter of this write-up). The judgments, on the basis of facts, may broadly be divided into two categories, viz.:
One, where the assessee responded to the notice of penalty issued by the first officer (hereinafter referred to as the category 1 judgments).
Two, where the assessee ignored such notice (hereinafter referred to as the category 2 judgments).
Opinions of the courts in both the categories of cases are sharply divided.
Case where assessee responded to notice of penalty issued by first officer
4. On the one side of the dividing line are the judgments from the Andhra Pradesh High Court and the Punjab and Haryana High Court which say that fresh opportunity of hearing is required to be given by the successor officer before imposing penalty even if written explanation has been filed and/or oral hearing has been given before the predecessor officer, while on the other side are the judgments from the Patna High Court, the Mysore High Court, the Rajasthan High Court and the Gujarat High Court which have taken a contrary view. The Calcutta High Court and the Patna High Court have expressed both the views on different occasions.
4.1 Views favourable to assessee - In the case before the Andhra Pradesh High Court in Anantha Naganna Chetty v. CIT  78 ITR 743 , the assessee had furnished an explanation in response to a penalty notice. The successor ITO, without issuing any fresh notice of hearing, imposed the penalty. The Andhra Pradesh High Court observed that compliance of proviso to section 5(7C) [corresponding to section 129 of the Income-tax Act, 1961] was a condition precedent for the exercise of the power to continue the proceedings by the succeeding officer. Though the assessee under the proviso might demand reopening or rehearing but in the absence of any opportunity provided for the exercise of his right, the assessee could not be deemed to have declined to avail the opportunity. The court further observed that in many cases the penalty proceedings are kept in abeyance awaiting final result of assessment proceedings. In such a case, due to long lapse of time, the assessee may assume that his explanation was found to be satisfactory and the proceedings were dropped. The assessee may not be aware of the pendency of proceedings and the change of officer. He cannot exercise his right to demand reopening or rehearing if he has no notice that the succeeding officer proposes to continue the proceedings. It is, thus, inherent in the situation that the succeeding officer should give notice to the assessee under section 5(7C) [corresponding to section 129 of the Income-tax Act, 1961] itself intimating him that the succeeding officer proposes to continue the proceedings. Finally, the court held that the order of penalty of the successor ITO was not valid in law.
The facts of the case in Satprakash Ram Naranjan v. CIT  71 ITR 646 before the Punjab and Haryana High Court were that in response to a show-cause notice of penalty, the assessee informed the ITO that the levy of penalty should be kept in abeyance till the disposal of the quantum appeal. Subsequently, the ITO imposed the penalty without giving any fresh notice of hearing. The AAC cancelled the penalty holding that the successor ITO did not comply with the provisions of section 5(7C) (corresponding to section 129 of 1961 Act). The Tribunal reversed his order. On reference before the Punjab and Haryana High Court, the revenue contended that having received penalty notice from the predecessor ITO, the assessee should have kept himself informed about the progress of penalty proceedings on day-to-day basis. Holding such view unrealistic, the Court held that the successor-ITO was bound to give a fresh notice of hearing to the assessee in conformity with the requirements of natural justice.
4.2 View against the assessee - In Shop Siddegowda & Family v. CIT  53 ITR 57 (Mys.), after receiving a notice from the ITO, the assessee made a written representation. The successor-ITO imposed the penalty without giving any fresh notice of hearing. On reference, the Court upheld the penalty imposed abserving that the assessee did not think it necessary to have a personal hearing nor did he think it necessary that he should adduce any evidence before the ITO. He was content to make a written representation, which was available to the succeeding ITO. The Rajasthan High Court in A.C. Metal Works v. CIT  66 ITR 14 upheld the levy of penalty under similar circumstances. The Gujarat High Court in Prabhudas Jagjivandas v. ITO  55 ITR 1 was hearing a writ petition on behalf of the assessee, who had filed a written submission before the predecessor ITO. The High Court rejected the petition holding that the successor-ITO was entitled to apply his mind to the materials before him as the assessee did nothing other than filing written submissions.
4.3 Divergent views of the Calcutta High Court. - The Calcutta High Court has taken diametrically opposite views on different occasions.
In Calcutta Tanneries (1994) Ltd. v. CIT  40 ITR 178, Calcutta High Court was in seisin of a case where the assessee appeared through his counsel before the predecessor-ITO and advanced oral argument. The successor-ITO passed the penalty order without granting a fresh hearing. The Court held that penalty order to be invalid observing that the combined effect of section 28(3) [corresponding to section 274 of the Income-tax Act, 1961] and section 5(7C) [corresponding to section 129 of the Income-tax Act, 1961] was to authorise the succeeding ITO to pass an order upon the evidence produced before his predecessor but the effect was not to authorise the former to pass an order upon arguments advanced before the latter. On the contrary, in Kanailal Gatani v. CIT  48 ITR 264 (Cal.), written submissions were filed before the ITO and it was stated that there was nothing more to add. The Court upheld the order of the Tribunal which had held the order of the successor ITO to be valid. But the reasons for coming to a different conclusion from the earlier judgment of the same Court can be found in the following observations of the Court—
"A hearing of a case may be of many kinds. It usually involves the calling of witnesses, their examination and cross-examination and then arguments are addressed to the Tribunal. Where witnesses have been called and examined, or where arguments have been advanced, it is clear that one man cannot hear the case and another man pass judgment. The reason is that much may depend on the view that the Tribunal takes as to credibility of witnesses and his mind may be swayed one way or the other by the demeanour of witnesses and as a result of arguments. This is such an intangible and personal task, that it cannot be handed over to the successor. Where, however, no witnesses have been called and no arguments have been advanced, but the matter depends on written objections filed, then the successor is in the same position as the officer who originally was in the conduct of the case. Therefore, as long as the successor applies his mind to the materials before him, this is sufficient. As appears from the facts of this case, Mr. A. De had looked into the materials and had drawn the draft order imposing penalty. His successor, Mr. Roy, looked into the materials and the draft order, concurred in the conclusion arrived at by his predecessor and asked for the sanction of the Inspecting Assistant Commissioner and, having obtained it, subscribed his signature to the order, making it his own. In my opinion, the provisions of section 28 have been satisfied and nothing illegal has been done. . . ." (p. 268)
Cases where assessee ignored notice issued by first officer
5. Category 2 judgments pertain to those cases where the assessees ignored the notice issued by the predecessor Assessing Officer but subsequently pleaded that no notice of hearing was given by the new incumbent of office. Here also, the opinion of the courts is divided. In CIT v. Chitra Mukherjee  127 ITR 252/ 5 Taxman 297, the Calcutta High Court held that even if the assessee does not respond to the notice of hearing given by the predecessor ITO, the successor-ITO cannot validly impose the penalty without first giving a fresh notice of hearing. The same view was expressed by the Full Bench judgment of the Patna High Court in CWT v. Jagdish Prasad Choudhary  211 ITR 472 .
A contrary view has been expressed by the Allahabad High Court in CWT v. Umrao Lal  136 ITR 49/ 11 Taxman 41, where the Court held that where on receipt of notice, the assessee had not put in appearance nor had filed any written explanation, the succeeding authority was not required to afford him another opportunity of hearing. The Allahabad High Court’s view is also supported by the two judgments of Patna High Court in CWT v. Gilliram Suggiram  186 ITR 445/ 55 Taxman 53 and CIT v. Laljidas Agarwalla  190 ITR 429/ 59 Taxman 535. But these two judgments were overruled by the same Court in the Full Bench judgment in Jagdish Prasad Choudhary’s case ( supra ).
6. As seen from the facts of the case before the Supreme Court as stated in paragraph 1 above, the judgment was rendered in the context of the assessee not putting in his appearance pursuant to a notice of hearing given by the predecessor Assessing Officer. Therefore, judgment will adversely affect only such specific cases and will not be binding on the cases with different facts. As seen in the preceding paragraphs, controversy exists in other areas (category 1 judgments) which unfortunately remains unresolved till date.
However, the Allahabad High Court encompasses the overall scenario in Umrao Lal’s case ( supra ). Its views appear to be most reasonable and the judgment seems to hold the field even in the post- Azizunnisa Begam Scenario’s case ( supra ) :
". . . We do not subscribe to the view that in all cases it is implicit in section 39 (of W.T. Act) that the succeeding authority should intimate to the assessee his intention to continue the proceeding from the stage at which it was left by his predecessor. In some cases such intimation would certainly be required. For instance, if pursuant to a notice the assessee submitted his explanation and in order to support the cause alleged therein for the delay, has to file some evidence, then certainly if during the pendency of such proceedings the officer conducting the same is transferred, then the succeeding officer should give a notice to the assessee before continuing the proceedings. There may be another case where the recording of evidence is going on and has not concluded when a change takes place in the incumbent of the office. Yet another instance may be cited where along with his explanation the assessee has prayed for an opportunity to make his submissions orally. However, in a case where the assessee has merely filed an explanation, the same can very well be taken into consideration by the succeeding authority without giving any fresh opportunity to the assessee of being heard. The present case stands on a still weaker footing because on receipt of notice, the assessee had not put in appearance nor had filed any written explanation. That being so, the succeeding authority was not required under the relevant provision to afford him another opportunity of hearing." (p. 56)