Income Tax Appellate Tribunal - Cochin
Premier Breweries Ltd. vs Deputy Commissioner Of Income-Tax on 16 October, 1990
Equivalent citations: [1991]36ITD197(COCH)
ORDER
G. Santhanam, Accountant Member
1. This is an appeal by the assessee against the levy of penalty Under Section 271(1)(c) of the IT Act. The assessee is a public limited company engaged in the manufacture and sale of beer. The assessment year involved is 1985-86, the relevant previous year being calendar year 1984.
2. In the course of assessment proceedings, the assessing officer noticed a sum of Rs. 9,98,200 under the head 'Machinery and electrical repairs'. She called for the details. The assessee supported its claim by producing 16 bills of various dates from 2-12-1984 to 31-12-1984 issued by Elgi Equipments Ltd., Coimbatore. On perusal of the records of Elgi Equipments, the assessing officer noticed that the 16 bills issued to the assessee did not figure in their ledger and the trade balance with the assessee was only Rs. 5,583.20as on 31-12-1984 as against Rs. 9,98,200 appearing to their credit in the books of the assessee. On being asked to reconcile the difference, the assessee by its letter dated 24-2-1988 (see page 6 of the assessment order) replied as follows :
We confirm that our trade balance with Elge Equipments Ltd. is Rs. 9,98,200 as on31-12-1984. AH our transactions with them are supported by proper vouchers. As such we are not in a position to offer comments regarding the alleged difference pointed out by you. We confirm that the 16 bills produced by us to support the expenditure on pasteuriser are the ones issued to us by M/s Elgi Equipments Ltd. and we have made payments to them only in discharge of these bills. We repeat that the payments made by us to M/s Elgi Equipments Ltd. are with reference to the 16 bills issued to us for re-conditioning our Pasteuriser. The bills produced by us are genuine and bona fide.
3. The assessing officer called upon Elgi Equipments to explain its stand. One Sri Amulhalingam of Pasteur Division of Elgi Equipments in his letter written submission dated 5-3-1988 received on 8-3-1988 stated as follows :
The sixteen work estimate bills given to M/s Premier Breweries Ltd., are only bills of estimates to detail the extent of work involved if the machine was to undergo conversion and reconditioning. This conversion and reconditioning was never undertaken and the bills were not accounted and hence do not find a place in our books of accounts. These sixteen bills were given to them in lieu of the single bill to show them the work involvement to convert the machine.
These bills of estimates are a descriptive representation of the work involved to convert and recondition the machine. This was based on an earlier discussion took place between us and M/s Premier Breweries Ltd., who wanted the machine to be reconditioned and converted. Our Engineers on inspection found that none of the components of the existing pasteurizer could be used during reconditioning and conversion work. This would mean spending more money than they should have spent for a new one. This would also involve immense manpower, time and unending work, which according to us would have costed more. At this juncture we suggested for supply of a new machine instead of converting and reconditioning the old one, cost being same. As agreed, subsequently, the new machine was manufactured at our plant for replacement and was cleared as a regular unit with duty duly paid. The unit was despatched accompanied by our bill for this supply to M/s Premier Breweries Ltd. This bill for Rs. 9,50,251 was the bill raised to cover the supply of replacement machine given to them, backed by supplies and proof of despatch, which has been rightfully accounted by us.
In the normal course of business conduct, when parties approach us, it is customary to issue advance invoice, proforma invoice, bills of estimates with two, three choices enabling them to choose any method and also to arrange finance, plan for the budget etc. In this case also M/s Premier Breweries Ltd. wanted bills of estimates to show them the work involvement if the machine was to undergo reconditioning and conversion. This was issued to them as per the discussion held, earlier which has got out Director's concurrence.
At any point of time, there was no question of accounting of sixteen bills of estimates arise, since these bills were given to them on their request and our supply of fully Automatic Trunnel Pasteurizer was with a regular invoice which was accounted by us. Hence no money was received by us on account of these bills at any time and we have also produced before you proof of despatch and account copy of transactions to substantiate our stand. You can also note from the documents taken by you that payments were received only after the regular invoice which went with the unit was raised.
We confirm that we did supply of 1 No. Fully Automatic Tunnel Pasteurizer to M/s Premier Breweries Ltd., without any understanding that bills will be made to their convenience. We also confirm that our regular invoice for Rs. 9,50,251 dated 30-7-1985 is the correct bill raised to cover the supply of pasteurizer. The sixteen bills in question were given to them on their request to show them that the conversion and reconditioning would mean the same amount or even more than the new one. This is because, on inspection, we found that none of the components, raw materials and gadgets could be used during conversion and reconditioning. This practically will mean putting new components, raw materials and gadgets in the place of old one. Hence the new machine was supplied to M/s Premier Breweries Ltd.
4. In his statement on oath dated 8-3-1988, Shri Amuthalingam stated as follows:
Today I have filed a reply to your letter dated 29-2-1988 sent along with the summons wherein I have clearly mentioned that the sixteen bills issued to M/s Premier Breweries Ltd., Palghat are only bills of estimate and these were meant for the work of reconditioning and conversion of the existing pasteurizer. However, this work of reconditioning was never undertaken and an order to supply a full new unit of pasteuriser was placed and a bill for Rs. 9,50,251 was raised which is the cost of the new pasteurizer. These sixteen bills have to be totally ignored since they represent the work of reconditioning and estimated cost of the same which was never undertaken by us. The dismantling of the existing pasteuriser was never done by us and to my knowledge it was undertaken by one Sri P.B. Menon who is an enrolled contractor with M/s Elgi Equipments Ltd. I undertake to produce the lorry receipts for having delivered this new unit to Ms. Premier Breweries Ltd. and also the muster roll for December 1984 through which we can prove that none of our labourer has worked in M/s Premier Breweries Ltd., for dismantling work of the existing unit.
5. On 11-3-1988, one Mr. P.B. Menon, a labour contractor attached to Elgi Equipments gave a statement on oath before the assessing officer stating, among other things, that the dismantling work was carried out for 4 days continuously from 23-6-1985 to 26-6-1985 and after the dismantling work, the new unit was installed.
6. On 11-3-1985, Shri Bhoopalan, Production Engineer of Elgi Equipments stated on oath, that a new pasteurizing unit was sent in six lorry loads and the actual dates of despatch could be evidenced from lorry weigh bridge receipts and the packing lot was prepared for first consignment on 30-7-1985 and for last consignment was sent on 20-9-1985 and that he was present in the assessee's premises during the installation of new unit and that could be evidenced from the work diary.
7. Further inquiries were made by the assessing officer with Elgi Equipments Ltd. and she found that the gate pass No. 2176 issued by the Central Excise authority clearly showed that a new Automatic Pasteurizer Plant left the factory premises only on 30-7-1985 as will be further evident from the records produced by Elgi Equipments Ltd., viz. -
(a) Lorry Weigh Bridge receipt dated 31-7-1985 and 26-8-1985 from Sathyasi Automatic Lorry Weigh & Bridge, Coimbatore.
(b) Lorry receipt dated 8-8-1985 from Highway Movers for despatch of 5 loads of Pasteuriser unit and Despatch chart dated 29-7-1985 and 31-7-1985 prepared by the clerk in charge of loading where the description of the material loaded is narrated.
8. Further she referred to certain expense bills claimed by P.B. Menon of SDS Engineering, a labour contractor of Elgi Equipments to show that the actual dismantling of the existing pasteurizer unit took place well beyond the accounting year ending on 31-12-1984 and the erection took place between 31-7-1985 to 21-9-1985.
9. She then referred to a certificate filed by Elgi Equipments to the effect that the new pasteurizing unit supplied by it on 31-7-1985 was commissioned on 23-11-1987.
10. From the above she concluded that no repair work was done as alleged by the assessee before 31-12-1984 and that there was a capital expenditure on a new pasteurizing plant incurred after the end of the accounting year and that the assessee had tried to take undue advantage of tax benefit by putting up a claim of revenue expenditure and thus disallowed a sum of Rs. 9,98,251 claimed under repairs.
11. The assessee carried the matter in appeal before the CIT(A). Among the grounds raised, there were two specific grounds in relation to denial of reasonable opportunity and violation of principles of natural justice:
2. Statements of witnesses have been recorded and records, books and documents have been scrutinised behind the back of the Appellant without providing an opportunity to the Appellant either to cross examine the withnesses or peruse the various records, books and documents, relied upon by the assessing authority. The principles of natural justice have thus been violated and the assessment consequently is illegal, bad, void and unsustainable.
3. Copies of statements of witnesses, whose testimony has been relied upon, have not been furnished to the Appellant and proper opportunity has not been given to the Appellant to rebut the various averments contained in their testimony. The presumptions purportedly drawn on the basis of these statements are, therefore, unsupportable in law.
12. The assessee also produced certain evidence in its defence as contained in annexures 20 to 30 of the paper book filed before the first appellate authority. The CIT(A) after referring to them in paras 12 to 14 of his order dated 28-4-1989 declined to admit the evidence on the plea that they were produced for the first time before him. Incidentally it may be mentioned that the CIT had called for a report from the assessing officer about those materials but ultimately declined to admit the same. He sustained the assessment on the basis of the material gathered by the assessing officer holding that 'it is not necessary for me to decide the issue whether the appellant purchased a new plant in the subsequent year'.
13. In the second appeal, the Tribunal held that "the CIT(A) did not entertain some material which is contained in the paper book filed in the course of the appeal hearing but the lapse on the part of the CIT(A) was venial and does not go to the root of the matter". As for the failure of natural justice in not providing copies of the swom statements and the results of private inquiries made by the assessing officer, the Tribunal observed that "we would like to state that the deposition made by Mr. Amuthalingam before the assessing officer he had stated only that which was conveyed to the assessing officer in the earlier correspondence and this earlier correspondence was shown to Shri Venkataraman, Chief Executive of the assessee. In such circumstances, it is difficult to conceive how the assessee could claim that there has been violation of natural justice". Then it proceeded to take notice of a letter filed by Elgi Equipments in the course of penalty proceedings in which it was alleged that the assessee wanted that party to make 16 bills to match exactly with the amount raised in the invoice, in spite of the objection of the assessee that this letter came into existence after the assessment proceedings were over and that the assessee was still kept in dark about the contents of the letter. After observing that the 16 bills and the correspondence which the assessee pressed into service in its defence were scanty, the Tribunal was of the view that "procedure from transportation of material necessary for alleged repair and renovation work has to be the same and in such circumstances transportation had to be supported by gate pass. No such gate passes were available with the assessee". Thus the Tribunal sustained the addition.
14. The Dy. Commissioner by her notice dated 21-3-1988 called upon the appellant to show cause as to why penalty should not be levied for concealment of income or for having furnished inaccurate particulars of income. The assessee in its detailed letter dated 18-4-1988 denied the allegations and complained that it had not been furnished with copies of sworn statements taken behind its back (Annexure-I, pages 12 to 14 of the paper book-V). Further correspondence between the assessee and the Dy. Commissioner of Income-tax are provided at pages 15 to 26 of the paper book-V. The learned Dy. Commissioner passed an order under Section 271(1)(c) on 20-9-1988 relying on the materials collected by her in the course of assessment proceedings and also the materials collected in the course of penalty proceedings. She was of the view that no expenditure was incurred by the assessee on account of repairs during the C.Y. 1984 and that what really happened was that a new Pasteurizer plant was delivered to the assessee in 1985, which was erected in 1985 and commissioned in 1987 and the assessee tried to tamper with the petty cash voucher of Rs. 50 and thus fabricated its records. In this view of the matter she levied penalty under Section 271(1)(c) of the IT Act.
15. The assessee carried the matter in appeal before the CIT(Appeals). The CIT(A) summarised the contentions of the appellant in para 3 of his order dated 31-5-1989. In paragraph 4 of his order he referred to his earlier findings in the quantum appeal and in para 6 he concluded that the explanation of the assessee was found to be false, the amount added to the income of the assessee was its concealed income and the penalty levied under Section 271(1)(c) required to be confirmed. The assessee is on further appeal.
16. Shri Sarangan, the learned counsel for the appellant, submitted that the assessee is sinned against than sinning. The disallowance of the claim for repairs was based entirely on the materials collected by the assessing officer behind the back of the assessee. Statements recorded on oath from the Officers of Elgi Equipments Ltd., were not put to the assessee. All these happened in the course of the assessment proceedings. The very same materials were again used by the assessing officer in the penalty proceedings. The assessee's grievance that it was thus denied the opportunity to effectively frame its defence or state its case has fallen on deaf ears. To add insult to injury, the assessing officer obtained another statement from the Sales Executive of Elgi Equipments Ltd., after the completion of assessment and that statement was also not put to the assessee. Unfortunately that very statement was furnished to the Tribunal in the quantum appeal by the Revenue and it was made use of against the assessee by the Tribunal when it sustained the disallowance. The evidence brought on record in its defence (see para 12 supra) were either not considered or brushed aside lightly. Thus the case against the assessee has all gone on the one sided version of Elgi Equipments Ltd. Besides the affidavit of the Production Engineer of the assessee certifying to the completion of the repair work in the calendar year 1984 which was produced before the first appellate authority in the quantum appeal was never dealt with either in the quantum proceedings or in the penalty proceedings. Thus there is not only dismal failure of principles of natural justice but also non-consideration of the materials brought on record by the appellant resulting in mis-carriage of justice. Hence the order of penalty is fit to be quashed.
17. Shri A.D. Menon, the learned departmental representative, assailed the contentions of the learned counsel for the appellant stating that there was no question of failure of principles of natural justice; the contents of the sworn statements were shown to Shri Venkatararnan, the Chief Executive of the company. The appellant was also aware that the assessing authority was carrying out the investigation to verify its claim for expenditure on repairs. The Tribunal has held that there was no failure of principles of natural justice in the case of the assessee while framing the assessment. Therefore, the plca of the assessee must fail.
18. Shri Sarangan, the learned counsel for the appellant, submitted that the Chief Executive of the appellant-company was only allowed to take copy of the accounts of Elgi Equipments Ltd. Copies of the statements recorded on oath from the officers of Elgi Equipments were not provided to him nor shown to him. Even if they had been shown to Chief Executive, it would not constitute compliance with the principles of natural justice. It is for the officer levelling the charge against a person to bring something on record that all the statements were provided to him or at least all the pages of the statements were shown to him. There is nothing on record except to say that the assessee was allowed to take copy of the accounts of Elgi Equipments Ltd. Failure to advert to the affidavit of the Production Engineer of the assessee which was on record and which supported the entries in the books of accounts of the assessee had resulted in a grave prejudice to the case of the assessee. The assessment based on non-consideration of the affidavit or at least the order of penalty passed without considering such an affidavit cannot be upheld in view of the ratio of the decision of the Supreme Court in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181.
19. To a query from the Bench, Shri Sarangan had given a list of the materials gathered by Dy. Commissioner before and after the assessment, copies or contents of which were not provided to the assessee :
Before the assessment
1. Sworn statement of Bhoopalan
2. Sworn statement of D. Amuthalingam.
3. Sworn statement of P.B. Menon.
4. Gate pass in GP-1 of Central Excise.
5. Lorry weigh bridge receipts dated 31-7-1985 - Sathyasai.
6. Lorry weigh bridge receipts dated 26-8-1985 - Automatic Lorry Weigh Bridge.
7. Lcrry receipt dated 8-8-1985 from Highway Movers.
8. Despatch charts dated 29-7-1985 and 31-7-1985.
9. SDS Engineering Bills 1677/29-3-1986 (Tr. exps. for erection)
10. SDS Engineering Bills 1678/29-3-1986 (Lab. charges for dismantling)
11. Elgi's muster roll in Form 25.
After the assessment:
1. Dy. Commissioner's letter to Elgi Equipments Ltd. dated 1-6-1988 not even produced before the Hon'ble Tribunal in the departments paper book.
2. Elgi's letter dated 5-3-1988 to Dy. Commissioner (A).
3. Elgi's letter dated 10-6-1988 to Dy. Commissioner (A).
We have gone through the order of the Tribunal in quantum appeal, in the light of the objections raised by Shri A.D. Mcnon.
20. Having regard to rival submissions and materials on record we find substance in the grievance of the appellant. In para 4 of its order in the quantum appeal the Tribunal while summarising the arguments of the revenue had stated at page 7 that-
The learned departmental representative was fair enough to accept that Shri Amuthalingam, Sales Officer of M/s Elgi Equipments Ltd. and Shri P.B. Menon of STS Engineer, the lorry contractors of the assessee were examined behind the back of the assessee but according to him their statements have not in any way affected or influenced the course of assessment.
Thus the failure to furnish copies of sworn statements etc., cannot be doubted or denied. There is no evidence that the sworn statement of Shri Bhoopalan or the Gate passes or other records collected from M/s Elgi Equipments Ltd., in the course of the assessment proceedings were even put to the assessee, though the assessee made out a grievance before the appellate authority in the quantum appeal and raised specific grounds against the denial of opportunity to it as detailed in para 11 of our order. Materials brought on record in defence were not admitted (para 12 supra). Shri Menon contends that the Tribunal in the quantum appeal had held that these statements of records did not have any bearing on the disallowance made and therefore such a finding is binding on the Tribunal. Shri Sarangan, on the other hand contended that the observations of the Tribunal must be confined to the quantum proceedings only and cannot be extended to penalty proceedings and at any rate the assessee has not accepted the view of the Tribunal in this regard and has gone on reference. This apart it is his submission that the penalty proceedings are different from assessment proceedings and as long as the assessing officer used such evidence against the assessee in the penalty proceedings, it still lies in the hands of the Tribunal hearing penalty appeal to consider the grievance of the assessee in the proper perspective. Shri Sarangan elaborating his point submitted that it is prejudicial to deny a person to state his case effectively by using the evidence collected against him behind his back and it would be greater prejudice to say that such evidence did not affect the course of the proceedings against him and in this connection he relied on the passages occurring at page 475 in Administrative Law by H.W.R. Wade, QC. LLD, FBA Fifth Edition.
21. There is force in the contention of Shri Sarangan. In Administrative Law by H.W.R. Wade, the following passages occur at pages 475 & 476 :-
Where a fair hearing 'would make no difference' Procedural objections are often raised by unmcritorious parties. Judges may then be tempted to refuse relief on the ground that a fair hearing could have made no difference to the result. But in principle it is vital that the procedure and the merits should be kept strictly apart, since otherwise the merits may be prejudged unfairly. Lord Wright once said : [General Medical Council v. Spademan [1943] A.C. 627 at page 644; and sec Ananunthodo v. Oilfields Workers' Trade Union [1961] A.C. 945 at page 956 (Lord Denning)]:
If the principles of natural justice are violated in respect of any decision it is, indeed, immaterial whether the same decision would have been arrived at in the absence of the departure from the essential principles of justice. The decision must be declared to be no decision.
The dangers were vividly expressed by Megarry J. criticising the contention that the result is obvious from the start' : (John v. Rees [1970] Ch. 345 at 402; Cf. Fulbrook y. Berkshire Magistrates' Courts Committee [1970] 69 L.G.R. 75 at page 97. And now see R.V. Secretary of State for the Environment exp. Brent L.B.C. [1982] 2 W.L.R. 693 at page 734, rejecting the 'no difference' argument).
As everybody who has anything to do with the law well known, the path of the law is strewn with examples of open and shut cases, which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of inexplicable conduct which was fully explained; of fixed and unalterable determinations that, by discussion, suffered a change.
22. Penalty proceedings are separate and distinct from the assessment proceedings. Both parties can lead evidence in the course of penalty proceedings but whatever evidence is on record or let it should be made known and after considering the explanations or objections thereto, the decision should be taken. Admittedly in this case materials collected in the course of the assessment proceedings were relied upon in the course of the penalty proceedings without affording an adequate opportunity for the assessee to have copies of the statements recorded on oath and to frame its defence accordingly. What is still disquieting is that another statement obtained from Shri Amerthlingam in the course of the penalty proceedings, long after the completion of the assessment proceedings, was also not put to the assessee. As rightly contended by Shri Sarangan the above statement was pressed into service by the revenue in the quantum appeal before the Tribunal which to some little extent at least would appear to have influenced the course of the proceedings against the appellant.
23. Shri Menon submitted that there is nothing on record to show that the assessing officer denied an opportunity to the assessee to inspect the relevant statements. But on the other hand in the course of penalty proceedings the learned Dy. Commissioner offered such an opportunity to cross-examine Shri Amerthlingam and others but the assessee declined the offer by its letter dated 11-7-1988, as follows:-
Your offer of the opportunity of a cross examination without furnishing copies of all relevant statements and documents is an empty ritual, which we do not propose to avail of. Even without such cross-examination, we feel that we have exposed the falsity of the statements given by Elgi in the Supplementary Statement : Persons may lie but documents do not.
Thus he contended that it is not open to the assessee to feel aggrieved about the failure of natural justice.
24. We have examined the records. The assessee in its letter dated 28-4-1988 had specifically asked for copies of the statements of Officers of Elgi Equipments Ltd. and other materials used against it in the assessment order by offering to pay copying charges and inspection charges according to rules. Only grim silence greeted the assessee over this request. Therefore, the appellant considered that the cross-examination without the benefit of copies of all the relevant statements and documents would be an empty ritual work. In the light of these facts, we reject the contention of the revenue. On the basis of materials available before us we hold that there was failure to comply with the principles of natural justice.
25. In Ponkunnam Traders v. Addl. ITO [1972] 83 ITR 508, it was held by the Kerala High Court that the failure to conform to the principle of natural justice of audi alteram partem would make a judicial or quasi-judicial order void. Justice Shri K.K. Mathew of the Kerala High Court (as he then was before his elevation to the Supreme Court) dealt at length on the principles of natural justice and the consequences flowing from the violation of such principles by referring to a number of decisions at pages 512 to 518 in the case cited supra. The learned Judge approvingly quoted the decision of the Privy Council in Annamunthodo v. Oilfields Workers' Trade Union [1961] 3 All ER 621 at page 521 where Lord Denning said :
Counsel for the respondent union did suggest that a man could not complain of a failure of natural justice unless he could show that he had been prejudiced by it. Their Lordships cannot accept this suggestion. If a domestic tribunal fails to act in accordance with natural justice the person affected by their decision can always seek redress in the courts. It is a prejudice to any man to be denied justice. He will not, of course, be entitled to damages if he suffered none. But he can always ask for the decision against him to be set aside.
In that case the assessment was quashed for reason of failure of natural justice which was upheld by the Division Bench in Addl. ITO v. Ponkunnam Traders [1976] 102 ITR 366 (Ker.).
26. In Union of India v. Tulsiram Patel AIR 1985 SC 1416 the Five Member Constitution Bench of the Supreme Court had to deal with the principles of natural justice and at para 95 at page 1460 Justice D.P. Madan (for himself and on behalf of Y.V. Chandrachud, CJ. Tulsapurkar, Pathak JJ. (Majority view) held that "the principles of natural justice have thus come to be recognised as being a part of the guarantee contained in Article 14 because of the new and dynamic interpretation given by this Court to the concept of equality which is the subject matter of that Article. Shortly put, the syllogism runs thus : violation of a rule of natural justice results in arbitrariness which is the same as discrimination; where discrimination is the result of State action, it is a violation of Article 14: therefore, a violation of principle of natural justice by a State action is a violation of Article 14. Article 14, however, is not the sole repository of the principles of natural justice. What it does is to guarantee that any law or State action but also where any tribunal, authority or body of men, not coming within the definition of "State" in Article 12,ischarged with the duty of deciding the matter. In such a case, the principles of natural justice require that it must decide such matter fairly and impartially.
27. The learned Judges proceeded to state further that "the rule of natural justice in the appeals and writ petitions, namely, the audi alteram partem rule, in its fullest amplitude means that a person against whom an order to his prejudice may be passed should be informed of the allegations and charges against him, be given an opportunity of submitting his explanation thereto, have the right to know the evidence, both oral or documentary, by which the matter is proposed to be decided against him and to inspect the documents which are relied upon for the purposes of being used against him, to have the witnesses who are to give evidence against him examined in his presence and have the right to cross-examine them and to lead his own evidence, both oral and documentary, in his defence. The process of a fair hearing need not, however, conform to the juridical process in a court of law, because judicial adjudication of causes involves a number of technical rules of procedure and evidence which are unnecessary and not required for the purpose of a fair hearing within the meaning of audi alteram partem rule in a quasi-judicial or administrative inquiry. If we look at Clause (2) of Article 311 in the light of what is stated above, it will be apparent that that Clause is merely an express statement of the audi alteram partem rule which is implicitly made part of the guarantee contained in Article 14 as a result of the interpretation placed upon that Article by recent decisions of this Court.
28. Thus, the principles of natural justice are lifted to the high pedestal of fundamental rights guaranteed under Article 14 of the Constitution, any violation of which would strike at the very root of the matter unless the application of such principles are exceptcd or excluded by any other provisions contained in the Constitution. Such being the importance of natural justice, it is our considered view that non-compliance with the principles of natural justice in a fiscal enactment (where it is not excluded) should be considered as striking at the root of the matter itself.
29. Shri Menon vehemently contended that the assessee had enough opportunities to state its case effectively before the first appellate authority and the Appellate Tribunal both in the quantum appeal and also in the proceedings in respect of the evidence used against it and therefore it cannot now complain of failure of natural justice. This argument is deftly advanced by Shri Menon to buttress his point. We are not concerned with the quantum appeal. The proceedings before us are in connection with the penalty levied under Section 271(1)(c) and the question is whether reasonable opportunity was given to the appellant by the Dy. Commissioner to state its case effectively in respect of materials collected behind its back in the course of assessment proceedings as well as penalty proceedings before being used against it.
30. The answer to Shri Menon's attractive argument is provided by the jurisdictional High Court in Ponkunnam Traders' case (supra) at page 519 in which their Lordships approvingly referred to the observations of Megarry J. In Leary v. National Union of Vehicle Builders [1970] 2 All ER 713,720 as follows :
If one accepts the contention that a defect of natural justice in the trial body can be cured by the presence of natural justice in the appellate body, this has the result of depriving the member of his right of appeal from the expelling body. If the rules and the law combine to give the member the right to a fair trial and the right of appeal, why should he be told that he ought to be satisfied with an unjust trial and a fair appeal ?
Thus, we reject Shri Menon's contention.
31. In the light of our discussion and respectfully following the decision of the Hon'ble Kerala High Court read with the decision of the Supreme Court, cited supra, we hold that this is a fit case to quash the levy of penalty on the grounds of failure of natural justice and we order accordingly.