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Writ Petition No. 965 of 1956, decided on .12th December 1958,
S. 28‑Penalty‑Imposed in assessment proceedings‑ Cancellation " of penalty in appeal, on ground that assessee was not heard‑Show‑cause notice issued after completion of assessment‑Validity.
Notice under section 28 of the Income‑tax Act, 1922, for the imposition of penalty in respect of the assessment year 1947 48 was issued to the Assessee on March 21, 1952, the day on which the assessment was completed. The order levying penalty "was issued on January 31, 1955, but the order was cancelled on appeal by the Appellate Assistant Commissioner on the ground that the Assessee was not heard before the order was passed. A fresh notice was issued on July 12, 1956, calling upon the Assessee to appear before the Income‑tax Officer and to show cause why an order imposing penalty should not be made. The Assessee thereupon applied to the High Court for the issue of a writ of prohibition against the Officer on the ground that the Income‑tax Officer ceased to have any jurisdiction to issue the notice after the assessment proceedings were completed and that when an order imposing penalty was cancelled and the Department did not appeal, that order of cancellation became final;
Held, (i) that the restriction imposed on the income‑tax authorities under section 28 was only with regard to their satis faction within the time when proceedings are pending before them as to the concealment of income or the non‑furnishing of the return : that was the only limitation imposed thereunder
(ii) that the notice originally issued during the pendency of the proceedings was with regard to the imposition of penalty and the notice that was issued later on July 12, 1956, was one which gave an opportunity to the assessee to appear and show cause why penalty should not be imposed ;
(iii) that, therefore, the Income‑tax Officer had jurisdiction to issue the notice.
Banarsi Das v. Commissioner of Income‑tax (1936) 4 I T R 217; Commissioner of Income‑tax v. Sheik Abdul Kadir A I R 1928 Mad. 257 ; Guru Prosad Shaw v. Commissioner of Income‑tax (1944) 12 I T R 233 ; Jos Chacko Pooihkaran v. Income‑tax Officer, Ernakulam Circle (1957) 32 I T R 648 ; Sivagaminatha Moopanar & Sons v. Income‑tax Officer, II Circle, Madurai (1955) 28 I T R 601 ; Vir Bhan Bansi Lal v. Commissioner of Income-tax (1938) 6 I T R 616 ref.
P. Rama Rao for Petitioner.
C. Kondaiah for Respondent.
This application under Article 226 of the Constitution is on behalf of the assessee for the issue of a writ of prohibi tion, prohibiting the Income‑tax Officer, Vizianagaram, from proceeding further in pursuance of the notice issued under section 28 of the Indian Income‑tax Act (XI of 1922). ' The notice was issued to the petitioner in respect of the assessment year 1947‑1948 under section 28 of the Indian Income‑tax Act on March 21, 1952, and the assessment in respect of those years was completed on the same date, i.e., on March 21, 1952. The order levying the penalty was issued on 31st January 1955. The assessee preferred an appeal against this order to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner cancelled the order imposing penalty, on June 13, 1956, on the ground that there was no hearing given to the assessee before the order was passed. Therefore, accepting the contention of the assessee, the order of the imposition of the penalty was cancelled. After this on 12th July, 1956, the Income‑tax Officer issued a fresh notice calling upon the peti tioner to appear before him on a particular day and to show cause why the order, imposing the penalty should not be made under section 28 (1) of the said Act. The notice also gave the petitioner to show cause in writing. It is the issue of this notice that is now being challenged by the petitioner in this writ petition.
The main contention of the learned counsel for the petitioner is that after the proceedings relating to the assessment were com pleted, the Income‑tax Officer became functus officio and he had, therefore, no jurisdiction to issue a notice under section 28 (1) of the Act. A further argument is advanced that when the Appellate Assistant Commissioner had cancelled the order of penalty, the Department ought to have appealed against the order, and that not having done so, that, order became final and the Income‑tax Officer could not have issued a fresh notice in the face of that order.
For an appreciation of the contentions raised by the learned advocate appearing on behalf of the petitioner, it is necessary to consider the provisions of section 28 of the Indian Income-tax Act. The relevant provisions of section 28 are as under;
"28 (1) If the Income‑tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person‑
(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under subsection (1) or subsection (2) of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or
(b) has without reasonable cause' failed to comply with a notice under subsection (4) of section 22 or subsection (2) of section 23, or
(c) has concealed the particulars of his income or deli berately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income‑tax and super‑tax, if any, payable by him, a sum not exceeding one and half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and half times the amount of the income‑tax and super‑tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income :‑
(3) No order shall be made under subsection (1) or subsection (2) unless the assessee or partner, as the case may be, has been heard, or has been given a reasonable opportunity of being heard."
Section 28 (1) envisages the directing of the payment of penalty, where the Income‑tax Officer or the Appellate Assistant Commissioner or the Appellate Tribunal, as the case may be, is satisfied that any person has without reasonable cause failed to furnish an annual return of his total income or the other things mentioned in sub‑clauses (a) to (c). The question is whether the words occurring in section 28 (1), "in the course of any proceedings under this Act" mean that the notice that is con templated to be issued under this section has to be issued during the course of the proceedings pending before the authorities mentioned herein. A reading of subsection (1) of section 28 would made it abundantly clear that if during the course of the proceedings pending before the authorities, the authorities are satisfied about the matters mentioned in clauses (a), (6) and (c) they would issue a notice directing the payment of penalty. The argument is, that the issue of notice is restricted to the period when the proceedings are pending before the authorities con cerned. The correct import of that section appears to be that if the authority is satisfied during the proceedings pending before it, then it gives the authority the power to issue a notice for the payment of penalty. The detection as regards the conceal ment of the particulars of the income or the non‑furnishing of the return of the total income has to be made during the time when the proceedings are pending before the authorities. It would not be open to the authorities to levy a penalty on their getting information with regard to the matters mentioned in clauses (a), (b) and (c) of subsection (1) of section 28 of the said Act, after the proceedings are over. In my opinion, the restriction imposed is only with regard to the satisfaction of the authorities within the time when the proceedings are pending before them. The Calcutta High Court held the same view. The learned Judges in Guru Prosad Shaw v. Commissioner of Income‑tax ((1944) 12. I T R 233), observed;
"Any of these three persons has to be satisfied during the course of proceedings under the Act."
The learned counsel for the petitioner invited my attention to a case reported in Sivagaminatha Moopanar & Sons v. Income‑tax Officer, II Circle, Madurai ((1955) 28 I T R 601). My attention was drawn to the observations in that case which are to the following effect;
" . . proceedings for the levy of a penalty must be initiated by an authority when such authority is .in seisin of the assess ment or other proceedings in the course of which it is found that the assessee has brought himself within the mischief of section 28."
This question, in my opinion, did not directly arise in the case before the Madras High Court, and further there can be no doubt about it that in the instant case, the proceedings relating to the levy of penalty were initiated at the time when they were pending before the Income‑tax Officer, and because of a defect in the notice issued and which did not comply with section 28; subsection (3), of the Act, that notice was held to be invalid and the order cancelled. The case referred to above can only be an authority for the proposition, that the proceedings relating to the levy of penalty should be initiated when such proceedings are pending before the authorities concerned. There can be no doubt that in the instant case the penalty proceedings were initiated when the Income‑tax Officer had seism of the case. In my opinion, this decision of the Madras High Court cannot help the case of the petitioner.
Counsel for the assessee invited my attention to the decision of the Lahore High Court in Banarsi Das v. Commissioner of Income‑tax ((1936) 4 I T R 217). The question raised in that case was whether the imposition of the penalty without notice being served under section 28'(3) of the Indian Income‑tax Act was valid, and as notice was not served as required by law, it was held that the imposition of penalty by the Commissioner was invalid. The question now under consideration was never before that Court.
Yet another decision of the same Court brought to my notice was that in the case of Vir Bhan Bansilal v. Commissioner of Income‑tax ((1938) 6 I T R 616). Here the question formulated for the consideration of the High Court was;
"Whether, although notice issued under section 28 of the Act a day before the assessment order was made by Income‑tax Officer, that Officer had power on a date subseq1Ient to the date of the assessment order to impose a penalty under section 28 "
The assessee's contention, as is being contended here,' was that the Income‑tax Officer became functus officio after making the assessment and, therefore, could not impose any penalty, especially where the tax had been paid. In that case also the learned Judges held that the satisfaction of the authorities with regard to concealment of income or of deliberate furnishing of inaccurate particulars of income has to be arrived at during the course of the proceedings.
The decision of the Kerala High Court in Jos Chacko Poothokaran v. Income‑tax Officer, Ernakulam Circle ((1957) 32 I T R 648), was also relied upon by the learned counsel for the petitioner. In that case, the penalty proceedings were initiated and on appeal, the appellate authority cancelled the penalty on the ground that no personal hearing was given to assessee. Sub sequent to that, the Income‑tax Officer commenced penalty proceedings, holding that the proceedings initiated by him, at any rate, do not become ab initio void, but that he was com petent to institute fresh proceedings for the levy of the penalty. This order was questioned before the High Court. The learned Judge who decided the case came to the conclusion that the order of the Income‑tax Officer could not be sustained because of the orders of the Appellate Assistant Commissioner can celling the order of penalty. While observing so, the learned Judge also stated that section 31 (3) (b) of the Indian Income‑tax Act provided for appeal to the Appellate Tribunal against such an order and that no action was taken under subsection (2) of section 33. Under those circumstances, it was held that the Income-tax Officer ought not to have ignored the order of the Appellate Assist ant Commissioner. In this case also, the question now canvassed before this Court does not appear to have arisen directly, and I do not think that decision could help the petitioner in this case.
In Guru Prosad Shaw v. Commissioner of Income‑tax already referred to the assessee was assessed to income‑tax and the Income‑tax Officer discovered at that time that he had not returned the income and had deliberately failed to disclose it and this was on 23rd January 1941. On the subsequent day, a notice under section 28 (3) of the Indian Income‑tax Act was served on him to show cause why penalty, should not be imposed. The contention that was raised was that the notice under subsection (3) of section 28 ought to have been given before the closing of the assessment and the non‑issue of the notice before the proceed ings closed was fatal to the proceedings. The learned Judges, while dealing with this contention, repelled this contention and held that there was nothing under section 28 from which it could be gathered that the notice under subsection (3) of section 28 was to be given before the conclusion of the assessment and they further held that the penalty was lawfully imposed. The learned Judges referred to the decision of the Madras High Court in Commissioner of 'Income‑tax v. Sheik Abdul Kadir (A I R 1928 Mad. 257). As observed in that case, what is required under section 28 is that the discovery by the Officer or the satisfaction of the Officer should be before the proceedings are closed. That alone could be said to be the limitation imposed under section 28 (1) of the Act. Further it would not be correct to say that the notice issued in the first instance by the Income‑tax Officer and the sub sequent notice which is sought to be questioned now are identical. The first notice was with regard to the imposition of penalty and the notice that was issued on January 12, 1956, was a notice giving an opportunity to the assessee to appear and show cause why penalty should not be imposed on him as required by subsection (3) of section 28 of the Act.
For these reasons, I am of the opinion, that there are no merits in this writ petition. The writ petition is therefore dismissed with costs. Advocate's fee Rs. 100.
Petition dismissed.
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