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PETITIONER: M/s.  GUDUTHUR BROS.

       Vs.

RESPONDENT: THE INCOME-TAX OFFICER, SPECIAL  CIRCLE, BANGALORE.

DATE OF JUDGMENT: 22/07/1960

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. DAS, S.K. SHAH, J.C.

CITATION:  1960 AIR 1326

ACT: Income-tax--Assessment--Penalty--Imposition   by  Income-tax Officer without reasonable opportunity given to assessee  of being   heard--Order   set  aside  on  appeal   and   refund directed--No   express  order  of   remand--Continuance   of Proceedings  by  the  Income-tax   Officer--Legality--Indian Income-tax Act, 1922 (II of 1922), SS. 28 (I)(a) and 28(3).

HEADNOTE: The  appellants  failed  to file  their  return  within  the prescribed time and on a notice issued under S. 28(1)(a)  of the  Indian Income-tax Act, 1922, to show cause why  penalty should  not be imposed on them, they filed a written  reply. Without  affording  them an opportunity of  being  heard  as required  by  S.  28(3) of the Act  the  Income-tax  Officer imposed  a  penalty  on  them.   On  appeal  the   Appellate Assistant  Commissioner  set aside the  order  and  directed refund  of the penalty.  Thereafter the  Income-tax  Officer issued a further notice giving an opportunity to the  appel- lants  of  being  heard.  The appellants  objected  to  this notice and 72 contended  that  the  Income-tax  Officer  could  no  longer proceed  to  re-assess  the penalty in  the  absence  of  an express   order  of  remand  by  the   Appellate   Assistant Commissioner whose order had become final. Held,  that where an order of imposition of penalty made  by the  Income-tax  Officer  under S. 28(1)(a)  of  the  Indian Incometax  Act was vitiated, not by any  initial  illegality but  by  one  which  supervened during  the  course  of  the proceedings  and the said order was vacated on  appeal,  the Income-tax  Officer  was  well within  his  jurisdiction  in continuing  the  proceedings  from the stage  at  which  the illegality  had  occurred and could  re-assess  the  penalty though no express order of remand was made. Jos Chacko Poothokaran v. Income-tax Officer, Ernakulam Cir- cle, [1957] 32 I.T.R. 648, not applied.

JUDGMENT:

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 261 of 1958. Appeal  by special leave from the judgment and  order  dated November 6, 1956, of the Mysore High Court in Writ  Petition No. 215 of 1956. S.   N. Andley, J. B. Dadachanji, Rameshwar Nath and P.   L. Vohra, for the appellants. K.   N. Rajagopal Sastri and D. Gupta, for the respondent. 1960.  July 22.  The Judgment of the Court was delivered by HIDAYATULLAH J.-This appeal has been filed with the  special leave of this Court against a decision of the High Court  of Mysore,  by which it dismissed in limine an  application  by the appellants under Art. 226 of the Constitution for a writ of  prohibition or some other appropriate writ  against  the Income-tax Officer, Bellary, Special Circle, Bangalore. The  facts of the case are as follows.  For  the  assessment year 1948-49, the appellants failed to file a return  within the prescribed time and the Income-tax Officer, acting under s. 28(1)(a) of the Indian Incometax Act, issued a notice  to them  to show cause why penalty should not be  imposed.   In answer to this notice, the appellants filed a written  reply and  the Income-tax Officer proceeded to levy a  penalty  of Rs. 16,000, without affording a hearing to them as  required by the third sub-s. of s. 28 of the Income-tax 73 Act.  The matter was taken up in appeal before the Appellate Assistant Commissioner of Income-tax, who, pointing out that an  opportunity  of  being  heard was  not  granted  to  the appellants, held that the order was defective.  He therefore set aside that-order and directed the refund of the  penalty if it had been recovered. On  receipt  of the order, the Income-tax Officer  issued  a further notice calling upon the appellants to appear  before him,  so  that they might be given an opportunity  of  being heard.   He also intimated that if no appearance  was  made, then he would proceed to determine the question of  penalty, taking  into consideration only the written statement  which had  been  filed earlier.  Before, however,  the  Income-tax Officer  could  decide  the case,  the  appellants  filed  a petition under Art. 226 of the Constitution for the issuance of  the writs mentioned above.  This petition was  dismissed in  limine  by the High Court holding  that  the  contention raised  by the appellants may perhaps be raised  before  the Income-tax  authorities.  The appellants  thereupon  applied for  special  leave  to this Court  and  leave  having  been granted, this matter comes up before us. There  is  no  question here that  the  requirements  of  s. 28(1)(a)   of  the  Income-tax  Act  were   not   completely fulfilled.  If the appellants had not filed their return, as they were required by law to do, the omission would  attract cl. (a) of sub-s. (1) of s. 28.  We say nothing as to  that. Sub-section (3) of s. 28, however, requires that the penalty shall  not  be imposed without affording to the  assessee  a reasonable opportunity of being heard.  This opportunity was denied  to  the appellants and therefore the  order  of  the Income-tax  Officer  was  vitiated by  an  illegality  which supervened,  ,not at the initial stage of  the  proceedings, but  during  the  course of it.  The order  of  the  learned Appellate  Assistant Commissioner pointed out the ground  on which  the illegality proceeded and his order directing  the refund   of  the  penalty,  if  recovered,  connot  but   be interpreted  as correcting the error and leaving it open  to the Income-tax Officer to continue his proceedings from  the stage at which the illegality occurred. 10 74

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No  express  remand for this purpose, as is  contended,  was necessary. Our  attention was drawn to a decision of a  learned  Single Judge of the Kerala High Court reported in   Jos      Chacko Poothokaran v. I. T. O., Ernakulam  Circle(1), in which,  in similar circumstances, it has been held that since an appeal was  not  taken  by the Commissioner of  Income-tax  to  the Appellate  Tribunal under sub-s. (2) of s. 33, the order  of the  Appellate Assistant Commissioner became final  and  the Incometax  Officer could no longer proceed to  reassess  the penalty.   The reason given is, in our opinion,  beside  the point.  What the Appellate Assistant Commissioner did was to vacate the order and direct refund of the penalty in view of an  illegality which had occurred during the course  of  the assessment  proceedings.   On receipt of the record  it  was open to the Incometax Officer to take up the matter from the point at which the illegality supervened and to correct  his proceedings.   It  was  pointed out in  the  course  of  the statement   of  the  case  by  the  appellants   that   such proceedings  could  only  be  taken  during  the  course  of assessment proceedings and those proceedings are  concluded. In our opinion, the notice issued to the appellants to  show cause  why  penalty should not be imposed on  them  did  not cease  to  be  operative, because  the  Appellate  Assistant Commissioner  pointed out an illegality which  vitiated  the proceeding  after  it was lawfully initiated.   That  notice having remained still to be disposed of, the proceedings now started  can  be  described  as during  the  course  of  the assessment proceedings, because the action will relate  back to the time when the first notice was issued. In  our opinion, the Income-tax Officer is well  within  his jurisdiction  to continue the proceedings from the stage  at which  the  illegality  has  occurred  and  to  assess   the appellants to a penalty, if any, which the circumstances  of the case may require. The appeal is accordingly dismissed with costs.                                            Appeal dismissed. (1)  [1957] 32 I.T. R. 648. 75