Patna High Court
Commissioner Of Income-Tax vs Mithila Motors (P.) Limited on 17 August, 1983
Equivalent citations: [1984]149ITR751(PATNA)
JUDGMENT Ashwini Kumar Sinha, J.
1. At the instance of the Commissioner, Bihar, Patna, these two references under 8. 256(1) of the I.T. Act, 1961 (hereinafter to be referred to as " the Act"), have been made by the Income-tax Appellate Tribunal, "B" Bench, Patna. The assessment years in question are 1960-61 and 1961-62. The questions referred for the opinion of this court are are follows :
For the assessment year 1960-61 :
" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Appellate Assistant Commissioner for the assessment year 1960-61 ? "
For the assessment year 1961-62:
"Whether, on the faclt and in the circumstances of the case, the Tribunal WHS justified in holding that the order of the Income-tax Officer passed under Section 273(b) for the assessment year 1961-62 was ab initio void?"
Brief facts are these ;
For the assessment year 1960-61 :
The assessee for this assessment year was a new assessee who was not earlier assessed to any regular assessment. The assessee voluntarily filed an estimate of income of Rs. 35,000 and paid Rs. 15,750 as tax thereof. At the time of filing regular return, the assessee showed a total income of Rs. 64,534. This return by the assessee was filed on May 5, 1961. The regular assessment, however, was computed on a total income of Rs. 86,655. The assesses went in appeal and the AAC reduced this assessed income by Rs. 9,322, so that the resultant income came down to Rs. 77,333 on which the tax demand came to be Rs. 34,600. Eighty per cent. of this tax demand of Rs. 34,800 was Rs. 31,186 less paid by the assessee in advance of Rs. 15,750 and the balance non-paid amount came to Rs. 15,446. The 1TO, however, imposed a penalty of Rs. 3,477.
3. Notice under Section 274, read with Section 273(b) of the Act, was issued and the assessee was called upon to show cause as to why penalty should not be imposed. It is desirable to state here that the notice stated that the assessee was an old taxpayer who might have been regularly assessed to income-tax in the past and, hence, it was incumbent upon him to file a voluntary estimate of income and pay the relevant advance tax on such voluntarily estimated income and since the assessee had failed to do so, the assessee was called upon to show cause as to why penalty should not be imposed.
For the assessment year 1961-62:
For this assessment year in question also, the assessee voluntarily filed his estimate of income for Rs. 90,000 on April 6, 1961. Tax on the estimated income was Rs. 33,750 which was paid by the assessee in full. However, when the assessee filed his regular return, it was at Rs. 1,09,985. The assessment, however, was made on an income of Rs. 1,50,555. The assessee went up in appeal before the AAC and the AAC reduced the amount by Rs. 37,074 so that the reduced income stood at Rs. 1,13,482 on which the tax demand came to be Rs. 51,067. Eighty per cent on this was Rs. 40,854 as against which the assessee had paid in advance Rs. 33,750 so that the default thereof was the balance amount of Rs. 7,104. The ITO imposed a penalty of Rs. 4,581.
4. For this assessment year as well, the ITO had served a show-cause notice in the same terms as for the assessment year 1960-61, as already referred to above. In other words, for both the assessment years in question, the notice was for not filing estimate of income voluntarily though, in fact, the assessee had already filed an estimated income voluntarily.
5. After the ITO had imposed penalty with respect to both the assessment years, the assessee went up in appeal before the AAC who quashed the penalties for both the assessment years. The Department thereafter appealed to the Tribunal and the Tribunal, after hearing the parties, restored the matter, with regard to both the assessment years, to the file of the AAC on the ground that the notices issued were not valid and the imposition of penalty under the new Act was in question.
6. When the matter came again before the AAC, it was pleaded by the assessee that the notices issued in respect of both the assessment years were ab initio void, as the guilt mentioned in the notice was wrong and it had not been stated that the assessee was to show cause for filing inaccurate particulars of his advance tax estimate. While issuing notices, the ITO had stated that the assessee had failed to furnish estimate of advance tax payable under the provisions of s, 212(3) of the Act. It was argued on behalf of the assessee that there was no failure on his part to furnish the estimate. After hearing the parties, the AAC held that notice under Section 274 read with Section 273(b) should have charged the assessee under Section 18A(9) of the old Act, or under Section 212(3) of the new Act which had not been done. All the same, the AAC held that there was a partial default on the part of the assessee and penalty had to be levied. The AAC took the view that the assessee was a new assessee for this assessment year and, under the old Act, there was no minimum limit forevying penalty under Section 18A(9) and also in view of the fact that the assessee had paid the advance tax as estimated by him, the AAC imposed a token penalty of Rs. 500 for the assessment year in question.
7. So far as the assessment year 1961-62 is concerned, as already stated above, notice served upon the assessee was absolutely in the same terms as for the assessment year 1960-61, i.e., for failure to file estimate of income voluntarily. The AAC dropped the penalty proceeding for this assessment year on the ground that the assessee was an old assessee for this assessment year because the assessment for the assessment year 1959-60 was already completed on August 31, I960 and, hence, the relevant advance income-tax year for the assessment year 1961-62 would begin on the April 1, 1960, and end on March 31, 1961, and during this period, i.e., April 1, 1960, to March 31, 1961, the assessment for the year 1959-60 was already completed. In that view of the matter, the AAC held that it was incumbent upon the Department to have issued advance tax notice and demanded payment from the assessee which was clearly not done and, hence, the assessee could not be charged for any negligence or default. The AAC also held that the charge framed in the notice under Section 274, read with Section 273(b) of the Act, was irrelevant and incorrect and in this view of the matter he held that no penalty under Section 273(b) could be levied for this assessment year.
8. For the token penalty imposed by the AAC for the assessment year 1960-61, the assessee did not go in appeal before the Tribunal. On the contrary, the Department went before the Tribunal as against the orders of the AAC in respect of both the assessment years. The Tribunal, in so far as the assessment year 1960-61 is concerned, held as follows :
"...The Income-tax Officer has imposed penalty for filing inaccurate particulars of advance tax estimate but when he had issued notice, he had called for explanation for failure to furnish an estimate of advance tax payable. This, in our view, went to the root of the penalty proceedings and made them invalid. The Income-tax Officer has wrongly imposed the penalty when the issue of penalty notice itself was invalid. However, in this case, the assessee has not filed an appeal before us and as the assessee has not been able to show that this was not a fit case for imposition of penalty, we see no reason to interfere with the order of the Appellate Assistant Commissioner."
9. In so far as the assessment year 1961-62 is concerned, the Tribunal has held as follows :
" ...We find that the Income-tax Officer has committed the same mistake in respect of this year also. Though the intention was to penalize the assessee for filing inaccurate particulars of his income, the notice was issued for his failure to comply with the provisions of Sub-section (3) of Section 210 of the Income-tax Act. Thus, the assessee has been penalised on a charge which has not been made out against him and the notice issued is definitely invalid and misleading. In these circumstances, the Appellate Assistant Commissioner was justified in cancelling the order of imposition of penalty. We, therefore, dismiss the Departmental appeals."
10. Thereafter, at the instance of the Commissioner, Bihar, Patna, the present references have been made under Section 256(1) of the Act.
11. With regard to both the assessment years in question, the learned senior standing counsel for the Department has contended that, even if the notice under Section 274 read with Section 273(b) of the Act was a bad one, wrong labelling of the section by some mistake in the charge framed in the notice did not prejudice the assessee, as the assessee was given an opportunity of being heard. The assessee, in fact, gave a written reply, after having understood correctly the charges that he was to meet. The learned senior standing counsel for the Department contended that the assessee did give the reply to his satisfaction understanding the charges that he was to meet.
12. The contention of the learned senior standing counsel for the Department seems to me to be right as, in the instant case, the ITO had not only given the assessee an opportunity of being heard but the assessee did, in fact, give a written reply also and was quite aware of the charges which he was required to meet in the course of the hearing. Under Section 274 of the Act, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf and, in such circumstances, in view of the explanation given by the assessee in the course of hearing, it is obvious that the assessee was fully aware of the charges that he had to meet. Therefore, the notices cannot be said to be void ab initio. The learned senior standing counsel for the Department has righity relied upon the case of CIT v. Banarsilal Rajgarhia [1964] 51 ITR 659 (Pat), Navayuga. Traders Gunnies Firm v. CIT [1911] 79 ITR 519 (AP) and Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 (SC). In the case of CIT v. Banarsilal Rajgarhia, [1964] 51 ITR 659 (Pat) the mistake in the notice was in specifying the years, whereas in the instant case, the mistake is with regard to the section. In the case just referred to above, the assessee understood the notice fully and gave a correct reply even though there was a mistake in specifying the year of assessment. In that view of the matter, it was held that the intention and purpose of the notice issued was for the year which the assessee had understood correctly and the mistake in the notice in mentioning the (wrong) year of assessment neither invalidated the notice nor the reassessment proceeding taken against the assessce.
13. In the case of Navayuga Traders Gunnies Firm v. CIT [1971] 79 ITR 519 (AP), a notice was wrongly issued under Section 28(3) of the 1922 Act instead of under the new Act and the submission advanced by the assessee was that the notice was invalid. It was held that the order of the Commissioner, based upon a notice wrongly issued under the old Act, was not invalid merely because it quoted the provision of the Indian I.T. Act instead of the Patiala Income-tax Act.
14. In the case of Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 (SC), it was held that a mistake in the notice does not invalidate the penalty proceedings.
15. For the foregoing reasons, in the instant cases, I hold that the notices were not void ab initio.
16. So far as the token penalty of Rs. 500 imposed upon the assessee for the assessment year 1960-61 by the AAC and confirmed by the Tribunal is concerned, the learned senior standing counsel for the Department has contended that, as the order was passed when the Act of 1961 was in force and the proceedings had commenced, the order had to be passed under the provisions of the 1961 Act and not under the provisions of the 1922 Act. That Act prescribes a minimum penalty under Section 271(1)(a) and, hence, the proceedings being governed by the 1961 Act, the token penalty of Rs. 500 imposed by the AAC and confirmed by the Tribunal was wholly illegal. It is well-settled that the procedural aspect for the levy of penalty is governed by the 1961 Act even though the assessments for the years in question were completed under the provisions of the 1922 Act. The language of Section 297(2)(g) is very clear and definitely says that any proceeding for imposition of penalty in respect of the assessment years for which the assessment was completed under the old Act of 1922 may be initiated and penalty imposed under the 1961 Act. The principle is so well established that no authority need be referred to.
17. For the foregoing reasons, the question referred for our opinion, so far as the assessment year 1960-61 is concerned, must be answered in the negative and I hold that, on the facts and in the circumstances of the case, the Tribunal was not justified in upholding the order of the AAC.
18. For the same foregoing reasons, the question referred for our opinion with respect to the assessment year 1961-62 must also be answered in the negative and I hold that, on the facts and in the circumstances of the case, the Tribunal was not justified in holding that the order of the ITO under Section 273(b) for the assessment year 1961-62 was void ab initio. I, accordingly. direct that the matter with regard to both the assessment years has to go back to the Tribunal, and the Tribunal will go into the question of quantum of penalty imposable upon the assessee after hearing the parties.
19. That, however, is not the end of the matter. The learned counsel for the assessee has placed reliance on Section 273 of the 1961 Act and has contended that before the proceeding is initiated, satisfaction of the ITO with regard to the two prerequisites as envisaged in Section 273(a) and (b) has to be recorded by the ITO and, in the instant cases, these are missing and in that view of the matter, the contention of the learned counsel for the assessee has not been considered by the Tribunal presumably on account of its finding to the effect that invalidity of the notice may render the proceeding void ab initio. For this reason, it seems, the other reason given by the AAC to the effect that it was incumbent upon the ITO to have issued advance tax notice and demanded payment from the assessee, which was clearly not done, was not touched upon by the Tribunal. Though the point raised by the learned counsel for the assessee may not, prima facie, be said to arise out of the order of the Tribunal, yet it is of grave consequence in so far as the imposition of penalty is concerned. In the case of CIT v. Indian Molasses Co. P. Ltd. [1970] 78 ITR 474, at page 482, the Supreme Court has stated as follows :
" The Tribunal considered whether the amount claimed to have been laid out or expended became expenditure within the meaning of Section 10(2)(xv) on the death of Harvey, and whether it was capital expenditure. They did not consider whether the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the company. Since the Tribunal gave no finding on this part of the case, we are unable to answer the question on the materials placed before us....
Two courses are now open to us : to call for a supplementary state ment of the case from the Tribunal; or to decline to answer the question raised by the Tribunal and to leave it to the Tribunal to take appropriate steps to adjust its decision under Section 66(5) in the light of the answer of this court. If we direct the Tribunal to submit a supplementary statement of the case, the Tribunal will, according to the decisions of this court in New Jehangir Vakil Mills Ltd. v. CIT [1959] 37 ITR 11 (SC), Petlad Turkey Red Dye Works Co. Ltd, v. CIT [1963] 48 ITR (SC) 92 and Keskav Mills Co. Ltd. v. CIT [1965] 56 ITR 365 (SC), be restricted to the evidence on the record and may not be entitled to take additional evidence. That may result in injustice. In the circumstances, we think it appropriate to decline to answer the question on the ground that the Tribunal has failed to consider and decide the question whether the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the company and has not considered all appropriate provisions of the statute applicable thereto."
20. I, therefore, think that grave injustice would be caused if this aspect of the matter is also not gone into by the Tribunal and the Tribunal is hereby directed to go into this question as well in respect of assessment year 1961-62 while deciding the quantum of penalty after hearing the parties and give its decision in accordance with law. So far as the token penalty of Rs. 500 for the assessment year 1960-61 is concerned which was levied against the assessee and to which he has acquiesced, the Tribunal is directed to decide the quantum of penalty in accordance with the Act of 1961 after hearing the parties and the assessee will not be entitled to take the plea of prerequisites as envisaged in Section 273 (a) and (b).
21. With these directions, both the cases are sent back to the Tribunal to decide afresh in view of the directions and observations made as above. In the circumstances of the case, there will be no order as to costs. ' S.K. Jha, J.
I agree.