M/S. Guduthur Bros. v. The Income Tax Officer , Special Circle, Bangalore

Hidayatull•h ]. HIDAYATULLAH J.-This appeal has been filed

'"ith the special lea1•e of this Court ag1>iust a decision of the High Court of Myore, by which it dismissed in limine an application by tho appellants under Art. 226 of the Constitution for a writ of prohibition or some other appropriate writ again8t the Income-tax Officer, 13ellary, Special Circle, Bangalore.

The facts of the case are as follows. For the assess-ment year 1948.49, the appellant!! failed to file a rl't.urn within the prescribed time and the Income-tax Officer, acting under s. 28(l)(a) of tho Jndian Income-tax Act, issued a notice to them t-0 show cause why penalty should not be imposed. In answer to this notice, tho appellants filed a written reply and the Income-tax Officer procooded 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 lucome-ta:x Ac-t. The matter was taken up in appeal before the r9M Appellate Assistant Commissionllr ofincome-tax, who; - pointing out that an opportunity of being heard was Mfs. Guduthur Bros. not granted tO the appellants, held that the order was v. defective. He therefore set aside that order and direct-The Income-ta> ed the refund of the penalty if it had been recovered. Officer, Special ~ On receipt of the order, the Income-tax Officer Circle, Bangalore issued a further notice calling upon _the. appellants to Hida;atullah 1. 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 con-sideration only the written statemen.t which had been filed earlier. Before, however, the Income.fax Officer < 01ild decide the case, the appellants filed a petition under Art. 226 of the. Constitution for the issuance of tLe writs mentioned above. This petition was disc missed in limine by the High Court holding that the contention raised by the appellants may perhaps be raised before the Income-tax authorities. The appel-.

!ants thereupon applied for special leave to this Cour.t and leave having been granted, this matter comes up before us.

There is no question here that the requirements of s .. 28(l)(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. (l) of s, 28. We say nothing as to that, Sub-section.(3) of s. 28, however, requires that the penalty shall not be imposed with-out 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 superveneq, not at the initial stage of the proceedings, but during the course .of it. The order of the learned · Appellate Assistant Commissfoner 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 Ofµcer to continue his proceed-ings from the stage at which the illegality occurred

i4 SUPRK\JE COURT REPORTS [1961]

No express remand for this purpose, as is contended, Afili. Gudtctl110· was necessary.

/fros Our attention was drawn to a decision of a learned . . v Single Judge of the Kern la High Court reported in Th' 1"'".""· ·'l"""1 1ax Jos Chacko Poothokaran v. I. T. 0., Ernakulam Off•w. C' ire /e (1 ) , in • w h' h 1n . s1m1 . 'l ar c1rcumstanccs, . it . h as .Circle, uangal!irt IC ,

been held that since an appeal was not taken by the H•daya1 .. 11a1o J. Commissioner of Income-tax to tho Appellate Tribu-

nal under sub-s. (2) of s. 33, the order of the Appellate Assistant Commissioner became fin~) and the Income-tax Officer could no longer proceed to reassess the penalty. The reason given is, in our opinion, beside the point. What the Appellate Assistant Commissio-ner did was to vacate the order and direct refund of the penalty in view of an illegality which had occur-red during . the course of the assessment proceedings. On receipt of the record it was open to the Income-tax Officer to take up the matter from the point at which the illegality supervened and to correct his pro-ceedings. 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 t-0 show cause why penalty should not ho 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 pro- . ceedings, because the action will relate back to the time when the first notice was issued.

In our opinion, the Income-tax Officer is well with-in 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 diamissed.