Mohd. Atiq v. Income-Tax Officer

1. This is a writ petition under article 226 of the Constitution.

2. The prayer contained in the petition is that a writ of certiorari may be issued quashing the order dated January 15, 1959, whereby a penalty of Rs. 5,000 was imposed upon the petitioner.

3. The material facts were, that the petitioner was a partner in the firm, Eastern Trading Company, carrying on business at Kanpur. There were two other partners also along with him in this firm, namely, Rahmatulla Khan and Rahim Baksh. It appears that an ex parte assessment was made against the firm for the assessment year 1944–45. This was by order dated January 27, 1945. On January 29, 1945, i.e, two days after the making of the assessment order, a notice under section 28(1)(b) was issued to the firm proposing to impose a penalty and requiring the firm to show cause. It appears that in response to this notice one of the partners of the firm appeared before the Income-tax Officer and produced before him a certificate of posting. It was stated on the basis of the said certificate of posting, that a return had been posted but it appeared that for some reason or other the return may have been lost. An affidavit was also filed in support of the statement made by that partner. Meanwhile an application under section 27 of the Income-tax Act was made for setting aside the ex parte assessment. That application having been dismissed, an appeal was filed against the order of dismissal, but the appeal was also dismissed. This was on the 7th May, 1946. The business of the firm was discontinued in June, 1945, and the firm was also dissolved. The last assessment of the firm was made for the assessment year, 1946–47, and the same was completed on the 12th September, 1950. From January 29, 1945, when the notice under section 28(1)(b) was issued to/the firm nothing at all appears to have been done until the completion of the last assessment of the firm on September 12, 1950. The matter was allowed to continue to remain in abeyance for many years, after that date also, and it was only on May 25, 1957, when a notice was issued in the name of the firm that penalty proceedings against it, initiated by the notice dated January 29, 1945, were still pending. The date of issue of this notice is not mentioned in it, but it was served on the petitioner. It appears that subsequently several other similar notices were issued, the last of which was on August 18, 1958. In this notice dated August 18, 1958, the name of the petitioner was also mentioned in addition to the name of the firm. It appears both from the averments in the petition as well as from the averments in the counter-affidavit and the statements contained in the penalty order that the petitioner asked for several adjournments which, were granted to him for filing a reply to the notices served upon him. On December 4, 1958, the petitioner filed a reply in which he took numerous objections to the imposition of a penalty. It may be stated that the tax assessed on the firm had been duly paid. The case of the petitioner was that a return was sent under a certificate of posting, but for some reason or the other it might not have reached the Income-tax Officer. After the receipt of this written reply of the petitioner, the Income-tax Officer again does not appear to have done anything in the matter. The petitioner, apprehending that a penalty order may be passed against him without his written reply being considered, moved this court on January 13, 1959, for the issue of a writ of prohibition, restraining the Income-tax Officer from proceeding further with the matter of imposing penalty. It is stated that a copy of the proposed writ petition was served upon the learned standing counsel for the income-tax department on December 24, 1958. Learned counsel for the petitioner has submitted that presumably the copy served on the learned standing counsel was despatched by this standing counsel to the Income-tax Officer. This writ petition was returned to the petitioner, because the court is said to have taken the view that it is possible that, after the lapse of all these years, the Income-tax Officer may stay his hands and discharge the notice regarding the imposition of penalty, and this court required the petitioner to go and enquire from the Income-tax Officer himself, how his reply to the notice had been dealt with. In consequence of these observations, the petitioner took back this petition. On January 15, 1959, the petitioner made an application to the Income-tax Officer for inspection of the file. The Income-tax Officer has stated that on January 17, 1959, an order was passed on this application, for the issue of a challan for depositing the inspection fee. The petitioner states that four days later, on January 19, 1959, he again visited the Income-tax Officer in order to enquire as to what orders had been passed on his application dated January 15, 1959. On that date he was served with copies of the penalty order and the notice of demand, which were both dated January 15, 1959. It has already been noticed that January 15, 1959, was the date on which the petitioner had made an application for inspection of the record. Under the penalty order, a penalty of Rs. 5,000 was imposed upon the petitioner. Thereupon, on January 27, 1959, the petitioner filed this writ petition for the relief, which has already been stated in the beginning of this judgment. The main point, which Shri R.L Gulati, learned counsel for the petitioner, has urged was that the conduct of the Income-tax Officer, in allthe circumstances, was mala fide in imposing the penalty of Rs. 5,000. He has also argued that it was extremely unjust that after the matter had become about fourteen years old, a penalty should at all have been imposed. Shri Gulati has taken me through the penalty order passed by the Income-tax Officer in this case. The penalty has professedly been imposed for non-compliance with the notices under sections 22(2) and 22(4). It has already been noticed that the case of the petitioner was that a return was sent to the Income-tax Officer under a certificate of posting. It has also been noticed that in support of this fact one of the partners of the firm had appeared before the Income-tax Officer and has also filed an affidavit. It was open to the Income-tax Officer to have stated that this certificate of posting did not relate to any document, which might have been received in the income-tax office, in the petitioner's case. It was also open to, the Income-tax Officer to have stated that the document said to have been sent through the certificate of posting was some other document. No such plea has been put forward in the counter-affidavit filed by the Income-tax Officer. All that the Income-tax Officer has stated in paragraph 8 of the counter-affidavit is that the certificate of posting does not show that any “return” was posted; To my mind, this plea does not meet the case. It will be noticed that this statement does not convey any denial of the receipt of some postal cover under the certificate of posting. It follows that some document was received by the Income-tax Officer, which may have been misplaced. If it was not the return sent by the petitioner, as alleged by him, the Income-tax Officer should have been in a position to state that it contained some other document or that it contained no document at all. The Income-tax Officer has not made any such statement. Accordingly, there is no substance in this ground taken by the Income-tax Officer in support of his penalty order.

4. The other ground which the Income-tax Officer has taken is that numerous adjournments were prayed for and granted to the petitioner. I do not see that the seeking of adjournments or the granting of all of them by the Income-tax Officer has anything to do with the matter. If adjournments were granted, presumably they must have been granted for good reasons. If adjournments were allowed for good reasons, it follows, that the adjournments were not sought merely for causing delay. Therefore, to my mind, there is nothing at all in the petitioner having sought adjournments and adjournments having been granted.

5. The third ground which the Income-tax Officer has taken in support of his order is that the personal assessment of the petitioner was made under section 23(4) and a penalty had also been imposed. The petitioner did not file any application under section 27 for the cancellation of that assessment and also did not go up in appeal against the penalty order. From this the Income-tax Officer has concluded that the petitioner is a “habitual defaulter”. I do not see how the facts and circumstances of the personal assessment of the petitioner have any relevancy at all to the facts and circumstances of the assessment of the firm of which he was a partner. In any view of the matter, the penalty was not being imposed upon the petitioner for his being a “habitual defaulter”. The penalty was being imposed for failure to comply with the notices under sections 22(2) and 22(4) of the Income-tax Act and, therefore, to my mind, he himself in his personal assessment having been assessed under section 23(4) or a penalty having been imposed, was a wholly extraneous consideration. Certainly it did not lend any support to the ground on which the penalty was imposed. If anything, allowing such an extraneous consideration to influence his mind vitiated the order. It is somewhat amusing to note that the only other reason, which the Income-tax Officer has given in his order is that it took the petitioner about eleven years from the date of the issue of the original notice to file a reply. It was not right for the Income-tax Officer to blame the petitioner for lapse of time. From the dates which have been stated in the earlier portion of this judgment, it is quite clear that it was the Income-tax Officer himself, who allowed the matter to become old and stale. Learned counsel for the petitioner has urged that if this penalty order is maintained, his partners having become untraceable, it will not be possible for him to claim contribution from them and he will have to bear the entire burden of penalty. Whether his partners have become untraceable or not is not very material but what is material is whether penal proceedings should be allowed to fructify in respect of a matter, which is about fourteen years old. It is true that no period of limitation is provided for imposing a penalty, but it is equally well settled that where no period of limitation is provided, proceedings should be taken within a reasonable time. I do not see how it can be said that this long lapse of fourteen years is reasonable time. To my mind, it is not merely unreasonable; it is fantastic.

6. Learned counsel has urged that the conduct of the Income-tax Officer in this matter was mala fide. On the materials placed before me, it is not possible for me to record a definite finding, that that is necessarily so. It does, however, appear that the Income-tax Officer after having allowed the matter to lie in cold storage for a long term of years suddenly blazoned out into frenzied activity and concluded that proceeding with post-haste speed. I have also suspicion that what appears to have been responsible for this haste was the fact that the petitioner had moved a writ petition in this court on the 13th January, 1959, of which the Income-tax Officer must necessarily have got scent and, therefore, in order to checkmate the petitioner and in order to obviate the situation in which he may be restrained from passing a penalty order he quickly obtained the sanction of the Assistant Commissioner and passed a penalty order within two days of the writ petition having been moved in this court on 13th January, 1959. But suspicion, however strong, cannot be allowed to do the duty for proof. Therefore, as I have already stated, it is not possible for me on the materials to record a finding one way or the other.

7. There is one other aspect of the matter to which I must now advert and that is, that it is well settled that proceedings for imposition of penalty are in the nature of criminal or quasi-criminal proceedings. In penalty proceedings, the burden is always upon the department to prove that the particular assessee has brought himself within the ambit of the penal provision. The mere fact that an explanation offered by the assessee may have been disbelieved does not, by itself, warrant the imposition of penalty. Even if, in spite of the rejection of the explanation offered by the assessee, the material is not enough to clinch the issue against the assessee, no penalty can be imposed. It is not necessary to cite authorities in support of such an elementary proposition in the income-tax law. I am not satisfied that, in this particular case, the income-tax department proved it beyond doubt, that a default had necessarily been committed by the petitioner in regard to the filing of a return. For these reasons I am of the view that the impugned order of penalty is bad and must be set aside.

8. Before, however, I do so, I must notice the only argument which was addressed to me by Shri Gopal Behari, counsel for the department. Shri Gopal Behari took his stand upon the position that, under the law, it was open to the petitioner to have filed an appeal against the penalty order and also in any case to have gone up in revision to the Commissioner. It cannot be doubted that the petitioner could have adopted that course but it is well settled that so far as a writ of certiorari is concerned, the existence of an alternative remedy is not necessarily a bar to the granting of relief. The matter had become very old. According to the petitioner, the other partners of the firm had become untraceable. The business had been discontinued and the firm had been dissolved. If he had not got relief in appeal by the Appellate Assistant Commissioner, he should have had to run the gamut of the entire hierarchy of authorities created under the Income-tax Act. In the circumstances, I am of the view that the remedy by way of appeal was not an efficacious remedy. The existence of an alternative remedy is merely one of the considerations governing the exercise of discretion by the court. I am of the view that, in the particular circumstances of this case, the petitioner should not be refused relief on the ground of the existence of an alternative remedy. The interests of justice require that the agony should not be allowed to be prolonged. For the reasons stated above, I allow this writ petition. A writ of certiorari shall issue quashing the penalty order dated January 15, 1959. The petitioner shall be entitled to his costs.

9. Petition allowed.