P. Jaganmohan Reddy, C.J:— The Income-tax Appellate Tribunal has referred the following question for our opinion, namely:
“Whether penalty under section 28(1)(a) of the Act was exigible?”
2. This question arose in the following circumstances:
The assessee, who is an individual, filed a return for the assessment year 1957–58, for which the relevant accounting period is the year ended March 31, 1957, on January 7, 1959, long after the time within which he should have filed a return in accordance with a public notice given under section 22(1) of the Income-tax Act, 1922. In that return, he declared an income of Rs. 1,601. The Income-tax Officer while accepting the turnover did not accept the 1 % basis in arriving at the profits, and computed the profits at 25%. At the same time, he gave a notice to show cause why he should not levy a penalty under section 28(1)(a) of the Income-tax Act. In that proceeding, after considering his reply to the show cause notice, the Income-tax Officer levied a penalty of Rs. 2,250. The assessment itself was subjected to an appeal. The Appellate Assistant Commissioner estimated the profits at 20%. The Commissioner of Income-tax, however, on revision reduced it to 15%.
3. Against the levy of penalty also, the assessee filed an appeal and, ultimately, the Tribunal reduced the penalty to Rs. 1,700. It is contended by Mr. Dasaratharama Reddy that neither the Income-tax Officer nor the Tribunal was justified in levying the penalty under section 28(1)(a) when, in fact, they rejected his return and assessed him on an estimate of a higher percentage of gross profits. What they should have done, according to the learned counsel, was to take proceedings under section 28(1)(c), on the basis of the income assessed by them as if it was suppressed income. The learned advocate also contends that proceedings under sections 28(1)(a), 28(1)(b) and 28(1)(c) are mutually exclusive and if an assessment has been made and there is a suppression, it is a case under section 28(1)(c), and if section 28(1)(c) is applicable, sections 28(1)(a) or 28(1)(b) cannot be made applicable. In support of this proposition, he relied upon a judgment of the Madras High Court in S. Santhosa Nadar v. First Addl. Income-tax Officer [1962] 46 I.T.R 411..
4. Before we consider this judgment, it is necessary to examine the relevant provisions of sections 22 and 28. The provisions are given below:
“22(1) The Income-tax Officer shall, on or before the 1st day of May in each year, give notice, by publication in the press and by publication in the prescribed manner, requiring every person whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax to furnish, within such period not being less than sixty days as may be specified in the notice, a return, in the prescribed form and verified in the prescribed manner, setting forth (along with such other particulars as may be required by the notice) his total income and total world income during that year:
Provided that the Income-tax Officer may in his discretion extend the date for the delivery of the return in the case of any person or class of persons.
(2) In the case of any person whose total income is, in the Income-tax Officer's opinion, of such an amount as to render such person liable to income-tax, the Income-tax Officer may serve a notice upon him requiring him to furnish, within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) his total income and total world income during the previous year:
Provided that the Income-tax Officer may in his discretion extend the date for the delivery of the return.
(3) If any person has not furnished a return within the time allowed by or under sub section (1) or sub-section (2), or having furnished a return under either of those sub-sections, discovers any omission or wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made
(4) The Income-tax Officer may serve on any person who has made a return under sub-section (1) or upon whom a notice has been served under sub-section (2) a notice requiring him, on a date to be therein specified, to produce, or cause to be produced, such accounts or documents as the Income-tax Officer may require, or to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including with the previous approval of the Commissioner, a statement of all assets and liabilities not included in the accounts) as the Income-tax Officer may require for the purposes of this section:…”
“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 sub-section (1) or sub-section (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 sub-section (4) of section 22 or sub-section (2) of section 23, or
(c) has concealed the particulars of his income or deliberately 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 a 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 a 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:
Provided that (a) no penalty……”
5. A reading of these two sections shows that once a notice by publication has been given under sub-section (1) of section 22, it is incumbent upon persons having assessable income to file returns within the time prescribed in the notice, or such other time as may be allowed to them by the Income-tax Officer. If any person does not file a return within the prescribed period, section 28(1)(a) is immediately attracted and he will be liable for penalty in any proceedings which the Income-tax Officer may take to assess his income, be they on a notice under section 22(2) or under section 34. The penalty proceedings under section 28(1)(b) are for non-compliance with a notice under sub-section (4) of section 22 or sub-section (2) of section 23. Where, however, an assessee has concealed particulars of his income or deliberately furnished inaccurate particulars of such income, in the returns filed by him, he will be liable for penalty under clause (c) of section 28(1). In so far as section 28 is concerned, we cannot say that an assessee who has not complied with all or any of the provisions will not be liable to penalty under one or other of those provisions. As we read section 28, we cannot accept the contention of the learned counsel that where a return has been filed, notwithstanding the fact that it has been filed beyond the time given under section 22(1), once the Income-tax Officer had acted on the return so filed, he can only levy a penalty under section 28(1)(c) and cannot invoke the provisions of section 28(1)(a). There is nothing to warrant this conclusion, except perhaps a stray statement divorced from the context of the facts and circumstances of the case, in the decision of the Madras High Court in S. Santosha Nadar v. First Addl. Income-tax Officer.
6. In C.V. Govindarajulu Iyer v. Commissioner Of Income-Tax, Madras [1948] 16 I.T.R 391., a Bench of the Madras High Court consisting of Rajamannar C.J and Yahya Ali J. was considering a case where it was contended that it was not competent for the Income-tax Officer to levy a penalty in the course of a proceeding under section 34 of the Act for a default not committed in the course of that proceeding. In that case the assessee failed to furnish a return of his total income as required by a notice under section 22(1) of the Income-tax Act but no notice under section 22(2) was issued by the department within the year of assessment. It was held that the Income-tax Officer was competent, in the course of the proceedings taken by him under section 34 read with section 22(2), to assess such income, and to levy a penalty under section 28(1)(a) for failure without reasonable cause to furnish a return pursuant to the notice under section 22(1). It was there observed at page 396:
“… so long as the proceedings under section 34 relate to the assessment for the same period as the original assessment, the Income-tax Officer will be competent to levy a penalty on any ground open to him under section 28(1), even though it relates to the prior proceeding”.
7. It was further observed that once assessment proceedings have commenced with the general notice under section 22(1), they can only come to an end by either an order of assessment or an order declaring that no assessment can be made; and that where there is no such order and eventually proceedings are taken under section 34, such proceedings must be deemed to relate to the proceedings which commenced with the public notice under section 22(1).
8. No doubt, the Calcutta High Court, in Commissioner Of Agricultural Income-Tax v. Sultan Ali Gharami [1951] 20 I.T.R 432., has taken the view that no assessment proceeding is started by the mere notice under sub-section (1) of section 22 and a proceeding commences only when a return under the section is filed, if any such return is filed at all; and that if no such return is filed, an assessment proceeding commences only when a notice under section 22(2) is served. This court, in Commissioner of Income-tax v. Angara Satyam [1959] 37 I.T.R 230., however followed the view expressed by the Madras High Court in the case cited above. Though this court did not specifically refer to the Calcutta view, their Lordships of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas [1959] 36 I.T.R 569 disapproved of that view. Hidayatullah. J. delivering the judgment of their Lordships, after citing the observations of Chakravartti, J. (as he then was) in Commissioner of Agricultural Income-tax v. Sultan Alt Gharami, as also the explanation of the Bench consisting of Chakravartti C.J and Sarkar J. in Commissioner Of Income-Tax, West Bengal Calcutta…Applicant; v. Govindalal Dutta…., observed at page 575:
“The Calcutta view, as shown above, really proceeds upon the wording of section 22(1). It lays down that the public notice requires only persons having an income above the taxable limit to make a return. A person who has no such income need not make a return, and if he does make a return, it is not a return which need be considered, being not a return in law.
It is a little difficult to understand how the existence of a return can be ignored, once it has been filed. A return showing income below the taxable limit can be made even in answer to a notice under section 22(2). The notice under section 22(1) requires in a general way what a notice under section 22(2) requires of an individual. If a return of income below the taxable limit is a good return in answer to a notice under section 22(2), there is no reason to think that a return of a similar kind in answer to a public notice is no return at all. The conclusion does not follow from the words of section 22(1).”
9. At page 576, Hidayatullah J. expressed the dissent in these words:
“We are unable (and we say this with due respect) to accept the view adumbrated in the Calcutta cases. The contrary view is expressed by the Bombay High Court in the earlier case of Harakchand Makanji & Co. v. Commissioner of Income-tax and in the judgment under appeal. That view was accepted by the Madras High Court in P.S Rama Iyer v. Commissioner of Income-tax and also, in our opinion, is the sounder view of the two.”
10. In this view, it is idle to contend that proceedings under section 22(1) are not initiated by publication of notice under that section. If proceedings are initiated, as was held already, then non-compliance with that provision has been made a specific ground for levying of penalty under section 28(1)(a). It does not make any difference whether no return has been filed at all which gave rise to a notice under section 22(2) and or proceedings under section 34, or where a return has been filed beyond the time given in a notice under section 22(1). In either of these cases the Income-tax Officer has jurisdiction to levy a penalty for not filing a return in time. If a return has been filed, not in compliance with a notice under section 22(1) but after the expiry of the period prescribed in that notice, the mere fact that the return has not been accepted or that the assessee has concealed theparticulars of his income or deliberately furnished inaccurate particulars of such income, does not preclude the Income-tax Officer from taking action under section 28(1)(a), if he so chooses. He cannot be compelled, in our view, to have recourse to section 28(1)(c) alone.
11. Mr. Dasaratharama Reddy contends that, if this is so, then the Income-tax Officer could levy two penalties, one under section 28(1)(a) and the other under section 28(1)(c). Whether he could do so or not is not the subject-matter of this reference and we do not wish to express any view thereon. But where an Income-tax Officer has jurisdiction to do one or the other, as indeed he has to take action under section 28(1)(a) or section 28(1)(c), he cannot be compelled to take action only under one, viz., that which confers a good defence for the assessee to escape penalty or challenge the validity of the proceedings. We do not think that Srinivasan J. in Santosha Nadar v. First Addl. Income-tax Officer, purported to lay down a different principle. Any observations made therein must be confined to the facts of that particular case. In that case, a voluntary return was filed after a period of four years from the close of the assessment year and was held to be not valid. It was ignored by the Income-tax Officer as if no return has been filed and he initiated proceedings under section 34(3). In these proceedings, penalty was levied under section 28(1)(c). It was argued when it first came before the Bench that when a return has not been filed, there is no question of concealment of income or deliberately furnishing inaccurate particulars of such income and, hence, no penalty can be levied under section 28(1)(c). The Bench appears to have overlooked this argument, and after the retirement of one of the judges, a review petition was filed which came up before Srinivasan J. who held that there were good grounds for allowing the review. It was held that in order to bring a case under section 28(1)(c), a return must be filed and since the return has been treated as non est, there can be no question of concealment of particulars of income or deliberately furnishing inacurate particulars, and that the case should have been dealt with under section 28(1)(a). At page 416, he said:
“… I am unable to see how section 28(1)(c) can at all come into play. The Bench has definitely come to the conclusion that a return filed beyond the period of four years from the close of the assessment year is non est in law, as that cannot form the basis of a lawful assessment. The only manner in which the assessment in such a case can be made is by resort to section 34(1) initiated by the issue of a notice. If a return filed beyond a period of four years cannot form the basis of a valid assessment without the aid of section 34(1), I am unable to accept the contention that it can yet be a valid return for the purpose of the application of section 28(1)(c).”
12. This was the ratio decided in that case. But after stating thus, Srinivasan J. added:
“The conclusion that I reach accordingly is that section 28(1)(a) and section 28(1)(c) are mutually exclusive.”
13. What he meant by “mutually exclusive” in the context of the case is not clear. If he meant by this stray sentence that if action is taken under section 28(1)(a) no action can be taken under section 28(1)(c) or vice versa, then we must, with respect, dissent with that view. But if he was only emphasising the distinction, as indeed we think he was, between sections 28(1)(a) and 28(1)(c), then that expression must be confined to that aspect only. It was later pointed out that though the matter was not directly covered by any authority, a decision in Narayanappa and Brothers v. Commissioner of Income-tax lent support to his view. That case raised a question whether the Income-tax Officer could levy a penalty under section 28(1)(b) where the assessee failed to submit a return in response to a notice under section 22(2) and further failed to produce his books of account when called upon to do so under section 22(4). There again it was held that no penalty could be levied for non-compliance with section 22(4) where no return has been filed. It was stated that section 22(4) empowers the Income-tax Officer to call for accounts, etc., only in a case where a person has made a return either under section 22(1) or section 22(2) and that imposition of penalty under section 28(1)(b) therefore depends on the question whether a return has been filed, and if no return has been filed, then the books could not be called for, and if the books could not be called for, non-compliance with it would not expose the assessee to penalty proceedings under that provision. Even in this case, what was being considered was non-filing of a return vis-a-vis non-compliance with the other provisions of either section 22 or 28. There is nothing in the Mysore judgment to warrant the conclusion that if a return is filed under section 22(1), then the Income-tax Officer can only levy a penalty either under sections 28(1)(b) or section 28(1)(c). In Commissioner of Income-tax v. Angara Satyam one of us (the Chief Justice), dealing with the contentions that in proceedings under section 34 non-compliance with the provisions of section 22(1) cannot be made a ground for levy of penalty under section 28(1)(a), and alternatively that if a revised return was filed, no such proceedings can be taken, observed at page 238:
“Furthermore, the return as originally filed cannot be said to have been accepted, because if accepted it would have avoided tax. If the acceptance of the revised return does not impose a liability on the assessee for the acts of default committed by him already, it would be tantamount to saying that the legislature intended to condone all deliberate defaults specified in clauses (a), (b) and (c) of sub-section (1) of section 28. That could not have been the intention, because sub-section (3) of section 22 which provides for the furnishing of a revised return, does nothing more than to permit an assessee where he makes a genuine default, omission or wrong statement to file a revised return in time before the assessment is made. This could only mean that the omission or wrong statement was inadvertent or accidental and not deliberate.”
14. After referring to Commissioner of Income-tax v. Badridas Ramrai Shop, Arunachalam Chettiar v. Commissioner of Income-tax, and Vadilal Ichachand v. Commissioner of Income-tax, where both the Madras and Bombay High Courts have held that penalty may be imposed under section 28 in respect of the previous false return notwithstanding the filing of a revised return, it was observed at page 239:
“Therefore, by the same parity of reasoning, once proceedings under section 34 are reopened by applying the procedure referred to therein, in the course of which it is discoverd that the assessee had made a deliberate omission, either with respect of the original assessment or in the return filed under section 34, it cannot be said that the omission or default has been condoned merely because the subsequent return has been accepted by the income-tax authorities. We see no distinction between the two cases. The actual result of the assessment has nothing to do with the question whether a return as furnished by the assessee has concealed any particulars of the income or furnished inaccurate particulars thereof.”
15. These observations apply with full force to the facts of the present case and we are of the view that the question must be answered in the affirmative and against the assessee, with costs. In the particular circumstances of the case, Advocate's fee is fixed at Rs. 150.
16. Question answered in the affirmative.