Murlidhar Tejpal v. Commissioner Of Income-Tax, Patna.

1. In this case the assessee was taxed on a total income of Rs. 34,513. In computing the total income the Income-tax Officer added a sum of Rs. 27,522 which was found credited in the Hathfer Khata (suspense account) in the name of Upper Sey. It was the case of the assessee that the relevant credit in the Hathfer Khata represented the cash deposit of his wife, Shrimati Naraini Devi, from out of her stridhan properties. But the assessee did not produce any evidence before the Income-tax Officer to substantiate the contention. In the absence of any satisfactory explanation with regard to the source of the cash credit, the Income-tax Officer held that the amount should be included for the purpose of income-tax in the total income of the assessee. The assessee preferred an appeal before the Income-tax Appellate Commissioner, but the appeal was dismissed. The assessee again took the matter in appeal before the Income-tax Appellate Tribunal, which reduced the addition to a sum of Rs. 15,941, after taking into consideration certain withdrawals in the same account. On November 30, 1948, a notice was issued under section 28(3) of the Indian Income-tax Act, calling upon the assessee to explain why a penalty should not be imposed upon him for wilful concealment of income. The assessee submitted a written explanation on January 10, 1949. The Income-tax Officer passed an order on June 9, 1955, holding that the explanation was unsatisfactory and a penalty of Rs. 1,500 should be imposed under Section 28(1) of the Indian Income-tax Act. An appeal was taken by the assessee before the Appellate Assistant Commissioner but it was dismissed. The assessee preferred a second appeal before the Income-tax Appellate Tribunal but this appeal also was dismissed.

2. At the instance of the assessee the Income-tax Appellate Tribunal has submitted the following questions of law for the opinion of the High Court:

“1. Whether on a true construction of the provisions of section 28(3), it is necessary to issue another show cause notice under section 28(3) before the penalty is actually imposed?

2. Whether on the facts and circumstances of the case the penalty imposed under section 28(1)(c) was legal and valid?”

3. With regard to the first question it was pointed out by learned counsel for the assessee that the notice under section 28(3) of the Indian Income-tax Act was issued by the Income-tax Officer, Sri K.P Kumar, on November 30, 1948. The assessee submitted a written explanation before the same officer on January 10, 1949. It was pointed out by learned counsel that the final order imposing penalty was passed by another Income-tax Officer, Sri V. Jha, on June 9, 1955. The argument of learned counsel is that Sri V. Jha, successor-in-office of Sri K.P Kumar, had no authority to impose this penalty unless a fresh notice was issued by Sri V. Jha and a fresh explanation was called for from the assessee. We do not think there is any substance in this argument. Section 28(1) of the Indian Income-tax Act is in the following terms:

“28. Penalty for concealment of income or improper distribution of profits.—(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…”

4. Section 28(3) states as follows:

“No order shall be made under sub-section (1) or sub-section (2) unless the assessee or partner, as the case may be, has been heard, or has been given a reasonable opportunity of being heard.”

5. In this context the provision of section 5, sub-section (7C), are important. Section 5, sub-section (7C), reads as follows:

“5(7C). Whenever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor:

Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order for assessment is passed against him he be re-heard:

Provided further that in computing the period of limitation for the purposes of sub-section (3) of section 34, the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be re-heard under the preceding proviso shall be excluded.”

6. Reading, therefore, section 28(3) of the Act, in the context and background of section 5(7C) of the Act, it is manifest that Sri V. Jha, successor-in-office of Sri K.P Kumar, had authority to continue the proceeding started against the assessee under section 28(1) of the Act and to impose proper penalty under that section. It was argued on behalf of the assessee that section 28(3) requires oral hearing by the Income-tax Officer before the order imposing penalty is passed against the assessee. We do not think that this argument is correct. Section 28(3) requires that there should be a hearing of the assessee, or in the alternative, the assessee should be given a reasonable opportunity of being heard. After receiving the notice under section 28(3) it is open to the assessee to appear before the Income-tax Officer to make oral submissions or to send a representation in writing if he prefers to do so. This view is supported by a decision of the Madras High Court in Ayyasami Nadar and Brothers v. Commissioner of Income-tax [1956] 30 I.T.R 565. in which it was held that a notice under section 28(3) calling upon an assessee “to show cause in writing or in person” why a penalty under section 28(1) should not be imposed, fulfils the requirements of section 28(3) that the assessee must be given a reasonable opportunity of being heard before an order under sub-section (1) or (2) of section 28 is made. Learned counsel for the assessee, however, relied upon a decision of the Calcutta High Court in Calcutta Tanneries (1944) Ltd. v. Commissioner of Income-tax [1960] 40 I.T.R 178.. It was held in that case that the succeeding officer under section 5(7C) of the Income-tax Act had no authority to pass an order of penalty without giving the assessee a further opportunity of advancing arguments before him. With great respect we differ from the view expressed by the Calcutta High Court in this case. In our opinion, the combined effect of section 28(3) and section 5(7C) of the Indian Income-tax Act is that the succeeding Income-tax Officer has authority to pass an order upon the explanation of the assessee produced before his predecessor-in-office, if the assessee had failed to exercise his right under section 5(7C) demanding that the proceeding should be reopened. It is admitted in the present case that the assessee did not make any demand for reopening the proceeding before Sri V. Jha, the succeeding Income-tax Officer, under the first proviso to section 5(7C) of the Income-tax Act. If the assessee had chosen to do so, he might have exercised his statutory right under section 5(7C) of the Income-tax Act, and required the succeeding Income-tax Officer to take a fresh explanation from him before making any order of penalty. But the admitted position is that in the present case the assessee did not exercise his statutory right under section 5(7C). The result, therefore, is that Sri V. Jha had authority to make an order of penalty under section 28(1)(c) of the Income-tax Act, without calling for a fresh explanation from the assessee. We accordingly hold that the order of the Income-tax Officer, Sri V. Jha, dated June 9, 1955, is legally valid and the first question of law referred by the Income-tax Appellate Tribunal must be answered against the assessee and in favour of the Income-tax Department.

7. With regard to the second question, the contention on behalf of the assessee is that there was no material before the Income-tax Officer to hold that there was wilful concealment of income on the part of the assessee. In this connection learned counsel referred to the decision of this High Court in Khemraj Chagganlal v. Commissioner of Income-tax. On the basis of that decision it was submitted that the mere fact that the assessee was not able to establish by satisfactory evidence the source of the income did not mean that the explanation was false or that the assessee had been guilty of deliberate suppression within the meaning of section 28(1)(c). In our opinion the ratio of this case cannot be applied to the present case, because the material facts are quite different. In Khemraj Chagganlal v. Commissioner of Income-tax the question was with regard to the income standing in the assessee's books in the name of Srimati Purnima Devi. The explanation of the assessee was that the money belonged to Srimati Purnima Devi and the money represented the sale proceeds of gold ornaments. In that case the account books of the assessee showed the amount in the name of Srimati Purnima Devi. There was also evidence produced before the income-tax authorities, a Purja for sale of gold on the relevant date and the circumstance that on a previous occasion there was a record in the books of the firm that the gold which was sold was made by melting Srimati Purnima Devi's ornaments. In the present case the material facts are totally different. The account books submitted by the assessee do not even mention the name of the lady. In the Hathfer Khata the expression used for the deposit is Upper Sey. There was also no evidence produced by the assessee before the income-tax authorities to establish that the amount really belonged to the lady concerned. In these circumstances we think that there were sufficient materials before the income-tax authorities to hold that there was wilful suppression by the assessee of the particulars of his income within the meaning of section 28(1)(c) of the Income-tax Act. We accordingly hold that the penalty imposed under section 28(1)(c) of the Income-tax Act is legally valid and, in the facts and circumstances of this case, the second question referred by the Income-tax Appellate Tribunal must also be answered against the assessee and in favour of the Income-tax Department. The assessee must pay the costs of this reference. Hearing fee Rs. 250.

8. Reference answered accordingly.