1. Two question were referred under section 66(1) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as the Act) by the Income-tax Appellate Tribunal, Madras Bench. They are :
'(1) Whether it is incumbent on the officer passing an order under section 28(1)(c) to hear the assessee or afford him a reasonable opportunity of being heard before passing such order, even though his predecessor had given such reasonable opportunity of being heard
(2) Whether the imposition of the same penalty even when the maximum livable has been lowered was justified ?'
2. The material facts are as follows : The assessee deals in cardamom, stationery and sundry articles in Sakalespur in Mysore State. He also derives income from other businesses. For the assessment year 1957-58, it returned a loss of Rs. 4,961 from those business. The Income-tax Officer came to the conclusion that the assessee had concealed an income of Rs. 41,900. The order of the Income-tax Officer in this regard was substantially affirmed by the Appellate Assistant Commissioner. When the matter was taken up in appeal to the Income-tax Appellate Tribunal, it held that the concealed income was Rs. 21,900 and not Rs. 41,900.
3. During the pendency of the assessment proceedings before the Appellate Tribunal, the Income-tax Officer commenced proceedings under section 28(3) of the Act. On January 17, 1958, he issued a notice to the assessee under section 28(3) calling upon him to appeal before him on February 14, 1958, and show cause why penalty should not be levied on him. By his letter dated February 13, 1958, the assessee asked for time. The time asked for was granted. Ultimately the assessee sent his explanation in writing on April 24, 1958. He did not choose to appear in person before the Income-tax Officer nor was any opportunity to adduce oral evidence or to address arguments asked for. Before any orders could be passed in the penalty proceedings, the concerned Income-tax Officer was transferred but his successor continued the proceedings. After perusing the explanation offered by the assessee the successor Income-tax Officer imposed on the assessee a penalty of Rs. 5,000. Sri K. Srinivasan, the learned counsel for the assessee, contended that the order made by the successor Income-tax Officer without giving a fresh notice to the assessee under section 28(3) of the Act is an invalid order. According to him, the opportunities given by the previous Income-tax Officer to make any representation in the penalty proceedings is not sufficient under the circumstances of the case, and, therefore, the impugned order is invalid in law.
4. The material portion of section 28 says :
'28. (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceeding under this Act, is satisfied that any person -
(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 in clause (a) in addition to the amount of the income-tax and super-tax, it 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 : ..'
5. Sub-section (3) of this section says :
'(3) 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.'
6. At this stage, we may also notice section 5(7C) of the Act which reads thus :
'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 re-opened or that before any order for assessment is passed against him he be re-heard : ....'
7. A Bench of this court in Writ Petition No. 311 of 1960 (Venkatarayappa & Sons v. Income-tax Officer, Kolar Circle) held the wordings of section 5(7C) are also applicable to penalty proceedings. In the instant case, the assessee had not demanded any reopening of the case as contemplated under the first provision to section 5(7C). The only grievance of the assessee is that the succeeding Income-tax Officer did not give him a fresh opportunity of being heard. Is he entitled to such an opportunity A combined reading of section 28(3) and section 5(7C) makes it clear that a penalty proceeding can be continued by the succeeding Income-tax Officer from the stage where it was left by the provision Income-tax Officer. This is also what this court held in W.P. No. 311 of 1960. As seen earlier, the assessee had been given an opportunity of being heard in the penalty proceedings. He did not think it necessary to have a personal hearing nor did he think it necessary that he should adduce any before the Income-tax Officer to satisfy the Income-tax Officer that the view taken by him that the assessee had concealed any income is not correct. He was content to made a written representation. That written representation was available to the succeeding Income-tax Officer and it must be presumed that he has gone through that representation before making the penalty order. No provision in the Act nor any decided case was brought to our notice laying down that in a case like the one before us, a further opportunity should be given to the assessee of being heard even though the assessee did not seek to reopen the proceeding as contemplated by the first proviso to section 5(7C). We do not think such a position is even available under the principles of natural justice.
8. Now we may proceed to consider the decided cases on the point. The first decision that was brought to our notice is the decision of the Calcutta High Court in Calcutta Tanneries v. Commissioner of Income-tax Therein it was laid down that although as a result of the assessee's failure to exercise its right under the first part of the proviso to section 28(3), it had lost its right to have the proceedings reopened, it did not lose its right of being heard under section 28(3) before the officer who had been invested with jurisdiction to continue the penalty proceedings. The successor officer had no authority to pass an order of penalty without giving the assessee a further opportunity of advancing arguments before him. In order to understand the true scope of the rule laid down in this decision, it is necessary to set out the facts of that case. In that case when the Income-tax Officer commenced the penalty proceedings the assessee had been given notice under section 28(3). The assessee appeared before him though his counsel and made oral representations before that officer. Before that officer could pass an order in that proceeding, he was transferred. The succeeding officer proceeded to pass orders without again hearing the assessee. The court held that the procedure adopted by the succeeding officer is not in consonance with law. In that connection, it observed thus :
'In a penalty proceeding the assessee has a statutory right of being heard under section 28(3). This hearing consists of the right of adducing evidence as also of advancing arguments whereas an assessee in an assessment proceeding has the right of only producing evidence under section 23(3) of the Income-tax Act. There is no provision in an assessment proceeding corresponding to section 28(3) which enacts that no order of penalty shall be made 'unless the assessee has been heard or has been given a reason able opportunity of being hear.' Section 5(7C) enacts that the succeeding income-tax authority may continue the proceeding from the stage at which it was left by its predecessor-in-office. The combined effect of the two sections is to authorise the succeeding Income-tax Officer to pass an order upon the evidence produced before his predecessor-in-office but the effect is not to authorise the former to pass an order upon arguments advanced before the latter.'
9. This conclusion appears to be obvious. It will be a mockery if it is held that one officer could hear the arguments and another officer could decide the case. But this principle of law is inapplicable in cases where the officers concerned have only to see the written representation. From what has been stated above, it is clear that Sri Srinivasan cannot take any assistant from the decision of the Calcutta High Court, referred to above. This aspect is made abundantly clear by the latter decision of the Calcutta High Court in Kanailal Gatani v. Commissioner of Income-tax. Therein another Bench of the Calcutta High Court had to consider a case where the Income-tax Officer issued a notice to the assessee to show cause why a penalty should not be imposed. In response to that notice the assessee made a written representation. His advocates appeared and stated that 'beyond his written statement filed in the matter he has nothing to add'. Therefore the Income-tax Officer prepared a draft order for imposition of the penalty and submitted the same to the Inspecting Assistant Commissioner. In the meanwhile he was transferred. His successor-in-office after obtaining the necessary sanction from the Inspecting Assistant Commissioner issued the penalty order. The High Court held that the order in question is a valid order. But the court went further and observed :
'A hearing of a case may be many kinds. It usually involves the calling of witnesses, their examination and cross-examination and then argument are addressed to the Tribunal. Where witnesses have been called and examined, or where arguments have been advanced, it is clear that one man cannot hear the case and another man pass judgment. The reason is that much may depend on the view that the Tribunal takes as to the credibility of witness and his mind may by swayed one way or the other by the demeanour of witnesses and as a result of arguments. This is such an intangible and personal talk, that it cannot be handed over to the successor. Where, however, no witnesses have been called and no arguments have been advanced, but the matter depend on the written objections the successor is in the same position as the officer who originally in the conduct of the case, and as song as the successor applies his mind to the materials before him an order made by him cannot be held to be invalid.'
10. On the facts of that case, those observations are clearly obiter dicta. We should not be understood to have subscribed to the view that if witnesses are examined before one officer, the succeeding officer cannot pass any order on the basis of the evidence recorded by his predecessor. We refrain from pronouncing on that question. But, we agree with that decision to the extent it decides that a succeeding officer can pass an order of penalty on the basis of the written representation made by the assessee to his predecessor.
11. Next, we would like to refer to the decision in Murlidhar Tejpal v. Commissioner of Income-tax. Therein a Bench of the Patna High court ruled that when one Income-tax Officer initiates penalty proceedings against an assessee under section 28 of the Income-tax Act and gives him an opportunity of being heard, the assessee submits a written explanation, and later the Income-tax Officer is succeeded by another but the assessee fails to exercise his right under section 5(7C) to have the proceedings reopened, the successor has authority to pass an border imposing penalty without calling for fresh explanation from the assessee. We are in respectful agreement with that decision.
12. The first question submitted to us does not correctly bring out the controversy between the parties. With the consent of the parties, we have modified that question in the following manner :
'Whether on the facts and circumstances of this case, it was incumbent on the officer passing an order under section 28(1)(c) to hear the assessee or to afford him a fresh opportunity of being heard before passing the penalty order even though his predecessor had given reasonable opportunity to the assessee of being heard
13. Our answer to this questions is in the negative and in favour of the Revenue.
14. This takes us to the second question formulated. The grievance of Sri Srinivasan in this regard is that a penalty of Rs. 5,000 was imposed on the assessee by the Income-tax Officer on the basis that the concealed income was 41,900 but that basis must be held to be wrong in view of the decision of the Tribunal which came to the conclusion that the concealed income was Rs. 21,900. Sri Srinivasan contends that in view of this finding of the Tribunal, the quantum of the penalty imposed on the assessee should have been reduced. We fail to see how this question can be considered as a question of law. It is not the case of Srinivasan that the penalty imposed is in excess of the limit provided under section 28(1) of the Act. All that is said on behalf of the assessee is that if the Income-tax Officer had come to the conclusion that the concealed income was only Rs. 21,900 very probably he would have not imposed a penalty of Rs. 5,000. This may or may not be. Whether the penalty imposed is expressive or not was a matter for decision by the Tribunal below. Quite clearly when the Tribunal affirmed the imposition of a penalty of Rs. 5,000 it was aware of the facts that the concealed income was only Rs. 21,900. If after knowing that fact, it thought fit to affirm the order of the Income-tax Officer it cannot be said that any question of law arises from its order. In our opinion, question No. 2 should not have been referred to this court. Hence we decline to answer that question.
15. In the result, we answer the first question in the negative (in favour of the Revenue) and we decline to answer the second question. No costs.