1. Pursuant to the direction of this court, the Income-tax Appellate Tribunal, Hyderabad Bench, under Section 256(2) of the I.T. Act, 1961, has submitted a statement of case for the opinion of this court on the following question of law :
'Whether, on the facts and in the circumstances of the case, the order of the Appellate Tribunal cancelling the penalty is sound in law ?'
2. The respondent-assessee is a firm carrying on business in kirana and sundry goods. For the assessment year 1968-69, the assessee filed its return of income at Rs. 36,496. The ITO, noticing several discrepancies in the accounts, computed the total income at Rs. 53,510 and initiated penalty proceedings under Section 271(1)(c) of the I.T. Act, 1961, and referred the case to the IAC under Section 274(2) of the Act as the penalty leviable was more than Rs. 1,000. The case was posted before the IAC for hearing on June 7, 1971. The assessee sent a telegram to the effect that the managing partner was sick and prayed for an adjournment. The request for the adjournment by the assessee was refused by the IAC on the ground that the penalty proceedings were fast becoming barred by time, and levied the penalty at Rs. 19,000 under Section 271(1)(c) of the Act by his order dated October 8, 1971. Aggrieved by the decision of the IAC, the assessee preferred an appeal to the Tribunal and contended that the order of penalty was vitiated by violation of the principles of natural justice, as no reasonable opportunity was given to the assessee before passing the order of penalty and that even on merits no case for penalty has been made out and there is no positive proof that there was concealment of income or that the assessee had furnished inaccurate particulars of its income. The Tribunal held that 'the assessee suppressed purchases to the tune of Rs. 6,307 as per the account sheet recovered from Haji Shakoor Haji Jamal Noor Mohammed, as a result of which the assessee's case is brought within the mischief of Section 271(1)(c) of the Act and that it is a clear case of furnishing inaccurate particulars of income, if not concealment of particulars of income. The Tribunal further held that the order of penalty passed by the IAC has to be cancelled on the ground that it is vitiated by the failure to afford reasonable opportunity to the assessee before passing the order as the IAC is bound to afford reasonable opportunity to the assessee of being heard under Section 274 of the Act. On a careful consideration of the facts of the present case, we arc satisfied that the opportunity afforded to the assessee by the IAC is not reasonable. The managing partner of the assessee-firm was stated to be sick and an adjournment was sought for on that ground. Though adjournment was refused on June 7, 1971, the order was passed by the IAC on 8th October, 1971. This itself establishes that the reason given by the IAC for refusing adjournment was not sustainable. Therefore, the Assistant Commissioner should have granted reasonable time to the assessee to make its representation in support of its stand that no penalty is exigible in the present case.' The Tribunal is, therefore, right in its finding that the order of penalty passed by the IAC is liable to be set aside on that ground that no reasonable opportunity had been afforded to the assessee. So far the view of the Tribunal is correct. But we are not able to agree with its finding that 'Mr. Shakir's contention that the matter may be sent back to the IAC has no substance'. Where the Tribunal felt that reasonable opportunity has not been given by the IAC before passing the penalty order, the Tribunal should have either remitted the matter to the IAC to decide the case afresh after affording a reasonable opportunity to the assessee or afforded reasonable opportunity to the assessee and the ITO and decided the case on merits, whichever course, in its discretion, is reasonable, proper and judicious. The Tribunal erred in law in thinking that the matter need not be sent back to the IAC although that was sought for specifically by the ITO. Where one of the parties specifically pleads before the Appellate Tribunal, in such a situation, to remit the matter to the lower authority for deciding the matter afresh after affording reasonable opportunity, the Appellate Tribunal should have exercised its discretion judiciously and decided the same, In the present case, the Tribunal also gave a conflicting decision on merits that the assessee has furnished inaccurate particulars of income if not concealed the particulars of income and this is a case where the assessee is liable for penalty under Section 271(1)(c) of the Act, That apart, we are constrained to observe that the Tribunal has adopted topsy-turvy method in this case. The Tribunal should have first addressed itself to the question whether the rule of natural justice has been violated by the IAC in passing the order of penalty ; and if the Tribunal comes to the conclusion that it was not vitiated by any violation of the rule of natural justice and the order of penalty has been found to have been passed after giving reasonable opportunity to the assessee, then it should have proceeded to determine the second question relating to merits as to whether the penalty levied by the IAC is valid and just. Where the Tribunal categorically finds that the order of the IAC levying penalty under Section 271(1)(c) is violative of the rules of natural justice and is liable to be set aside on that ground alone, it need not have gone into the other question on merits. On a careful consideration of the entire facts and circumstances, we are of the opinion that the question framed does not bring out the true scope of the reference and we, therefore, frame the following two questions which actually arise out of the order of the Tribunal :
'(1) Whether the Tribunal is justified in holding that the order of the penalty passed by the Inspecting Assistant Commissioner is liable to be set aside on the ground that no reasonable opportunity had been given to the assessee as required under Section 274(1) of the Income-tax Act of 1961
(2) If question No. 1 is answered in the negative, whether on the facts and in the circumstances the penalty of Rs. 19,000 levied on the assessee under Section 271(1)(c) is valid and justified?'
3. For the reasons stated above, we answer question No. 1 in the affirmative holding that the Tribunal has rightly found that the order of penalty of the IAC was liable to be set aside on the ground that no reasonable opportunity had been afforded to the assessee and the Tribunal should have remitted the case to the IAC for deciding the case on merits after affording reasonable opportunity. In view of our answer to this question, the matter has to be remitted by the Appellate Tribunal to the IAC for decision on merits regarding the levy of penalty. The Tribunal will pass appropriate orders under Section 260 of the Act. In this view, we do not propose to express any opinion relating to the merits.
4. The reference is answered accordingly. There is no order as to costs.