This writ petition, under article 226 of the Constitution, is directed against the orders of the Income tax Officer dated the 22nd January, 1962, imposing penalties of Rs. 917 and 5,897 under section 46(I) of the Income tax Act (hereinafter referred to as the Act) and for failure to consider or pass any order on the application of the assessee dated 30th December, 1961, made under section 45 of the Act.
The facts leading up to this petition are these. The assessee company was incorporated on the 29th May, 1941. It carried on the business of publishing and printing at Aligarh with branches at other places. The company was assessed for the first time to income-tax and excess profits tax for the assessment year 1942-43 and the relevant chargeable accounting period. The assessee continued to make advance payments of tax and assessments continued to be made from assessment years 1942-43 to 1954-55 and according to the assessee the amounts refundable to the petitioner up to the assessment year 1954-55 worked out to Rs. 91,368.62 nP. The total loss to be carried forward from the year 1953 to the following year amounted to Rs. 51,745.
For the assessment year 1954-55 the Income tax Officer determined the income of the petitioner at Rs. 17,321 where the petitioner had returned a loss of Rs. 18,353. The Income tax Officer for the assessment year 1954-55 allowed a set off of the loss of Rs. 34,833 of the assessment year 1953-54, as computed by the Income tax Officer, and he determined the loss to be carried forward to the following year at Rs. 17,502.
The assessee filed an appeal against the assessment order for 1954-55 to the Appellate Assistant Commissioner (hereinafter referred to as the Appellate Assistant Commissioner) who by an order dated 21st March, 1960, set aside the assessment order for making a fresh assessment. Although two years have elapsed since this order was passed, the Income tax Officer has not cared to proceed in the matter.
The assessee for the assessment year 1954-55 has paid a sum of Rs. 20,287-10-6 under section 18A(I) of the Act. When the Income tax Officer made under regular assessment this sum was given credit under the provisions of section 18A(II) of the Act. This assessment was set aside in appeal by the Appellate Assistant Commissioner but the amount having once been given credit for in the regular assessment made on March 31, 1959, the assessee claimed that it was entitled to the refund. In any event it was contended that the department cannot blow hot and cold in the same breath by invoking the provisions of section 18A(5) and depriving the assessee interest on the said advance payment on the ground that the regular assessment was made on the 31st March, 1959, and yet not refunding the advance which had been deposited.
In the first relevant assessment year 1955-56 the assessee had filed a return showing a loss of Rs. 37,218. The Income-tax Officer estimated the assessees income at Rs. 1,01,683 by an assessment order dated 30th March, 1960. Against the income so determined the Income tax Officer only set off Rs. 17,502, which was the loss carried forward according the assessment order for 1954-55 and levied tax on a net income of Rs. 84,181 and the tax of Rs. 42,709.27 nP. was demanded by a notice of demand dated 30th March, 1960, requiring payment by 30th April, 1960.
The petitioner filed an appeal against the said assessment order to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner was not satisfied as to the basis for the large additions made to the income returned and he, therefore, called for a remand report from the Income tax Officer by his order, dated 30th November 1961, within three months of the receipt of the order. No such remand report has been submitted up to this day.
For the next relevant assessment year 1956-57, the petitioner had similarly declared a loss of Rs. 47,569 but the Income tax Officer assessed the assessee on an income of Rs. 1,53,879, by an assessment order, dated the 30th March, 1961, and demanded a tax of Rs. 1,06,527.30 nP. by a notice of demand of the same date requiring payment by the 15th April, 1961. An appeal against the said order was filed to the Appellate Assistant Commissioner on grounds more or less similar to those taken against the 1955-56 assessment order in respect of which the Appellate Assistant Commissioner was already observed, had called for a remand report.
By two applications, one under section 35 and the other under section 45, the assessee had asked for a recalculation of the refunds due and also that he should not be treated as an assessee in default, in view of the fact that the appeals for 1955-56 and 1956-57 under section 30 were pending before the Appellate Assistant Commissioner. The assessee continued to make efforts to get the Income tax Officer to make the necessary revisions and refunds and to dispose of its application under section 35 of the Act but without any substantial result. The petitioner finally sent an application dated 30th December, 1961, giving details of the refunds due and also another application under section 45 requiring the opposite party to exercise his discretion under section 45 of the Act in respect of the demands for the assessment year 1955-56 and 1956-57. The Income tax Officer sent a reply dated 10th January, 1962. Though this reply mentions 'applications' but the tenor of the reply indicates that the question of exercising discretion, under the proviso to section 45, was never considered by him. The representative of the assessee saw the Income tax Officer on the 20th January, 1962, and pointed out several discrepancies in the records regarding the demands made and the refunds due. The representatives against met the Income tax Officer on the 22nd January, 1962, and on being required by the Income tax Officer he undertook to send a year wise statement of demands and payments for the entire period from 1942-43 to 1954-55. The Income-tax Officer, however, had earlier called upon the assessee, by his letter dated 10th January 1962, to pay by monthly instalments of Rs. 30,000, Rs. 20,000 and the balance, if any, by the 15th March, 1962 without passing any order on the assessees application dated 30th December, 1961, under section 45 of the Act. The Income tax Officer on the very day when he had asked the representative to file the statement passed two orders under section 46(I) of the Act 22nd January, 1962 levying penalties of Rs. 917 and Rs. 5,897 for the assessment years 1955-56 and 1956-57 respectively. The assessee was called upon to pay the penalties by the 29th January, 1962, failing which further penalty was threatened under section 46(IA) of the Act. The said penalties were imposed, without issuing any notice to show cause on the petitioner. It is in these circumstances that the present writ petition has been filed.
The record discloses a sorry state of affairs as no attempt has been made by the Income tax Officer to finalise the refunds which have been pending since the assessment year 1942-43; further for the assessment year 1954-55 in spite of the assessee having paid a larger amount of advance tax and on a regular assessment having been made, which was subsequently set aside by the Appellate Assistant Commissioner on appeal, the Income tax Officer had not cared to take any steps to make a fresh assessment. In any event when on the basis of the original assessment made by Income tax Officer the position was that the Income tax Officer himself had determined the loss to be carried forward to the following years at Rs. 17,502 and even though the fresh assessments may not have been made in accordance with the directions of the Appellate Assistant Commissioner there could have been no warrant for withholding the refund of the advance tax of Rs. 20,287-10-6 paid under section 18A(I) of the Act. It is hardly fair for the department to sit over these assessments and refuse to give refunds for over a decade and yet proceed to levy penalties for failure to pay the demands for the subsequent assessment years under section 46(I) of the Act. The levy of penalty of Rs. 917 under section 46 of the Act for the assessment year 1955-56 is unwarranted when the Income-tax Officer himself had not cared to comply with the order of demand within the period of three months given by the Appellate Assistant Commissioner for the assessment year 1955-56. If the remand report could not be submitted for reasons beyond the control of the Income-tax Officer, the least that he could have done was to have stayed his hands in the matter of levying penalty for the assessment years 1955-56 and 1956-57. The demand of Rs. 9,177 was made by the Income-tax Officer on 22nd December, 1961, notwithstanding that the Appellate Assistant Commissioners order calling for a remand report for 1955-56 assessment had made already been made on the 23rd November, 1961.
Similarly, large additions have been made by the Income tax Officer in the assessment for 1956-57 and manifestly the decision of the Appellate Assistant Commissioner on appeal for the assessment year 1956-57 would have largely depended on the remand report called for in respect of the appeal for 1955-56 and, therefore, the Income tax Officer was obviously in too much of a hurry in making the demand of Rs. 58,971-58 on the 23rd of December, 1961, for the assessment year 1956-57. The levy of penalty under section 46(I) on the 22nd January, 1962, without first disposing of the assessees application dated 30th December, 1961, under section 45 cannot possibly be supported.
Section 45 provides that when the demand under section 29 has been made and the assessee had failed so to pay he shall be deemed to be in default, 'provided that, when an assessee had presented an appeal under section 30, the Income tax Officer may in his discretion treat the assessee as not being in default as long as such appeal is undisposed of'. The legislature has given a discretion to the Income tax Officer. He must apply his mind to the facts and circumstances of each case and then decide whether in respect of the demand which has not been paid but against which an appeal is pending, he still proposes to treat the assessee an an assessee in default. Whether the discretion is judicially exercised or not is another matter but the Income-tax Officer is obliged under the law to exercise his discretion before treating the assessee as an assessee in default and proceeding to take step for recovering the demand under section 46 of the Act. As already observed, the letter of the Income tax Officer dated 10th January 1962, does not show that the Income tax Officer ever applied his mind to the question that an appeal was pending before the Appellate Assistant Commissioner and much less to the fact that the Appellate Assistant Commissioner had already called for a remand report in respect of the appeal for the assessment year 1955-56 and that he should not, therefore, treat the assessee as an assessee in default. The Income-tax Officer, for reasons best known to him, chose not to face facts and thus to ignore the remand called for by the Appellate Assistant Commissioner. Undoubtedly, it was the duty of the Income tax Officer to have considered the applications for the assessee under section 45 and his failure to do so will justify this court in invoking its extraordinary powers under article 226 of the Constitution. The view that I have taken finds support from the case decided by the Assam High Court in Hardeodas Jagannath v. Income tax Officer, Shilong.
The penalties levied under section 46 of the Act stand on even a weaker footing. A learned single judge of this court in Writ Petition No. 2624 of 1957, dated 3rd October, 1961, has taken the view that no penalty under section 46(I) can be imposed, having regard to the principles of natural justice, without first issuing a notice to such person. Admittedly, no notice was issued or opportunity given to show cause before penalty for failure to pay the demand was levied. The levy of penalties therefore is wholly unsustainable.
For these reasons I would direct that a writ of mandamus will issue requiring the Income tax Officer not to treat the assessee as an assessee in default, till the disposal of the appeals for the assessment years 1955-56 and 1956-57 and not to enforce recovery of demands for the sums of Rs. 9,177.89 nP. and Rs. 58,971.58 nP. respectively, for the years 1955-56 and 1956-57. A writ of mandamus will also issue requiring the Income tax Officer to effect all revisions and adjustments and to finally settle the up to date account of demands and payments of the petitioner without further delay. A writ of certiorary is also directed to issue quashing the orders dated 22nd January, 1962, imposing penalty of Rs. 917 and Rs. 5,897 for the assessment years 1955-56 and 1956-57 respectively.
This writ petition is accordingly allowed with costs. Counsels fee is assessed at Rs. 250.