1. This is a reference under Section 66(2), Income-tax Act, made by the, Income-tax Appellate Tribunal, Madras Bench B, on a question of law formulated as follows :
'Whether on the facts and in the circumstances of the, case the notice issued to the assessee under Section 28(3) was valid, and if not, whether the order levying penalty on the basis of that notice is valid.'
2. The assessee is a Hindu undivided family carrying on business in grains, grocery and twists at Sambalpur. A notice under Section 22(2), Income, tat Act was served on the assessee on 31-5-43, but he failed to make a return of his total income, and the assessment was subsequently made under Section 23(4) on 11-1-44. The Income-tax Officer thereupon issued a notice under Section 28(3) on 10-1-44 calling upon the assessee to show cause why a penalty should not be imposed.
The assessee submitted his explanation for his default, by' a petition dated 22-1-44, but did not appear before the Income-tax Officer. Thereafter a penalty of Rs. 450/- was imposed by that Officer on the assessee by his order dated 25-4-45, with the previous approval of the Inspecting Assistant Commissioner. Against this order, the assessee appealed to the Appellate Assistant Commissioner who held that there was not a sufficient compliance with the provisions of Section 28(3) and set aside the order levying a penalty. The Income-tax Officer appealed to the Tribunal.
The Tribunal set aside the order of the Appellate Assistant Commissioner and remanded the case back to him for disposal according to law. When the matter came back to the Appellate Assistant Commissioner, Mr. Dayal who had heard the appeal in the first instance had been transferred and Mr. Rahman had succeeded him. This officer held that the assessee had been given a reasonable opportunity of being heard and that the requirements of Section 28(3) have been 'wholly fulfilled'.
An appeal against this order to the Tribunal having proved unsuccessful, and the Tribunal having refused to refer the question of law, this Court was moved, under Section 66(2) of the Act, for the issue of a direction to the Tribunal to state a case. Accordingly, by its order dated 5-2-53, this Court directed the Tribunal to state a case. It is in pursuance of that order of this Court that the matter has come up before us now.
3. Section 28(3), Income-tax Act, vests the power on the Income-tax Authorities to impose ft penalty for concealment of income or improper distribution of profits. Sub-section (3) of Section 28 says:
'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.' The notice under Section 28(3) that was actually sent to the assessee on 10-1-1944 is worded as follows:
Messrs. Srilal Sagarmal, Sambalpur,
Whereas in the course of the proceedings before me it appears to me that you have, without reasonable cause, failed to furnish the return under Section 22(2), I hereby call upon you to show cause in writing, or in person at my office at Cbaibassa on 10-2-44, why a penalty under Section 28 should not be imposed.
B. Sen, Income-tax Officer.'
The question for determination is whether the above notice calling upon the assessee 'to show cause in writing or in person' as to why a penalty under Section 28 should not be imposed, is sufficient compliance with the language employed in Section 28(3). That sub-section is explicit and mandatory in the words used. It says
'No order shall be made. . ...unless the assessee has been heard or has been given a reasonableopportunity of being heard.'
What the Section contemplates is a hearing by thetaxing authority or an opportunity to the assesseeto be heard.
The Tribunal seems to be of the opinion that there is no difference either in language or in spirit, between what the Section contemplates and what the Income-tax Officer has done. A person may show cause in writing without being present; but it is obligatory on the Income-tax Officer to hear him or give him an opportunity of being heard. It should also be noticed that the assessee has been given the option of either sending his explanation, or being present in person while showing cause.
Where the assessee sends his explanation bypost the Income-tax Officer may or may not apply is mind to that explanation and impose the penalty none the less; if the Officer does so, he clearly offends both the language and the spirit of the provisions of Section 28(3l). That sub-section as I have already pointed out contemplates a hearing. This being a penal provision, a strict compliance with the language of the same should be proved. The Court has to see that what is made penal is within the plain meaning of the words and will not allow any circumvention or departure from their plain meaning.
4. I would also like to point out that different words are used in the different Sections of the Act, to express clearly what was intended. A reference may be made to the first proviso to clause (h) of sub-section (3) of Section 31. That proviso says that the Appellate Assistant Commissioner shall not enhance the assessment or the penalty unless the appellant has had a reasonable opportunity of showing cause against such enhancement. The second proviso says :
'Provided further that at the hearing of any appeal against an order of an Income-tax Officer, the Income-Tax Officer shall have the right to be heard either in person or by a representative.'
It must be noticed that the right to be heard involves the idea of showing cause, while opportunity to show cause need not necessarily mean theright to be also heard. Again sub-section (4) of Section33 similarly says that
'the appellate tribunal may after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.......'
Having regard to the difference in the language used by the Legislature in the different Sections of the Act, I have no doubt in my mind that what is contemplated in Section 28(3) is a hearing.
5. In the circumstances of the present case it is not denied that the assessee was not given a hearing or afforded a reasonable opportunity of being heard. It must accordingly, be held that there has been no compliance with the mandatory provisions of Section 28(3). The order of the Income-Tax Officer levying a penalty un the assessee is ultra vires and must be set aside.
6. We accordingly hold that the assessee is pot liable to pay any penalty, and the order of the Income Tax, Officer dated 25-4-1945 levying Rs. 450/- on the assessee as penalty should be set aside. The penalty, if already paid, shall be refunded to him. The assesses shall have the costs of this application. Hearing fee Rs. 100/-.
P.V.B. Rao, J.
7. I agree.