1. For the assessment year 1959-60, the assessee reported a total assessable turnover of Rs. 92,749.27. The audited figures given by the Income-tax Practitioner showed a sales turnover of Rs. 1,48,749.49. The difference in figures was held by the assessing authority to be an omission in the return submitted by the assessee. He, therefore, decided to reject the returns filed as incorrect and incomplete and to assess finally on the turnover reported by the Income-tax Practitioner. To a notice by the assessing authority inviting objection to his proposal, there was no reply from the assessee. The assessing authority, therefore, proceeded to assess on a best judgment basis fixing the taxable turnover at Rs. 1,48,749.30. It appears the assessee was submitting returns and paying tax under Rule 18 of the Tax Rules. For the subsequent year, a different officer happened to reopen the earlier assessment order, referred to the facts on which the assessment was made and concluded that the non-inclusion of the sales turnover of Rs. 56,000 by the assessee in his monthly returns in Form A amounted to suppression of a large turnover. He issued notice to the assessee under Section 12(3) to show cause why a penalty at one and a half times the amount of tax due on the turnover of Rs. 56,000 should not be levied. The assessee objected to the proposal, on the ground that the levy of penalty after a lapse of two years by a succeeding authority was without jurisdiction and illegal. This objection was overruled, and the assessing authority levied penalty as proposed by him. The Appellate Assistant Commissioner of Commercial Taxes, on appeal, took the same view, as to the tenability of the assessee's objection but reduced the penalty to a lower sum. On further appeal by the assessee, the Tribunal, by a majority, held, following its earlier view; that the order levying penalty was without jurisdiction and illegal. Aggrieved by this order, the State has come up to this Court in revision.
2. We are of the view that the Tribunal's order is correct. The whole scheme of Section 12 suggests that levy of penalty on the grounds comprehended by Sub-section (3) of Section 12 is part of the proceedings under Sub-section (2), the procedure for which is prescribed by the proviso to that Sub-section. The first limb of the section says that the assessment of a dealer shall be on the basis of the prescribed return relating to his turnover submitted in the prescribed manner within the prescribed period. What is to be done when no return is submitted or the return submitted is either incomplete or incorrect is stated in Sub-section (2). In either case, the assessing authority shall complete the assessment on a best judgment basis, after making such enquiry as that authority might consider necessary. Before making an assessment on best judgment, it is necessary under the proviso to Sub-section (2) that the assessing authority gives a reasonable opportunity to the assessee of proving the correctness or completeness of any return submitted by him. Then follows the penalty provision which is Sub-section (3). It reads as follows:
(3) When making any assessment under Sub-section (2), the assessing authority may also direct the dealer to pay, in addition to the tax assessed, a penalty not exceeding one and a half times the amount of tax due on the turnover that was not disclosed by the dealer in his return or, in the case of failure to submit a return, one and half times the tax assessed, as the case may be.
3. Obviously, the penalty that is contemplated by the Sub-section depends on and follows a finding as to the incompleteness or incorrectness of the return submitted, and forms part of the proceedings resulting in best judgment assessment. There is no independent enquiry contemplated by Sub-section (3) for purposes of levy of penalty. While the assessing authority, after following the procedure prescribed by the proviso to Sub-section (2), forms his conclusions on the materials before him that an assessment should be made on best judgment basis because the return submitted was either incomplete or incorrect, he also decides whether the circumstances of the case call for levy of penalty under Sub-section (3). It is true the opening words of Sub-section (3), viz., 'when making any assessment under Sub-section (2)', are not indicative of any time limit and that Sub-section (3) itself is intended to confer upon the assessing authority power to levy penalty. But, to our minds, it is clear from a combined reading of Sub-sections (2) and (3) including the proviso to the former that penalty has to be levied when making an assessment under Sub-section (2), i.e., on the occasion of making and as part of the assessment order. This interpretation appears to us to be also quite reasonable, because any penalty under Sub-section (2) can be levied only as a result of a best judgment assessment, and a decision to levy penalty is necessarily arrived at in the course of the proceedings under Sub-section (2). The assessment proceeding based on best judgment is a quasi-judicial proceeding, and so too the levy of penalty under Sub-section (3), and what is contemplated by the two Sub-sections is one enquiry for both and it follows that the assessing authority while making the assessment by best judgment should also decide at the same time whether a penalty should be levied. On this view of the matter, we are, with great respect, unable to accept the interpretation placed on Sub-section (3) in Radhakrishna & Co. v. State of Andhra Pradesh  13 S.T.C. 117, which learned Government Pleader has pressed before us. The learned Judges in that case would seem to recognise that it was clear from the proviso to Sub-section (3) that an enquiry should be made by the assessing authority before imposing penalty on the assessee. But as we said no independent enquiry for the levying of penalty is permitted or contemplated by Section 12. It follows from the two premises that penalty, if any, can only be levied as part and parcel of an assessment order, after an enquiry as prescribed by the proviso to Sub-section (2) relating to assessment by a best judgment.
4. There is also another reason why we should dismiss this revision. The assessment order for the year 1959-60 was silent about the penalty. The assessing authority was well aware that he was making an assessment on a best judgment basis. This was not a case where on the facts it could be said that there was suppression of turnover, for the Income-tax Practitioner, who audited the accounts on behalf of the assessee, himself brought it to the notice of the authority the figures which led to the discrepancy between the turnover disclosed in the return and the figures assessed finally. Apparently for this reason, the assessing authority did not think it necessary to levy penalty. In any case, if penalty should form part and parcel of an assessment proceeding and an order of assessment and the officer at the time of making the assessment order was silent about penalty, in our view, it must be taken that the assessing authority had applied its mind but did not think it necessary to levy a penalty. If that is so, the succeeding assessing authority would have no jurisdiction whatever to reopen the earlier assessment order or act independently of it for purposes of levying penalty.
5. The tax revision is dismissed.