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Nawn Estates Pvt. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 390 of 1969
Judge
Reported in[1977]106ITR384(Cal)
ActsIndian Income Tax Act, 1922 - Sections 22(2), 22(4), 23(4), 28(1), 28(6), 29, 34 and 34(4)
AppellantNawn Estates Pvt. Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateN. Mukherjee and ;P. Kukherjee, Advs.
Respondent AdvocateA. Sen Gupta and ;P.K. Majumdar, Advs.
Cases ReferredMukherjee v. Commissioner of Income
Excerpt:
- .....been referred to this court:'(1) whether, on the facts and in the circumstances of the case, the penalty proceedings under section 28(1)(a) initiated in respect of a default of non-submission of return in the original assessment proceedings on august 17, 1960, could be completed after the reassessment was made on october 25, 1962? (2) whether, on the facts and in the circumstances of the case, and on a proper interpretation of section 28(1)(a) the income-tax officer could levy penalty, (a) after the original assessment in which the default arose was made; or (b) after the appellate assistant commissioner disposed of the appeal against the original assessment ?' 2. the reference relates to the assessment year 1959-60 and the questions referred are in relation to penalty under section.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 66(1) of the Indian Income-tax Act, 1922, the following questions have been referred to this court:

'(1) Whether, on the facts and in the circumstances of the case, the penalty proceedings under Section 28(1)(a) initiated in respect of a default of non-submission of return in the original assessment proceedings on August 17, 1960, could be completed after the reassessment was made on October 25, 1962?

(2) Whether, on the facts and in the circumstances of the case, and on a proper interpretation of Section 28(1)(a) the Income-tax Officer could levy penalty, (a) after the original assessment in which the default arose was made; or (b) after the Appellate Assistant Commissioner disposed of the appeal against the original assessment ?'

2. The reference relates to the assessment year 1959-60 and the questions referred are in relation to penalty under Section 28(1)(a) of the Indian Income-tax Act, 1922. On the 8th July, 1959, notice was served under Section 22(2) of the Indian Income-tax Act, 1922. Thereafter, on the 15th March, 1960, reminder was sent to the assessee. On the 12th August, 1960, notice under Section 22(4) of the Indian Income-tax Act, 1922, was served for production of accounts as there was non-compliance with earlier notices. On the 17th August, 1960, notice was served for default under Section 28(1)(a) of the Act. Thereafter, on the 19th September, 1960, assessment was completed under Section 23(4) of the 1922 Act, and income was assessed at Rs. 3,25,000 and the demand notice was issued. On the 15th October, 1960, the assessee filed an appeal before the Appellate Assistant Commissioner. The appeal was disposed of on the 6th April, 1961, by the Appellate Assistant Commissioner reducing the total income to Rs. 2,95,000. Then, on the 19th March, 1962, notice was issued under Section 34(1)(a) of the Indian Income-tax Act, 1922, for reopening the assessment of the said year. On 24th April, 1962, the assessee filed return in response to the above notice. On the 25th October, 1962, the Income-tax Officer reassessed by adding Rs. 66,338 as business income to the original assessment. On the 30th March, 1963, the Income-tax Officer levied penalty of Rs. 50,000 under Section 28(1)(a).

3. There was an appeal before the Appellate Assistant Commissioner from the said order of the Income-tax Officer imposing penalty. In the appeal the assessee contended that once the assessment was completed there was no further power to levy penalty because the power to levy penalty was included in the power to assess. It was further submitted that penalty should have been levied before the 19th March, 1960, when assessment was completed. The Appellate Assistant Commissioner rejected the said contention and upheld the order of the Income-tax Officer. There was a further appeal to the Tribunal. Before the Tribunal it was urged that assessment having been reopened under Section 34(1)(a) the Income-tax Officer could not subsequently penalise for default, if any, in submitting the return to the original assessment proceedings. It was urged that penalty being in the nature of additional tax should have been levied simultaneously with assessment and inasmuch as the assessment order being dated 19th September, 1960, was no longer in existence, there could not be any order for levy of penalty. The Tribunal rejected the said contention and upheld the order of the Income-tax Officer. Thereafter, on an application being made, the aforesaid two questions have been referred to this court.

4. Before us also similar contentions were urged. It was submitted that penalty was part of the assessment proceedings and even though penalty might be imposed by a separate proceeding it should be done simultaneously with assessment proceeding. Oar attention was drawn to the relevant provisions of the Act, viz., Sections 3, 18, 23, 28 and 29 of the Indian Income-tax Act, 1922. It was submitted that demand under Section 29 included demand both for tax payable as well as penalty which, according to counsel for the assessee, indicated that the order for imposition of penalty should have been made simultaneously. Reliance was placed on the case of Commissioner of Income-tax v. Khemchand Ramdas [1938] 6 ITR 414 and it was urged that assessment proceeding was wide enough to include penalty. Reliance was also placed on the decision in the case of Commissioner of Income-tax v. McMillan & Co. : [1958]33ITR182(SC) . We are, however, unable, in view of the scheme of the Act, to accept the said contention. It is true that from one point of view penalty proceedings are connected with assessment, proceedings. From that angle it might be considered that penalty proceedings are part of the assessment proceedings and it was in that context the Supreme Court decided the case of C, A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) , but in the scheme of the Act, the proceedings for imposition of penalty, though emanating from proceedings of assessment, are independent and separate aspects of the proceedings. Separate provision is made for the machinery for imposition of penalty being (sic) the order for imposition of penalty. Under Subsection (6) of Section 28 it is provided that no penalty shall be imposed without the previous approval of the Inspecting Assistant Commissioner. Under Section 29 of the old Act as well as Section 156 of the new Act, notice of demand stipulates separately both penalty and sum assessed as different sums payable under the said notice of demand. It has further to be noted that under the scheme of the old Act as also the new Act separate appeals have been provided for orders in respect of penalty. The fact that penalty need not be imposed simultaneously with the assessment proceedings is further corroborated by the provision that under the law penalty can only be imposed to the extent of one and a half times of the tax payable under Section 28 of the Indian Income-tax Act, 1922, and unless tax is quantified and determined, imposition of penalty cannot be made. From that point of view it is conclusive that assessment proceedings must precede penalty proceeding. There is, however, one contention raised on behalf of the assessee that under Section 28 it is provided that the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal may impose by way of penalty in addition to the amount of income-tax or super-tax, if any, payable by him a sum 'not exceeding one and a half times that amount', that is to say, the sum will be in addition to income-tax and super-tax, if any, payable and in the cases referred to Clauses (b) and (c), that is to say, in the case where there has been failure to comply with the notice without reasonable excuse under Sub-section (4) of Section 22 or sub-section (2) of Section 23 or there has been concealment of the particulars of income or deliberately furnishing inaccurate particulars,--in such a case in addition a sum not exceeding one and a half times the amount of the income-tax or super-tax which would have been avoided if the income returned by the person had been accepted as the correct one.

5. It was contended that the legislature had not indicated as to of what sum it should be one and a half times more, whether it should be a sum payable as a result of the original assessment or a sum payable as a result of the reassessment. It was contended that in this case the original assessment was reopened and after the original assessment was reopened there was a fresh reassessment and a fresh reassessment order has been passed. Therefore, the sum payable was a different sum than the sum which was payable under the original assessment. It was further contended that in the event there was no offence committed in respect of the reassessment proceeding, at least no proceeding had been taken for the alleged offence. The argument is certainly attractive, but on closer examination we find it unable to accept. It appears that, on strict and proper construction of the section, all that the section requires is that at the time of imposition of the penalty, there should be a limit as to the amount that the Income-tax Officers can impose as penalty and the limit is one and a half times of the sum payable. It must be the sum payable at the time of the imposition of the penalty. If at that time the original assessment was there, it should be one and a half times of the sum payable under the original assessment payable. If, on the other hand, it was not there and there has been a reassessment proceeding, then it should be the sum payable as a result of the order made on the reassessment. This view finds support in the decision of the Supreme Court in the case of N. A. Malbary & Bros. v. Commissioner of Income-tax : [1964]51ITR295(SC) as well as in the decision of the Supreme Court in the case of Guduthur Bros. v. Income-tax Officer : [1960]40ITR298(SC) . For the offence committed in respect of the original assessment, even though there has been reassessment proceedings, penalty proceeding can be taken, has been the view of several High Courts. We may refer to the decision of the Patna High Court in the case of K. C, Mukherjee v. Commissioner of Income-tax : [1959]37ITR224(Patna) and the decision of the Andhra Pradesh High Court in the case of Commissioner of Income-tax v. Angara Satyam : [1959]37ITR230(AP) . Reliance may also be placed on the decision of the Full Bench of the Allahabad High Court in the case of Commissioner of Income-tax v. Gopal Krishna Singhania : [1973]89ITR27(All) .

6. Counsel for the assessee, however, contended that in a case where penalty was being levied tinder the provision of Section 28(1)(a) it was a situation which was different from where the penalty was being levied in respect of the situation contemplated by Clauses (b) and (c) of Sub-section (1) of Section 28. It was contended that in the cases of Sub-clauses (b) and (c), the section required that there should be, in addition, an imposition of tax which would not be exceeding one and a half times the amount of income-tax and super-tax, if any, which had been avoided if the income as returned was accepted as correct. According to the counsel of the assessee, it was not possible to rely on cases where reassessment had been made and there had been no concealment or offence committed in connection with the reassessment proceedings or the offence committed in connection with the original assessment. We are unable to accept. The purpose and the scheme of the section is to punish and thereby deter assessees from committing illegal and contumacious conduct in relation to the assessment proceeding. If the original return was not correct, action can certainly be taken. In this connection, we respectfully agree with the views of the Andhra Pradesh High Court and the views expressed in the Full Bench decision of the Allahabad High Court.

7. In this matter, after the judgment was delivered, counsel for the assessee submitted that, through an inadvertence, he did not refer to a certain decision before us. Accordingly, we placed this matter for rehearing and have heard today counsel for both parties. Our attention was drawn to the observations of the Supreme Court in the case of Commissioner of Income-tax v. Amritlal Bhogilal & Co. : [1958]34ITR130(SC) . Relying on the aforesaid observations of the Supreme Court, counsel for the assessee contended that the moment there was an order by the Appellate Assistant Commissioner as was the case here, the original order of assessment had gone and as such no sum of tax was payable. Accordingly, the counsel for the assessee contended that, as there was no sum payable by the assessee, there could not be any question of imposition of penalty which could be an addition of one and a half times of the tax payable. Counsel then submitted that if there were two constructions possible in a matter of a provision like this, one which is more favourable to the assessee and the citizen should be adhered to in preference to the other. While, for the purpose of disposing of this case, we assume the second proposition to be correct and it is not necessary for us to decide this controversy, it, however, appears to us that it cannot be said that in this case no sum was payable. It is not possible to accept this position for two reasons. Firstly, under the scheme of the Income-tax Act, whenever a sum is reduced in an appeal by the order of the appellate authority provision is made that the sum which is payable would be the reduced amount. Therefore, it cannot be said that no sum was payable. Secondly, in any event, in the facts of this case, this question has become academic because after the order of the Appellate Assistant Commissioner the entire proceedings had been reopened and the old assessment order and the consequential reduction of the amount directed to be paid in that order have all gone and the sum that is payable now is the amount that is determined under the new reassessment proceeding.

8. In the aforesaid view of the matter, we do not think that this decision to which our attention was drawn by the counsel for the assessee in any way affects the position.

Janah, J.

9. I agree.


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