1. The point for consideration in this Reference is the validity of an order of penalty passed by the Income-tax Officer under Section 28 (1) (c) of the Indian Income-tax Act. The facts as they appear from the statement of the case and the order of the Appellate Tribunal are as follows:
2. In respect of the assessment year 1946-47, the Income-tax Officer found that the assesses had concealed an income of Rs. 17,000/- by giving wrong particulars about encashment of 17 High Denomination notes of Rs. 1,000/- each. Thereafter a penalty proceeding was started against the assessee and on 10-5-1950, the Income-tax Officer directed the assessee to furnish evidence to prove that the High Denomination notes were genuinely received by it. The case was next taken up on 26-5-1950, on which date the assessee's pleader stated that he was unable to, furnish the evidence, whereupon he was directed to state that fact in writing. On the following day, that is, the 27th May, 1950, the assessee's pleader filed a petition stating his inability to furnish any evidence. The case was then adjourned to 10-5-1951, when the assessee's Manager and another employee produced certain account books which were examined by the Income-tax Officer and the assessee's Manager was also heard on that date. It appears that the assessee's Manager was heard for the second time on 29-9-1951, when he said that he had nothing more to submit in support of the assessee's contention. Itmay, therefore, be taken that the hearing of the penalty proceeding was concluded on 29-9-1951, but no order was passed by the Income-tax Officer who examined the assessee's account books and heard the arguments advanced on behalf of the assessee. About 14 months after that date, that is to say, on 2-12-1952, the Income-tax Officer who examined the account books and heard the arguments of the asses-see without passing any order was succeeded by Mr. A. K. Sen Gupta, who passed an order imposing a penalty of Rs. 9,500/- upon the assessee on 14-1-1954. There is no finding that Mr. A. K. Sen Gupta who passed the order of penalty gave the assessee any opportunity of being heard and it is common ground before us that no opportunity was given to the assessee.
3. The assessee challenged the legality of the order of penalty on two grounds :.
(a) that the Income-tax Officer, Sri A. K. Sen Gupta, who passed the order of penalty did not hear the assessee at all and therefore, the order of penalty passed by him was in contravention of Section 28 (3) o the Indian Income-tax Act.
(b) that since Sri A. K. Sen Gupta assumed charge of the penalty proceeding on the 2nd December, 1952, on which date the Income-tax Amendment Act (Act XXV of 1953) which introduced Section 5 (7C) had not yet received the assent of the President. Sri. A. K. Sen Gupta had no jurisdiction to continue the proceeding started by his predecessor-in-office. In other words, Section 5 (7C) is not applicable to the facts of the case.
Both these contentions of the assessee were overruled by the Appellate Tribunal and against the order of the Appellate Tribunal the present Reference has been made under Section 66 (1) of the Income-tax Act. The questions which have been referred to this Court by the Tribunal are these :
1. 'Whether on the facts and circumstances of the case, the Income-tax Officer, who was in seisin of the case was competent to pass the order of penalty, without further hearing''?
2. 'Whether on the facts and circumstances of this case the provisions of Section 5 (7C) were applicable and the successor Income-tax Officer was competent to pass the order of penalty'.
4. I shall take up the second question first. Section 5(7C) was introduced by Section 4 of Act XXV of 1953, which received the assent of the President on 24-5-1953, but Sub-section (2) of Section 1 of the Amending Act provides that the Act shall be deemed to have come into force on the 1st day of April, 1952. Therefore, whatever may be the date on which the Amending Act might have received the assent of the President, the Legislature states expressly that the operation of the Act will relate back to the 1st of April 1952. The ambit of the words used by Sub-section (2) of Section 1 of the Amending Act is wide enough to include a proceeding which was pending on the 1st of April, 1952. On behalf or the assessee it has been contended that Sub-section (2) of Section 1 of the Amending Act does not make the provisions of the Amending Act expressly applicable to pending proceedings and therefore the Amending Act does not apply to the present proceeding. I am unable to accept this argument. It is not necessary that the Act should be made expressly applicable to pending proceedings and it is enough if the Act applies to pending proceedings by necessary implication. The language of Sub-section (2) of Section 1 leaves no room for doubt that the Amending Act was intended to apply to pending proceedings by necessary implication. But even apart from that it seems to me that Section 5 (7C) merely provides for a machinery for' assessment and it does not in any way enlarge or abridge the assessee's tax liability. This section, therefore, deals with procedure and not with substantive rights. Accordingly. I hold that Section 5(7C) applies to the present proceeding both under Sub-section (2) of Section 1 and also under general principles. I would, therefore, answer the second question in the affirmative.
5. The first question asked by the Tribunal raises the point whether the assessee loses the right of a heating under Section 28(3) if he does not exercise his right under the first proviso to Section 5 (7C). From what I have stated above, it will appear that the hearing of the penalty proceeding was concluded before one officer but the order was passed by another officer after a period of nearly two years eight months from the date of conclusion of the hearing. Normally it would seem strange that final order in a case could be passed by an officer upon arguments advanced before his predecessor-in-office; but Mr. Meyer contends that that is the result brought about by the introduction of Section 5 (7C) in the Indian Income-tax Act. That section provides that when an Income-tax authority exercising jurisdiction over any proceeding ceases to exercise jurisdiction and is succeeded by another authority, the latter 'may continue the proceeding from the stage at which the proceeding was left by his predecessor'. The first proviso to the section consists of two parts. The first part confers upon the assessee a right to demand that before the proceeding is continued the previous proceeding or part thereof be reopened arid the second part confers upon the assessee the right to demand that before any order for assessment is passed against him he be reheard. The present case relates to a penalty proceeding as distinguished from a proceeding from an assessment. It therefore comes under the first part of the proviso under which the assessee has a right to demand that the proceeding be reopened. It has been found by the Tribunal that the assessee did not make any such demand and, therefore, it lost its right of having the proceeding reopened. Some argument was advanced before us on behalf of the assessee to the effect that since the assessee did not get any notice of the continuation of the proceeding by the Income-tax Officer, who succeeded the officer before whom the hearing was concluded, it had no opportunity of exercising its right under the proviso. This argument is of some force but we cannot allow the assessee to raise this point in this Reference because it does not arise out of the order of the Tribunal. This point was not in contention before the Tribunal and the Tribunal was not invited to rule upon it. Consequently, in exercise of our advisory jurisdiction under Section 66(1), we cannot allow the assessee to raise it (see the decision of the Supreme Court in the case of New Jehangir Vakil Mills Ltd. v. Commr. of Income-Tax Bombay North; Eutch and Saurashtra, : 37ITR11(SC) .
6. The question, however, still remains whether the assessee has lost its right of hearing under Section 28 (3) on account of its failure to exercise its right of having the proceeding reopened under the first proviso to Section 5(7C). Mr. Meyer appearing for the Commissioner of Income-tax contends that the right conferred by the proviso to Section 5(7C) is a substitute for the right conferred upon the assessee by Section 28(3) so that if an assessee has failed to exercise the right under the proviso, there is no further right of hearing under Section 28(3). I am, however, unable to accept this contention. The right conferred by the first part of the proviso is a right to have the proceeding reopened whereas the right conferred by Section 28(3) is a right of being heard. In my opinion, there may be a hearing without having the proceeding reopened and that hearing may be confined tothe hearing of arguments only. As a result of the assessee's failure to exercise its right under the first part of the proviso the assessee has undoubtedly lost its right of having the proceeding reopened but I fail to see how it has lost its right of being heard under Section 28(3) before the Officer who has been vested with jurisdiction to continue the penalty proceeding.
7. Mr. Meyer has further contended that the same logic upon which I have held that the assessee in a penalty proceeding will have a right of advancing arguments before a succeeding Income-tax Officer will also center a similar right upon the assessee in an assessment proceeding although it is clear that the assessee in an assessment proceeding has no such right in a case coining under Section 5(7C) except under the second part of the first proviso. This argument, in my opinion, is without substance. In a penalty proceeding the assessee has a statutory right of being heard under Section 28(3). This hearing consists of the right of adducing evidence as also of advancing arguments whereas an assessee in an assessment proceeding has the right of only producing evidence under Section 23(3) of the Income-tax Act. There is no provision in an assessment proceeding corresponding to Section 28(3) which enacts that no order of penalty shall be made 'unless the assessee...........has been heard or has been given reasonable opportunity of being heard.' Section 5(7C) enacts that the succeeding Income-tax authority may continue the proceeding from the stage at which it was left by its predecessor-in-office. The combined effect of the two sections is to authorise the succeeding Income-tax Officer to pass an order upon the evidence produced before his predecessor-in-office but the effect is not to authorise the former to pass an order upon arguments advanced before the latter. The problem which confronts us in the present case is not likely to arise in the majority of cases because ordinarily the Income-tax Officer who is in charge of penalty proceedings will cease to exercise jurisdiction and will be succeeded by another Income-tax Officer before the conclusion of the hearing and in those cases no question will arise that the succeeding Income-tax Officer will be authorised under Section 5(7C) to continue the hearing of the proceeding from the stage at which it was left by his predecessor-in-office. In the case before us, however, the hearing of the penalty proceeding including oral hearing was concluded more than 14 months before the previous Income-tax Officer ceased to exercise jurisdiction and was succeeded by Mr. A. K. Sen Gupta, who passed the penalty order. I am not unmindful of the fact that the point raised by the assessee is an extremely technical one because on 29-9-1951, the assessee's Manager stated before the previous Income-tax Officer that he had nothing more to submit except what ho had already submitted. Still, however, as the question relates to the statutory right of the assessee under Section 28(3), I cannot but hold that Mr. A. K. Sen Gupta bad no authority to pass an order of penalty without giving the assessee a further opportunity of advancing arguments before him.
8. Accordingly I would answer question No. 1 in the negative. As the success is divided, I direct that the parties do bear their own costs in this Reference.
9. I agree.