Guduthur Bros. vs Income-Tax Officer, Special Circle

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 22 March, 1960

Coram: Hidayatullah

In this appeal, the Supreme Court considered a petition filed under article 226 of the Constitution that sought a writ of prohibition or any other appropriate writ against the Income‑tax Officer of Bellari, Special Circle, Bangalore. The petition had been dismissed in limine by the High Court of Mysore, which held that the issues raised by the appellants could perhaps be pursued before the Income‑tax authorities. The appellants then obtained special leave to appeal to this Court, and the matter was placed before the Bench of Justice Hidayatullah. The factual background was that for the assessment year 1948‑49 the appellants failed to file a return within the time prescribed by law. Consequently, the Income‑tax Officer, exercising the power conferred by section 28(1)(a) of the Indian Income‑tax Act, issued a notice requiring the appellants to show cause why a penalty should not be imposed. The appellants responded to the notice by filing a written reply. Despite receiving this reply, the Income‑tax Officer proceeded to levy a penalty of sixteen thousand rupees without first granting the appellants a hearing, contrary to the requirement of the third sub‑section of section 28. The appellants appealed this order before the Appellate Assistant Commissioner, who found that the order was defective because the statutory hearing requirement had not been satisfied. The Commissioner set aside the penalty order and directed that any amount already collected be refunded. Following that order, the Income‑tax Officer issued another notice calling upon the appellants to appear before him, stating that if they failed to appear he would determine the penalty issue using only the written statement previously filed. Before the Officer could make such a determination, the appellants filed the writ petition under article 226. The High Court dismissed the petition in limine on the ground that the contentions could be raised before the tax authorities. The present Court noted that the requirements of section 28(1)(a) had not been fully complied with, for the failure to file a return attracted clause (a) of sub‑section (1) of section 28. However, the Court focused on sub‑section (3) of section 28, which mandates that a penalty may not be imposed without giving the assessee a reasonable opportunity to be heard. Since that opportunity had been denied, the Court held that the penalty order was vitiated by an illegality that arose during the proceedings, not at the initial stage. The order of the learned Appellate Assistant Commissioner identified the basis of this illegality and directed the refund of the penalty, if it had been recovered.

In this case the Court explained that ordering a refund of a penalty that had already been recovered could only be understood as correcting the earlier mistake and leaving the matter open for the Income‑tax Officer to resume his proceedings from the point where the illegality had taken place. The Court said that no separate remand order was required for that purpose, contrary to the contention raised. The Court then noted that it had been drawn to a judgment of a single judge of the Kerala High Court reported in Jos Chacko Poothokaran v. Income‑tax Officer, Ernakulam Circle. In that earlier decision, which involved similar facts, the High Court held that because the Commissioner of Income‑tax had not appealed to the Appellate Tribunal under sub‑section (2) of section 33, the order of the Appellate Assistant Commissioner became final and the Income‑tax Officer could no longer reopen the penalty assessment. The Court observed that the reasoning given in the Kerala case was not relevant to the present matter. What the Appellate Assistant Commissioner had actually done was to set aside the earlier order and direct that the penalty be refunded because an illegality had arisen during the assessment proceedings. After receiving the record, the Court said it was open to the Income‑tax Officer to pick up the case from the point where the illegality had occurred and to correct the procedural defect. The appellants had argued, in their statement of the case, that such proceedings could be taken only while the assessment was still pending and that the assessment period had already ended. The Court disagreed, holding that the notice issued to the appellants requiring them to show cause why a penalty should not be imposed had not lost its effect simply because the Appellate Assistant Commissioner later identified an illegality that vitiated the proceeding after it had lawfully begun. Since that notice remained undischarged, the Court said the new proceedings could still be characterised as taking place during the assessment process because the action would retrospectively relate back to the date of the original notice. Consequently, the Court concluded that the Income‑tax Officer was fully within his jurisdiction to continue the proceedings from the stage at which the illegality arose and to assess any penalty that might be appropriate under the circumstances. Accordingly, the Court dismissed the appeal and ordered that the appellant pay costs. The appeal was dismissed.