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Petitioner: KANAILAL GATANI VS Respondent: COMMISSIONER OF INCOME-TAX AND EXCESS PROFITS TAX, WEST BENGALHonorable Justice SINHA
1968 P T D 862
1968 P T D 862
[Calcutta (India)]
Before D. N. Sinha and G. K. Mitter, JJ
KANAILAL GATANI
Versus
COMMISSIONER OF INCOME‑TAX AND EXCESS PROFITS TAX, WEST BENGAL
Income‑tax Reference No. 100 of 1952, decided on 18th May 1962.
Income‑tax proceedings‑----Transfer of officer who heard a case, before final order is passed‑Whether successor bound to hear the case afresh‑Guiding principle.
An Income‑tax Officer issued notice to the assessee to show cause why a penalty should not be imposed and, after hearing the assessee, made a draft order for imposition of penalty. He was then transferred and his successor; after looking into the papers, concurred with the order of his predecessor and made an order imposing penalty after getting the sanction of the Appellate Assistant Commissioner : Held, that the order of penalty was not invalid merely because the succeeding officer who made the order had not heard the assessee himself.
SINHA, J.‑The legal position where an officer who heard a case is transferred before he passes the final order is this : "A hearing of a case may be of many kinds. It usually involves the calling of witnesses, their examination and cross‑examination and then arguments are addressed to the Tribunal. Where witness have been called and examined, or where arguments have been advanced, it is clear that one man cannot hear the case and another man pass judgment. The reason is that much may depend on the view that the Tribunal takes as to the credibility of witnesses and his mind may be swayed one way or the other by the demeanour of witnesses and as a result of arguments. This is such an intangible and personal task, that it cannot be handed over to the successor. Where, however, no witnesses have been called and no arguments have been advanced, but the matter depends on written objections the successor is in the same position as the officer who originally was in the conduct of the case, and as long as the successor applies his mind to the materials before him an order made by him cannot be held to be invalid.
Calcutta Tanneries (1944) Ltd. v. Commissioner of Income‑tax (1960) 40 I T R 178 and Murlidhar Tejpal v. Commissioner of Income‑tax (1961) 42 I T R 129 ref.
STATEMENT OF CASE
In compliance with the requisition of the High Court under section 66(4), we hereby draw up a. further statement of case agreed to by both the parties and refer it to the High Court.
2. The High Court has called for a supplementary state ment of case embodying therein the Tribunal's findings on the following matters and any other matters which they may consider relevant ;
"1. What actually happened, on the 10th of March 1947, and the 3rd of May 1947, besides that the letters addressed by the assessee's counsel to the Income‑tax Officer were received ? Was the Income‑tax Officer met by the counsel and was he at all heard ? If yes, what was stated by the assessee's counsel on the 3rd of May 1947 (if the same can be ascertained from records) ?
2. What is the explanation, if any, of Mr. S. N. Roy refer ring to the assessment order as my assessment order'? Was the order, imposing a penalty; an order prepared by him or was it an order left by his predecessor which he merely signed ?
3. Which of the two officers applied for the sanction of the Inspecting Assistant Commissioner for the imposition of the penalty ? What was the nature of the sanction asked for, namely, whether it was merely a sanction for the imposition of a penalty or also a sanction for imposing a penalty of a stat ed sum ?"
An affidavit with a correction‑affidavit has been filed by the Second Additional Income‑tax Officer, Companies District IV, with its four annexures, which are Annexures "A" to "A‑5" hereto forming part of the case.
3. An affidavit has also been filed by Nirmal Mukherjee, the Advocate for the assessee, with a copy of a letter written by him to the Income‑tax Officer, Non‑Companies Income‑tax cum‑Excess Profits Tax District, dated the 14th November 1946, which are Annexures "B" to "B‑l" hereto and form part of the the case.
4. From the facts mentioned above, it is found that on 10th March 1947, before A. De, the Income‑tax Officer in‑charge of this case, a. written statement was filed by Nirmal Mukherjee and time was allowed for furnishing further particulars against the proceedings under section 28 of the Income‑tax Act to 24th March 1947. On an application filed for extension of time, the case was adjourned on 24th March 194,7 to 10th April 1947. After a further adjournment to 21st April 1947, the case was again adjourned to 3rd May 1947, as no one appeared on 21st April, 1947. On the 3rd May 1947, Nirmal Mukherjee, Advocate for the assessee, appeared before the Income‑tax Officer, A. De, and filed a written statement and stated that beyond the said written statement filed he had nothing to add. A copy of the relevant portion of the order‑sheet in respect of 1942‑43 and the written statement dated 3rd May 1947, filed by Nirmal Mukherjee have already been made Annexures "A(2)" to "A(3)".
5. From the above it is seen that the Income‑tax Officer was met by the counsel on 3rd May 1947, and from what has been stated in the affidavit and in the order‑sheet all that was said by the advocate concerned was that he had nothing to add to what has been stated in the written statement. There appears to have been no further hearing given in the proceeding under section 28 and the only hearing, was the hearing mentioned above on 3rd May 1947.
6. Coming to the second question as to what is the explana tion of Mr. S. N. Roy referring to the assessment order as "my assessment order", we find from the affidavit filed by the Income tax Officer that S. N. Roy did not mean that it was in the assess ment order signed by him but meant it to mean only that it was an assessment order of the Income‑tax Officer, Non‑Companies (Income‑tax‑cum‑Excess Profits Tax) District Calcutta, who made the assessment.
7. The next question to be considered as per the directions of the High Court is "was the order imposing a penalty, an order prepared by him or was it an order left by his predecessor which he merely signed ?" The draft‑ of the order for imposing penalty was prepared by A. De and S. N. Roy imposed the penalty after obtaining sanction of the Inspecting Assistant Commissioner Range I, who was the proper authority for giving the sanction.
8. The last question is "which of the two officers applied for the sanction of the Inspecting Assistant Commissioner for the imposition of a penalty? What was the nature of the sanc tion asked for, namely, whether it was merely a sanction for the imposition of a penalty or also a sanction for imposing a penalty of a stated sum". The proposal for imposition of penalty was submitted by A. De, the former officer, on 31st May 1947, for approval of the Inspecting Assistant Commissioner and the same was approved by the said Inspecting Assistant Commissioner. The said proposal is Annexure "A‑6" hereto forming part of the case. The draft of the order for imposition of penalty was also prepared by A. De, but the same was signed by S. N. Roy (after he had concurred therein) with a forwarding memo. dated 25th February 1948, to the Inspecting Assistant Commissioner, Range I, Calcutta. The application for sanction for imposition of penalty by S. N. Roy was in respect of the two stated sums of Rs. 75,000 under section 28(1)(c). of the Income‑tax Act and Rs. 2,00,000 under section 16 of the Excess Profits Tax Act.
9. From the above, we find that S. N. Roy, the Income‑tax officer, who levied the penalty in this case under section 28 did not have any personal knowledge of what Nirmal Mukherjee had or had not stated on 3rd May, 1947. The only bearing which the assessee had in respect of the penalty proceedings is the hearing on 3rd May 1947, when Nirmal Mukherjee, the Advocate for the assessee, was stated to have said to the then Income‑tax Officer that he had nothing further to add to the written state ment already filed on behalf of the assessee.
Nirmal Mukherjee and B. Banerjee for the assessee.
E. R. Meyer with B. L. Pal for the Commissioner.
JUDGMENT
SINHA J.‑The facts in this case are shortly as follows : The assessee in this case is the firm of Messrs Jaykissendas Kanailal, of which the proprietor is Kanailal Gatani. The assessment in question is for the year 1942‑43. There was an assessment under section 23(4), said to have been made ex parte. Against this assessment there was an appeal under section 27 which was rejected. Against this refusal there was an appeal before the Appellate Assistant Commissioner of Income‑tax, Calcutta A Range, who passed an order dated June 4, 1945, cancelling the Income‑tax Officer's order under section 27 refusing to reopen the assessment and directed him to make a fresh assessment. Notice under section 23(2) for fresh assessment was given. Against this, the assessee submitted a petition of objection dated November 14, 1946, through his advocate, Sri Nirmal Mukherjee. A copy of this petition is at page 5. While making the assess ment it appeared to the Income‑tax Officer that the assessee had concealed particulars of his income and a show‑cause notice was issued under section 28 of the Income‑tax Act. . After the assess ment was reopened, two notices were issued, both dated 3rd March 1947 (pages 24, 25). The first notice called upon the assessee to show cause by March 10, 1947, ' why a penalty under section 28 of the Income‑tax Act should not be imposed because the assessee had concealed the particulars of his income deliberately. The second notice called upon the assessee tb show cause by March 10; 1947, why a penalty under section 16 of the Excess Profits Tax Act should not be imposed as the assessee had concealed the particulars of his income. On the 1Cth March 1947, a written statement was filed on behalf of the' assessee through Sri Nirmal Mukherjee before Mr. A De, the then Income‑tax Officer in‑charge of the file, a copy whereof is set out at page 23. It was stated therein that the assessee was lying ill at his native place and demanded a hearing as provided under section 28. Time was allotted up to 24th March 1947. On the 24th March 1947, an extension of time was asked for and the case was adjourned to the 10th April 1947. It was further adjourned to the 21st April 1947, and on the 22nd April 1947, notice was given to the effect that no explanation had been furnished and nobody appeared on behalf of the assessee on the 21st April 1947, and that the assessee was required to furnish the explanation by 3rd May 1947, and to appear on that date. On the 3rd May 1947. Sri Nirmal Mukherjee appeared on behalf of the assessee and filed a written statement. He gave certain explanations denying the concealment and asking the penalty proceeding to be with drawn. Apart from the written statement filed, Sri Mukherjee appeared before the Income‑tax Officer, Mr., De, and the order -sheet shows as follows:
"Mr. Mukherjee, advocate, appears and has stated that beyond his written statement filed in this matter he has nothing to add.
(Sd.) A. De, I. T. O."
Before the Income‑tax Officer, Mr. A. De, could pass an order under section 28 or section 16, he was transferred. But before he was transferred he applied to the Inspecting Assistant Commissioner for sanction for the imposition of a penalty. This was approved by the Inspecting Assistant Commissioner. In the amended statement of case, it is stated that the proposal for imposition of penalty was submitted by Mr. A. De, the former officer, on 31st May 1947, for approval of the Inspecting Assistant Commissioner and the same was approved by the said Inspecting Assistant Commissioner. The draft order for imposition of penalty was then prepared by Mr. A. De, but before he could complete the same, he was transferred and Mr. S. N. Roy came in his place. Mr. S. N. Roy looked into the draft order and after he had concurred therein, he sent it with a forwarding memo. dated., 25th February 1948, 'to the inspecting Assistant Commis sioner, Range I, Calcutta. The application for sanction for imposition of penalty by Mr. S. N. Roy was in respect of a sum of Rs. 75,000 under section 28(1)(c) of the Income tax Act and Its. 2,00,000 under‑section 16 of the excess Profits Tax Act. It appears that the sanction was given and Sri S. N. Roy passed two orders on 31st March 1948, one imposing a penalty under section 28 of the Income‑tax Act to the extent of Rs. 75,00,1 (pages 11 to 15) and another under section 16 of the Excess Profits Tax Act imposing a penalty to the extent of Rs. 2,00,000 (page 16). Against these two orders appeals were taken to the Appellate Assis tant Commissioner. Amongst other points it was urged that the assessee had not been heard by Mr. S. N. Roy, as is mandatory under section 28 of the Income‑tax Act. It was held that the hearing as contemplated by that section had already been given and, in the circumstances, the order passed by Mr. Roy was quite in order. In the result, the appeals were dismissed and the penalties were confirmed (pages 17 to 21). Against these orders, appeals were taken to the Appellate Tribunal. The Appellate Tribunal held that there might have been some substance in the point mentioned above, if it was satisfied that the subsequent Income‑tax Officer had not applied his mind to the proceeding on record but merely signed the order. The Tribunal, however, held that Mr. Roy had in fact applied his mind to the facts of the case and, therefore, there was nothing in law which could prevent him, as the successor to Mr. A. De, from carrying on the work from the stage at which his predecessor had left the same. The Appellate Tribunal, however, thought the penalties imposed were excessive and reduced the penalty to Rs. 35,000 in the case of the income‑tax appeal and Rs. 75,000 in the excess profits tax appeal. Thereupon, the assessee made an application under section 66(l) of the Income tax Act for an order that several questions should be referred to the High Court. The Appellate Tribunal refused to make the reference. Thereupon, an application was made to the High Court and an order was made under section 66(2), directing the Appellate Tribunal to refer the following questions:
"(1) Whether on the facts and in the circumstances of the case and in view of the mandatory provision of subsection (3) of section 28 of the Indian Income‑tax Act the imposition of penalty by the Income‑tax officer who did not hear the assessee was legal ?
(2) Whether on the facts and circumstances of the case the imposition .of penalty by the Excess Profits Tax Officer who did not hear the assessee was legal ?"
The reference came up before a Bench presided over by Chakravartti, C. J. On the 15th January 1958, the learned Chief Justice held that a supplementary statement of the case was necessary as the statement of case filed was not sufficient. The points upon which the supplementary statement of the case was to be filed are to be found at page 32 of the supplementary paper‑book. A supplementary statement of the case has been filed. The matter has now come up before us for hearing. The first thing to be considered is the provision of section 28(3) of the Income‑tax Act which reads as follows:
"No order shall be made under subsection (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."
There is, therefore, no doubt upon the point that before an order of penalty can be imposed, the assessee must be heard. In the notice fixing the date of hearing on 22nd April 1947 (page 22), the Income‑tax Officer said as follows:
"In case, however, you intend to furnish any further explanation or to have a hearing, you are required to furnish the explanation by 3rd May 1947, and appear on that date before me at 12 noon."
On the 3rd May 1947; the assessee filed his explanation and appeared through his learned Advocate and, upon being asked, the learned Advocate stated that all his points were contained in the written statement and he had nothing more to add. Therefore, the assessee had a complete hearing. The draft order for the imposition of penalty was prepared by Mr. A. De. Mr. Roy, who then came into the scene, looked into the papers and concurred with the imposition of the penalty and applied to the Inspecting Assistant Commissioner for sanction which was accorded and the order was signed by Mr. Roy, the order being dated 31st March 1948, (pages 11 to 15). The question is as to whether, on the facts of this case, one officer could hear the case and draw up a draft order and a succeeding officer having satisfied himself on the materials, but without a further hearing, could make the order. In my opinion, the legal position is as follows:
A hearing of a case may be of many kinds. It usually involves the calling of witnesses,, their examination and cross examination and then arguments are addressed to the Tribunal. Where witnesses have been called and examined, or where arguments have been advanced, it is clear that one man cannot hear the case and another man pass judgment. The reason is that much may depend on the view that the Tribunal takes as to credibility of witnesses and his mind may be swayed one way or the other by the demeanour of witnesses and as a result of arguments. This is such an intangible and personal task, that it cannot be handed over to the successor. Where, however, no 'witnesses have been called and no arguments have been advanced, but the matter depends on written objections filed, then the successor is in the same position as the officer who originally was in the conduct of the case. Therefore, as long as the successor applies his mind to the materials before him, this is sufficient. As ‑appears from the facts of this case, Mr. A. De had looked into the materials had drawn the draft order imposing penalty. His successor, Mr. Roy, looked into the materials and the draft order, concurred in the conclusion arrived at by his predecessors and asked for the sanction of the Inspecting Assistant Commissioner and, having obtained it, subscribed his signature to the order, making it his own. In my opinion, the provision of section 28 have been satisfied and nothing illegal has been done. Two cases have been cited before us. The first case is Calcutta Tanneries (1944) Ltd. v. Commissioner of Income‑tax ((1960) 40 I T R 178). In that case, what happened was as follows : The Income‑tax Officer found that the assessee ,had concealed an income of Rs. 17,000 by giving wrong particulars about encashment of seventeen high denomination notes of Rs. 1,000 each. A penalty proceeding was started. During the proceeding, a written statement was filed denying liability and witnesses and books were examined by the Income‑tax Officer and the argument of the pleader was heard. Such hearing concluded on September 29, 1951, but no order was passed on that date. About fourteen months after that date, the Income‑tax Officer was succeeded by another Income‑tax Officer who passed an order imposing a penalty of Rs. 9,900 on January 14, 1954. He did not hear the assessee any further. The order of penalty was challenged. It was held that the combined effect of section 5(7‑C) and section 28(3) of the Income‑tax Act was 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. Section 5(7‑C) was inserted by the Amending Act of 1953, with effect from 1st April 1952. In my opinion, this judgment supports rather than destroys the proposition I have mentioned above. It would be observed that the order in this case was made prior to be amendment, but even prior to the amendment the position was not different. I may mention another authority cited before us, being a Bench decision' of the Patna High Court in Murlidhar Tejpal v. Commissioner of Income‑tax. ((1961) 42 I T R 129). That case also deals with the effect of section 5(7‑C) of the Income‑tax Act read with section 28(3). It was held that the combined effect of .section 28(3) and section 5(7‑C) is that the succeeding Income‑tax Officer has authority to pass an order upon the explanation. of the assessee produced before his predecessor in office, if the assessee has failed to exercise his right under section 5(7‑C) demanding that the proceeding should be reopened. In this case, we are not concerned with the provisions of section 5(7‑C), but the position seems to be as stated above, even under the Income‑tax Act as it stood previous to the amendment. On the facts of the present case, I am of the opinion that Mr. Roy was entitled to make the order, having satisfied himself as to the correctness of it and, inasmuch as no witnesses had been called and no arguments advanced, he was in a position to make the order and that no illegality has been committed. I have decided this case upon the law as it stood before section 5(7‑C) was introduced by the amendment of 1953.
There is a conflict of decision as to whether, under that subsection, a re‑hearing or fresh hearing is necessary unless demanded by the assessee. I must not be taken to have expressed any opinion upon that point.
The result is that both the questions referred to us should be answered in the affirmative and the assessee must pay the costs of the reference.‑ Certified for two counsel.
G. K. MITTER, J.‑I agree.
Questions answered in the affirmative.