MURLIDHAR TEJPAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case the assessee was taxed on a total income of Rs. 34,513. IN computing the total income the INcome-tax Officer added a sum of Rs. 27,522 which was found credited in the Hathfer Khata (suspense account) in the name of Upper Sey. It was the case of the assessee that the relevant credit in the Hathfer Khata represented the cash deposit of his wife, Shrimati Naraini Devi from out of her stridhan properties. But the assessee did not produce any evidence before the INcome-tax Officer to substantiate the contention. IN the absence of any satisfactory explanation with regard to the source of the cash credit, the INcome-tax Officer held that the amount should be included for the purpose of income-tax in the total income of the assessee. The assessee preferred an appeal before the INcome-tax Appellate Commissioner, but the appeal was dismissed. The assessee again took the matter in appeal before the INcome-tax Appellate Tribunal, which reduced the addition to a sum of Rs. 15,941, after taking into consideration certain withdrawals in the same account. On November 30,1948, a notice was issued under section 28(3) of the INdian INcome-tax Act, calling upon the assessee to explain why a penalty should not be imposed upon him for wilful concealment of income. The assessee submitted a written explanation on January 10,1949. The INcome-tax Officer passed an order on June 9,1955, holding that the explanation was unsatisfactory and a penalty of Rs. 1,500 should be imposed under section 28(1) of the INdian INcome-tax Act. An appeal was taken by the assessee before the Appellate Assistant Commissioner but it was dismissed. The assessee preferred a second appeal before the INcome-tax Appellate Tribunal but this appeal also was was dimissed.

(2.) AT the instance of the assessee the Income-tax Appellate Tribunal has submitted the following question of law for the opinion of the High Court :

(3.) READING, therefore, section 28(3) of the Act, in the context and background of section 5(7C) of the Act, it is manifest that Shri V. Jha, successor-in-office of Shri K. P. Kumar, had authority to continue the proceeding started against the assessee under section 28(1) of the Act and to impose proper penalty under that section. It was argued on behalf of the assessee that section 28(3) requires oral hearing by the Income-tax Officer before the order the imposing penalty is passed against the assessee. We do not think that this argument is correct. Section 28(3) requires that there should be a hearing of the assessee, or in the alternative, the assessee should be given a reasonable opportunity of being heard. After receiving the notice under section 28(3) it is open to the assessee to appear before the Income-tax Officer to make oral submissions or to send a representation in writing if he prefers to do so. This view is supported by a decision of the Madras High Court in Ayyasami Nadar and Brothers v. Commissioner of Income-tax in which it was held that a notice under section 28(3) calling upon an assessee "to show cause in writing or in person" why a penalty under section 28(1) should not be imposed, fulfills the requirements of section 28(3) that the assessee must be given a reasonable opportunity of being heard before an order under sub-section (1) or (2) of section 28 is made. Learned counsel for the assessee, however, relied upon a decision of the Calcutta High Court in Calcutta Tanneries (1944) Ltd. v. Commissioner of Income-tax. It was held in that case that the succeeding officer under section 5(7C) of the Income-tax Act had no authority to pass an order of penalty without giving the assessee a further opportunity of advancing arguments before him. With great respect we differ from the view expressed by Calcutta High Court in this case. In our opinion, the combined effect of section 28(3) and section 5(7C) of the Indian Income-tax Act is that the succeeding Income-tax Officer had authority to pass an order upon the explanation of the assessee produced before his predecessor-in-officer, if the assessee produced before his predecessor-in-office, if the assessee had failed to exercise his right under section 5(7C) demanding that the preceding should be reopened. It is admitted in the present case that the assessee did not make any demand for reopening the proceeding before Shri V. Jha, the succeeding Income-tax Officer, under the first proviso to section 5(7C) of the Income-tax Act. If the assessee has chosen to do so, he might have exercised his statutory right under section 5(7C) of the Income-tax Act, and required the succeeding Income-tax Officer to take a fresh explanation from him before making any order of penalty. But the admitted position is that in the present case the assessee did not exercise his statutory right under section 5(7C). The result, therefore, is that Sri V. Jha had authority to make an order of penalty under section 28(1)(C) of the Income-tax Act, without calling for a fresh explanation from the assessee. We accordingly hold that the order of the Income-tax Officer, Sri V. Jha, dated June 9, 1955, is legally valid and the first question of law referred by the Income-tax Appellate Tribunal must be answered against the assessee and in favour of the Income-tax Department.