JUDGMENT V. BHARGAVA C.J. - The question referred by the Income-tax Appellate Tribunal for our opinion is :
"Whether, on the facts and circumstances of the case, penalty under section 46(1) of the Income-tax Act as applied to the Excess Profit Tax Act was legally imposed ?"
The question arises in connection with recovery of excess profits tax for three chargeable accounting periods ending on 30th April, 1944, 30th April, 1945, and 31st March, 1946. In respect of these chargeable accounting periods, excess profits tax was assessed on 28th February, 1949, 25th March, 1949, and 25th March 1949, bringing into existence demands of Rs. 3,60,324-11-0, Rs. 1,15,034 and Rs. 83,123-5-0. Demand notice were issued on the dates of the assessments. In response to these demand notices, the assessee moved applications on 17th March, 1949 and 31 March, 1949, for stay of recovery of the amounts assessed until the disposal of appeals which had been filed against the assessments. The appeals were actually disposed of by a consolidated order date 26th August, 1950, by the Appeal late Assistant Commissioner who reduced each of the three demands for each of the three chargeable accounting period to some extent. Thereafter, the Excess Profits Tax Officer took into account certain payments which had been made and also set off certain amounts which were refundable to the assessee in connection with other proceeding and determined the final outstanding demands in respect of the three period as remaining after all these adjustments had been made. Having made all these adjustments, the Excess Profits Tax Officer issued letters on 25th October, 1950, and 26th October, 1950, calling upon the assessee to pay these amounts within a week of the receipt of the letters. He also asked the assessee-company to furnish bank guarantee in respect of these outstanding demands, if the assessee was not in a position to clear up the demands. The assessee sent a reply on 9th November, 1950, alleging that no demands were outstanding according to the returns field by it and the question of furnishing bank guarantee did not arise. No payments were actually made nor was any request made for staying the recovery of the demands. The Excess Profits Tax Officer consequently on 26th March, 1951, imposed penalties under section 46(1) of the Income-tax Act as applied to the excess profits tax proceedings by section 21 of the Excess Profits Tax Act.
The assessee appealed before the Appellate Assistant Commissioner who dismissed the appeals and confirmed the imposition of the penalties. A further appeal before the Income-tax Appellate Tribunal under section 66(1) of the Income-tax Act read with section 21 of the Excess profits Tax Act to refer a question of law to this court and it is in pursuance of that application that question quoted above by us has been referred to this court.
The statement of the case and the judgment of the Income-tax Appellate Tribunal show that the imposition of the penalties was challenged on two ground before the Income-tax Appellate Tribunal. One ground was that appeals in respect of assessments for earlier chargeable accounting periods were pending when the penalty was imposed and in those appeals the question of determining the standard profits and computation of capital were being challenged and it was urged that, until those appeals were decided, there could be no valid demands in respect of subsequent chargeable accounting periods. Further, reliance on this point was placed on the fact that even the assessment, in respect of which these demands were made by the Excess Profits Tax Officer, were being challenged in appeal and it was urged that in these circumstances the assessee could not be treated as being in default.
On the face of it, this submission has no force. Section 45 of the Income tax Act makes it perfectly clear that the mere filing on appeal against an assessment does not have the effect of the assessee being not in default, if the demand notice have been issued validly and the amount assessed has not been paid within the time fixed. In the present case, the demand notices were validly issued after the assessments had been made for the three chargeable accounting periods and subsequently these demands were reduced to the extent to which reduction was called for as a result of the order of the Appellate Assistant Commissioner as well as a result of the adjustments because of the payments made by the assessee or because of the payments due to the assessee. When no payments were made even after these adjustments, the assessee was clearly in default. Of course, under section 45(1) it was open to the Excess Profits Tax Officer not to treat the assessee in default for sufficient reasons because further appeals were pending, but in this case the facts stated show that no prayer at all was made to the Excess Profits Tax Officer not to treat the assessee in default. All that was done was to contest the legal position by urging that the assessee was not in default; that contention of the assessee was clearly incorrect. It is, therfore, quite clear that the assessee was liable to imposition of penalty under section 46(1) of the Income-tax Act read with section 21 of the Excess Profits Tax Act on the date on which the penalty was imposed, viz., 26th March, 1951. The pendency of the appeals in respect of earlier chargeable accounting periods also did not affect this legal position.
The second ground on which the imposition of penalty is challenged is that no notice was issued to the assessee before imposing the penalty. It is not denied on behalf of the assessee that, in section 46 of the Income-tax Act or any other provision of the Act, there is no requirement for issue of a notice before imposition of penalty under section 46(1) of the Income-tax Act. Reliance was, however, placed by learned counsel on a decision by one of us in P. C. Dwadesh Shreni and Co. (P.) Ltd. v. Income-tax Officer, Aligarh. In that case, a reference was made to a decision given by a learned single judge of this court in Writ Petition No. 2624 of 1957, dated 3rd October, 1961, in which the view taken was that no penalty under section 46(1) of the Income-tax Act could be imposed, having regard to the principles of natural justice, without first issuing notice to such person. That single judge decision was followed without even expressing any agreement with the view taken in that earlier case simply because the subsequent case was also being heard sitting as a single judge and it was considered that an earlier decision of a single judge could not be dissented from. In view of the fact that there is no provision in the Income-tax Act for issue of notice, we do not now consider that the view taken by the learned single judge in that earlier Writ Petition No. 2624 of 1947, decided on 3rd October, 1961, was really correct. At best, all that could be said in favour of the assessee was that no penalty should have been imposed until the assessee had been given an opportunity to say whatever he had to say in his defence. The learned single judge in arriving at the view, that the imposition of a penalty without giving an opportunity was not in consonance with the principles of natural justice, relied upon a decision of the Supreme Court in Nand Lal Raj Kishan v. Commissioner of Sales Tax, Delhi. It may be noticed that the Supreme Court in that case nowhere expressed the view that, when there was no express provision for the issue of notice, the issue of notice was compulsory and that an order made without issue of a notice would be invalid. All that the Supreme Court laid down was that, in a case of that nature, the principles of natural justice would apply and the person to whose prejudice the order is to be made must be given an opportunity to say whatever he has to say in his defence. The principle that can, therefore, be applied and should be applied is the limited one that the person whose rights are to be affected should be given an opportunity to have his say in defence. It cannot be held that proceedings taken without issue of notice of the person affected would become proceedings without jurisdiction for want of notice. The proceedings would be deemed to be without jurisdiction only if the issue of a notice is a condition precedent to the further proceedings being taken in which case the proceeding taken without issue of notice would be without jurisdiction altogether. On the other hand, where no such requirement of issue of notice is prescribed by law and the only question is whether the order subsequently made is a valid order or not because the person affected had no opportunity of saying whatever he had to say in his defence, it would be an error of procedure which of course would be curable at a later stage. It would be an error in actually giving the decision in exercise of jurisdiction vested and not a case where jurisdiction ab initio would be wanting on the ground that condition precedent to the exercise of the jurisdiction had not been complied with.
In the present case, applying this principle, it would certainly appear that when the Excess Profits Tax Officer imposed the penalty on 26th March, 1951, he committed the error of not giving a specific opportunity to the assessee to show cause why the penalty should not be imposed. There is, however, the fact that, by his letters dated 25th October, and 26th October, 1950, the assessees was told that there were arrears outstanding which required payment or bank guarantee and the assessee was given a prescribed period of time to comply. It cannot be said that, in these circumstances, the assessee could not envisage that on failure to comply, the Excess Profits Tax Officer would apply the provisions of section 46(1) for imposing the penalty. In any case, even if any irregularity was committed by the Excess Profits Tax Officer in not affording another opportunity to the assessee to show cause, that omission became immaterial when the assessee actually field first appeals before the Appellate Assistant Commissioner and second appeals before the Income-tax Appellate Tribunal. At both those stages, the assessee was given a full opportunity to show cause why the penalty should not have been imposed. At those stage, either of the two appellate authorities could have remanded the case back to the Excess Profits Tax Officer to give a hearing to the assessee and pass a fresh order of imposition of penalty. In the alternative, those appellate authorities could themselves give adequate opportunity and thereafter either set aside the order of the Excess Profits Tax Officer or confirm it. Any such defect of procedure committed by the assessing authority could certainly be cured by giving adequate opportunity to the assessee and in fact, in this case, the assessee was heard both by the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal. Since the Income-tax Appellate Tribunal and the Appellate Assistant Commissioner gave full hearing on merits, we are unable to hold that the imposition of penalty under section 46(1) of the Income-tax Act read with section 21 of the Excess Profits Tax Act was invalid.
In these circumstances, the question referred to us is answered in the affirmative. The assessee will pay the costs of the department. The fee of the counsel is fixed at Rs. 200.
Question answered in the affirmative.