1. This appeal filed by the assessee is against the penalty of Rs. 4,500 imposed by the ITO under Section 273(2)(a) of the Income-tax Act, 1961 ('the Act'), and confirmed by the Commissioner (Appeals). The assessee contests the appeal on the following grounds, namely ; 1. The Commissioner (Appeals) erred in confirming the penalty of Rs. 4,500 levied by the ITO under Section 273(2)(a).
2. The Commissioner (Appeals) erred in holding that Section 292B of the Act is applicable to the assessment order, wherein penalty proceedings were initiated under Section 273(2)(aa).
3. The Commissioner (Appeals) erred in holding that he has powers under the Act to give the assessee an opportunity to submit reasons as regards why penalty under Section 273(2)(a) should not be levied on it.
2. Before proceeding with the merits of the case, it is very relevant to set out the following facts: Notice under Section 210 of the Act was issued to the assessee on 2-6-1978 and the same was served on the assessee on 13-6-1978, showing the estimated income at Rs. 1,10,160 and tax at Rs. 58,431.
The assessee filed Form No. 28A on the same day, that is, on 13-6-1978, showing estimated total income at Rs. 3,08,990 and tax at Rs. 1,78,442. The assessee filed a revised estimate in Form No. 29 on 14-12-1978, estimating total income at Rs. 1,49,000 and tax at Rs. 86,048. The assessee paid two instalments of advance tax--one at Rs. 59,381 on 13-6-1978, and the second instalment of the same sum of Rs. 59,381 on 14-9-1978. Thus, the total advance tax paid by the assessee in instalments amounted to Rs. 1,18,762. The assessee filed return of income on 2-8-1979, showing the total income at Rs. 3,21,270 and was assessed under Section 143(3) of the Act on 21-11-1980, on a total income of Rs. 3,76,490. At the foot of the assessment order, the ITO stated that penalty proceedings under Section 273(2)(aa) were initiated. The ITO issued a show-cause notice to the assessee on 25-6-1982, proposing to levy penalty under Section 273(2)(b). The assessee filed a reply, claiming that no penalty was leviable on it under the aforesaid section. The ITO gave a revised notice dated 16-7-1982, stating that penalty had originally been initiated under Section 273(2)(aa) and not under Section 273(2)(Z) and gave another notice proposing to levy penalty under the former Section 273(2)(aa). The assessee, by its reply dated 16-9-1982, submitted that as it had not filed a higher estimate at all, penalty should not be levied on it under Section 273(2)(aa). The ITO, by an order dated 16-9-1982, levied penalty under Section 273(2)(a) claiming that the proceedings for the levy of penalty are not invalid in view of Section 292B. As against this order of the ITO, the assessee went up in appeal before the Commissioner (Appeals).
3. The learned counsel for the assessee contended before the Commissioner (Appeals) that the order of the ITO was illegal and void for the following reasons: 1. The ITO had no jurisdiction to initiate proceedings under Section 273(2)(ao), which was not the provision applicable to this case and, therefore, the initiation was not proper and the entire proceedings are vitiated.
2. Though the proceedings were initiated under Section 273(2)(aa), the penalty was ' levied under Section 273(2)(a). Therefore, there was no opportunity for the assessee to explain its case and the penalty is vitiated.
After hearing the submissions made by the learned counsel for the assessee, the Commissioner (Appeals), by his letter dated 10-1-1983, gave an opportunity to the assessee to furnish its explanation in terms of Clause (a). In response, the counsel filed a letter and the matter was heard on 21-1-1983. The objection raised by the assessee is only on the legal aspect and there is no explanation on merits. After hearing the learned counsel for the assessee, the finding given by the Commissioner (Appeals) is summarised and given below: The facts set out earlier will clearly indicate that the assessee had filed a revised estimate on 14-12-1978, which was much less than the income finally assessed. The only possible clause, under which penalty proceedings could be initiated, was Clause (a) as Clause (ad) had no application at all to such a case. By the wrong mention of the clause, it cannot be said that the entire proceedings would be vitiated. In fact the ITO could even have rectified the order on this point, and then proceeded with the penalty inasmuch as this was a clear error. In my view, the case clearly falls within Section 292B, in that, it was in substance and effect in conformity with or according to the intent and purpose of this Act.
The second question that arises is, whether the ITO, having considered the assessee's reply to the show-cause notice under Clause (ad), could pass an order levying penalty under Clause (a) ibid. I agree with the learned counsel that the ITO could not do this ; but I disagree when he says that this is a fatal defect which nullifies the order. I would hold that this was a procedural defect, which could be rectified by recommencing the proceedings from the stage at which the procedural irregularity supervened--Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC).
The third question will be, whether I can now consider the assessee's explanation and deal with the penalty. I feel that I can do so, in view of the decisions in the case of V. Subramonia Iyer v. CIT [1978] 113 ITR 685 (Ker.). With the aforesaid finding, the Commissioner (Appeals) confirmed the penalty levied by the ITO ; as against this order of the Commissioner (Appeals), the assessee is before us.
4. The learned counsel for the assessee reiterated the contentions made before the Commissioner (Appeals). He vehemently argued before us that the Commissioner (Appeals) cannot step into the shoes of the ITO and give an opportunity to the assessee, which should have been given by the ITO by issuing correct notice. Since the ITO has not issued the notice under the correct provision of law before levying penalty, the entire proceedings are vitiated. He further submitted that mentioning a wrong section in the penalty notice before levying a penalty is not a mistake curable under Section 292B.5. The learned departmental representative, on the other hand, supported the order of the Commissioner (Appeals).
6. We have carefully considered the facts and circumstances of the case and the arguments advanced by both the sides. In the decision of the Supreme Court in the case of Guduthur Bros, (supra) the facts in brief are as under: Having issued a notice to the appellants under Section 28(1)(a) of the Income-tax Act, to show cause why penalty should not be imposed for failure to file a return in time, the Income-tax Officer proceeded to impose penalty without affording a hearing. The Appellate Assistant Commissioner set aside the order imposing penalty as defective and directed refund of any penalty that might have been recovered. On receipt of the Appellate Assistant Commissioner's or'der the Income-tax Officer issued a further notice calling upon the appellants to appear before him so that they might be given an opportunity of being heard: ...that as the Appellate Assistant Commissioner, pointed out only to an illegality which vitiated the proceedings after they were lawfully initiated, the notice issued under Section 28(1)(a) did not cease to be operative and it was open to the Income-tax Officer to take up the matter at the point at which the illegality supervened and to correct his proceedings.... The Income-tax Officer had jurisdiction to continue the proceedings from the stage at which the illegality had occurred.
If the ratio laid down in the aforesaid case is correctly applied to the facts of this case, what the Commissioner (Appeals) should have done, is to restore the matter back to the file of the ITO to issue a notice under the correct provision of law, that is, under Section 273(2)(a), giving an opportunity to the assessee to file its explanation and then proceed with the merits of the case. In the case under consideration before us, the Commissioner (Appeals) himself issued a letter to the assessee, dated 10-1-1983, and proceeded with the case as, according to him, he is entitled to give an opportunity to the assessee and proceed with the case in view of the decision reported in V. Subramonia Iyer's case (supra). We are of the considered opinion, that what the Commissioner (Appeals) has done is wrong, as he cannot step into the shoes of the ITO to correct the illegality supervened in the proceedings initiated by the ITO. The next question that arises is, whether the finding given by the Commissioner (Appeals) that the mistake committed by the ITO is curable under Section 292B. The provision of Section 292B reads as under ; No return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.
For the aforesaid section to apply, there should be a mistake, defect or omission in the notice issued by the ITO. The mistake is one, which happens casually and it should be a mistake, pure and simple. In the case under consideration before us, when the ITO has issued a second notice to the assessee, under Section 273(2)(aa), it was specifically brought to the notice of the ITO by the assessee, by its letter dated 16-9-1982, that since the assessee had not filed a higher estimate at all, penalty could not be levied on it under Section 273(2)(aa). If the ITO has really committed a mistake, at least at this stage, after the receipt of the reply from the assessee, he must have known that he mentioned a wrong section in the notice issued by him. Instead of issuing a notice under the correct provision of law, he proceeded to levy a penalty. Therefore, before levying the penalty, since the ITO knew that he has issued a wrong notice, the mistake committed by the ITO cannot be said to be a mistake which can be cured under Section 292B. Since, right from the beginning, the assessee has been challenging the legality of the notice issued by the ITO at the time of proceedings before the ITO, and the legality of the letter issued by the Commissioner (Appeals) at the time of proceedings before the Commissioner (Appeals), it had not filed any explanation on merits. At the time of hearing of the case, the learned counsel contended before us, on merits, that under the bonafide impression that income from house property is not assessable in its hands as it being a lessee, the income returned by the assessee originally at Rs. 3,08,890 was revised by it to Rs. 1,49,000. He, therefore, contended that the statement of advance tax revised by it on 14-12-1978, cannot be said to be the estimate which the assessee knew or had reason to believe to be untrue.
Since the ITO has not given an opportunity to the assessee to furnish its explanation, the order passed by the Commissioner (Appeals) is vacated and the matter is restored to the file of the ITO to give a notice to the assessee, mentioning the correct provision of law, giving an opportunity to the assessee to file its explanation and decide the case on merits according to law in view of the ratio laid down by the Supreme Court in the case of Guduthur Bros, (supra).
7. In the result, the appeal filed by the assessee is deemed to have been allowed for statistical purposes.