GOVINDAN NAIR C.J. - A question of law of importance which is not free from difficulty in answering has been referred to us by the Income-tax Appellate Tribunal, Cochin Bench, in relation to the imposition of penalty on an income-tax assessee for the two years 1966-67 and 1967-68, under section 271(1)(a) of the Income-tax Act, 1961, for short 'the Act'. That question reads as follows :
'Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the penalty orders for the two assessment years 1966-67 and 1967-68 were valid even though the Income-tax Officer who passed the penalty order did not consider the explanations filed by the assessee as to why penalty would not be imposed in response to the notices issued by the Income-tax Officer to the assessee under section 274(1) of the Income-tax Act, 1961, in those two penalty proceedings ?'
For the two years 1966-67 and 1967-68, notices had been issued under section 274 read with section 271, on March 30, 1970, requiring the assessee to show cause why an order imposing penalties on him should not be made under section 271 of the Act. These notices were issued because the return that was due to be filed on June 30, 1966, for the year 1966-67, was filed only on March 21, 1970, and the return due for the year 1967-68 on June 30, 1967, was filed only on January 22, 1969. It appears that the assessee filed his representations pointing out why penalties should not be imposed, on March 20, 1971. Without considering this representation the Income-tax Officer imposed a penalty limited to 50 per cent. of the net tax payable for the year 1966-67, and a penalty of Rs. 5,364 for the year 1967-68. Appeals were taken by the assessee before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner apparently after considering the representation of the assessee, though he does not refer to it in terms, but accepting the facts stated there in that the assessee was prevented by reasonable cause from filing the return within the time stipulated, canceled the orders imposing penalties. There was a further appeal before the Tribunal and the Tribunal considered the claim of the assessee that he was prevented by reasonable cause from filing the return and came to the conclusion that no reasonable cause had been shown for the entire delay. But the Tribunal found that the real delay was only of 12 months duration. With this aspect are not concerned in this reference. The question mooted before us was considered by the Tribunal by the Tribunal in paragraph 8 very briefly. We shall extract the relevant part of that paragraph.
'In the light of the view we have taken about the merits of the explanation offered by the assessee before the Income-tax Officer, we do not think that the contention of the assessee that the reply filed in response to the penalty notice was n not considered or adverted to by the Income-tax Officer thereby causing an error of law which renders the penalty order abinitiovoid has any force.......'
Nothing further has been said by the Tribunal on the contention that was raised that in view of the inadvertence to the existence of an objection to the show-cause notice for the two years there has been a violation of section 274 of the act requiring that no penalty under the chapter in which that section occurs 'shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard'. Counsel on behalf of the assessee has placed before us rather elaborately certain principles on the basis of which it was urged before us that the orders imposing penalties passed by the Income-tax Officer for the two years wereabinitio void. The contention has to be dealt with with reference to the statutory provisions and we shall, therefore, append to this judgment the relevant sections. Those sections are sections 271(1)(a), 274, 275, 250 and 254. Before we deal with the decisions that have been relied on by counsel for the assessee we shall state certain general principles. An order an initio void will not become a valid order by virtue of the fact that it has been confirmed by an appellate authority. An order which is not void ab initio but which suffers from some infirmity, however great that infirmity may be, can merge with an appellate order which is valid and the appellate order can, therefore, govern the matter. The principles of natural justice are not embodied rights but must take its content and scope from the statutory provisions where such provisions exist. If there has been an infringement of fundamental rights guaranteed by the Constitution by an order which violated a statutory provision which had provided for compliance with the principles of natural justice the order would be void and such order would be incapable of being resurrected by and order passed in appeal from that void order. The question before us is whether the same principle can apply to a right which is less than a fundamental right and whether the violation of the principles of natural justice even if it is provided by a statute by the first authority who passed the order, would make that order void in that it is incapable of being resurrected or validated by an appellate order. We shall examine that question in the light of the decided cased that have been placed before us.
Before proceedings to do so we shall deal with another question which has been mooted at the bar on behalf of the assessee that, reading section 271(1), it is clear that what the law contemplates is a subjective satisfaction of the Income-tax Officer. It was urged that if it was not a subjective satisfaction there was at least a certain element of subjective satisfaction of the Income-tax Officer. We shall examine that question in the light of the decided cases that have been placed before us.
Before proceeding to do so we shall deal with another question which has been mooted at the bar on behalf of the assessee that, reading section 271(1), it is clear that what the law contemplates is a subjective satisfaction of the Income-tax Officer. It was urged that if it was not a subjective satisfaction there was at least a certain element of subjective satisfaction of the Income-tax Officer. We are unable to accept this contention. We are aware of the numerous decisions which have taken the view that when expressions such as 'when so and so is satisfied', in the opinion of' or other similar expressions are used, it is a subjective satisfaction that is contemplated. But this cannot be an invariable rule. The content of the expression must be understood by a reference to the subject-matter and the other provisions of the statute which provide for appeals and remedies for rectifying the orders passed by the original authority. If the Income-tax Officer is to proceed on a purely subjective satisfaction, there is little scope for interference regarding the quantum of the penalty or even in regard to the question whether penalty should be imposed at all in appeal proceedings. We are unable to understand the scheme of the Act as giving such an immunity to the order of the Income-tax Officer. As we have indicated, the powers of the appellate authority are very very wide and the appellate authority could substitute the order of the Income-tax Officer by one of its own. The appellate authority can consider the material available in the case and come to an independent conclusion whether any penalty should be imposed and if so the quantum of the penalty. In fact, we conceive that the appellate authority has a duty to come to such an independent conclusion.
Passing on to the first question as to whether an order passed in violation of the principles of natural justice provided by the statute would be void, we shall refer to the decision of the Supreme Court in Nawabkhan Abbaskhan v. State of Gujarat, AIR 1974 SC 1471, relied on by the counsel for the assessee in support of his argument that it is void. Paragraph 14 of the judgment in that case makes a distinction between the two types of orders, one in violation of the fundamental right and also in violation of the principles of natural justice and the other in violation of the principles of natural justice and the other in violation of the principles of natural justice but not involving the infringement of any fundamental right. The learned judge, V. R. Krishna Iyer, made a distinction between these two types of orders and while pronouncing on the question of infringement of the fundamental right in the judgment, the learned judge merely referred to the distinction and contended himself by stating that the position may be different where there has been no infringement of the fundamental right. This the passage (page 1477) :
'Where hearing is obligated by a statute which affects the fundamental right of a citizen, the duty to give the hearing sounds in constitutional requirement and failure to comply with such a duty is fatal. May be that in ordinary legislation or at common law a Tribunal having jurisdiction and failing to hear the parties, may commit an illegality which may render the proceedings voidable when a direct attack is made thereon by way of appeal, revision or review, but nullity is the consequence of unconstitutionality and so without going into the larger issue and its plural divisions we may roundly conclude that the order of an administrative authority charged with the duty of complying with natural justice in the exercise of power before restricting the fundamental right of a citizen is void and abinitio of no legal efficacy.'
The above passage clearly indicates the distinction between the two types of orders.
It was contended before the Federal Court in Suraj Narain Anand v. North-West Frontier Province, AIR 1942 FC 3, that the order of the Deputy Inspector-General of Police who took action against the terms of section 240(2) of the Government of India Act, 1935, in that the Deputy Inspector-General was not the appointing authority and could not have passed the order had been taken in appeal before the Inspector-General of Police and the Inspector-General of Police death with the appeal and the Inspector-General of Police was competent to pass the order and it was, therefore, suggested that the dismissal must stand. It was, therefore, urged that the order of dismissal must be taken to have been passed by the Inspector-General of Police. This contention was not accepted by the Federal Court. The following passage at page 6, from the judgment of the Federal Court, may be read :
'It was next contended on behalf of the respondent that as the plaintiff in the present case had appealed to the Inspector-General of Police against the Deputy Inspector-Generals order dismissing him, the rejection of that appeal was equivalent to a dismissal from office by the Inspector-General himself and as such sufficient to satisfy sub-section (2) of section 240 of the Act. We cannot accede to this contention. In theory as well as in practice, there is a well-marked difference between a decision given by an officer who acts in the consciousness that he is primarily responsible for the investigation and decision of the case and the act of one who is expected only to satisfy himself that another officer who had the primary responsibility has properly dealt with the case. The distinction seems to us one of substance and is not merely formal or technical. The pre-existing rules provided, and section 241 of the Act of 1935 also contemplates, that appeals may be preferred by the dismissed offer, and it is common knowledge that in most cases such appeals are in fact preferred. As these appeals would ordinarily be heard and decided by an authority superior in rank to the dismissing officer, the protection intended to be afforded by sub-section (2) of section 240 would have been almost illusory if it were sufficient that, no matter by what authority the order of dismissal was made, the appellate authority was not subordinate in rank to the appointing authority. We are, accordingly, if opinion that the plaintiff is entitled to invoke the aid of sub-section (2) of section 240 of the Constitution Act.'
Counsel for the assessee very strenuously contended on the basis of the above passage that the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal stood in no better position than the Inspector-General of Police in the case that was considered by the Federal Court. We find it difficult to accept this contention. The appellate power conferred on the Appellate Assistant Commissioner seems to be unlimited. Section 250 does not specifically state the powers of the appellate authority. But we conceive that the appellate authority has the power to set aside the order and remit the case back to the Income-tax Officer or allow the appeal on the merits or pass an order calling for fresh findings from the first authority and thereafter deal with the appeal in one of the above manners or alter or amend or modify the order under appeal. In other words, the power conferred on the appellate authority by section 246 and which is exercised in accordance with the procedure in section 250 indicates an amplitude and width which is no less wide than that of the Income-tax Officer. He does not merely satisfy himself as to whether the Income-tax Officer acted properly. He considers the question as enjoined by the specific provision in the statute by giving a personal hearing to the appellant or his representative. This insistence on a personal hearing, which is not a general procedure in all case, indicates the width of the examination by the appellate authority. Therefore, we consider that the Income-tax Officer has not been conferred any special duty in regard to the imposition of penalty nor is he given any discretion which is not vested in the appellate authority. The discretion that the Income-tax Office has is certainly a judicial discretion. Such a discretion if it is wrongly exercised can in given cases, be altered by the appellate authority. When we pass on from the first appeal to the second appeal before the Income-tax Appellate Tribunal we find that there has been no abridgement in the width of the power of the Tribunal. In these circumstances, we have to view the provision in section 271(1)(a) as conferring the power to impose a penalty on the Income-tax Officer subject to the strict control by the Appellate Assistant Commissioner and the Appellate Tribunal. That the Income-tax Officer did not advert to the relevant material or ignored the relevant evidence or misread the evidence does not make the appellate authorities helpless in deciding the question themselves by adverting to the relevant evidence or material or by reviewing the evidence in a proper manner. We conceive that they could after considering the entire evidence pass appropriate orders which should have been passed by the Income-tax Officer. If the Income-tax Officer had not issued any notices at all as required by section 148, the question may arise whether the appellate authority could decide the question in appeal from the orders of the Income-tax Officer passed without complying with the provisions for issue of notices. Such will be cases where an opportunity had been denied to the assessee which certainly should be been given to the assessee. Whether this could be done by an appellate authority or whether the order of the Income-tax officer should be set aside and the cases remitted to the officer is a question which does not arise in these cases and we wish to express no opinion on it.
It is evident from the orders of the Income-tax Officer in these cases that he had forgotten the existence of the representation. Naturally, he did not advert to it. This was, therefore, a case where he proceeded ignoring the material that was available, a procedure which resulted in injustice. We do not think that the fact that the mind had not been applied can be said to be sufficient to call the order passed by the Income-tax Officer a void order which could not be dealt with by the appellate authority.
Counsel on behalf of the revenue invited our attention to section 275 of the Act and contended that we must spell out a right in the appellate authority to deal with the matter itself in view of the time limit provided by the section. We would wish to express no opinion on this aspect. If the income-tax Officer death with the matter after the period provided by section 275 the order passed by the Income-tax Officer may be illegal. On the question whether the appellate authority could itself take evidence in order to avoid a remand and thus circumvent section 275, we would like to express no opinion in these cases.
In the light of the above we see no infirmity in the order passed by the Tribunal notwithstanding the fact that the Income-tax Officer was unaware of the representation made by the assessee and did not consider that representation. We, accordingly answer the question referred to us in the affirmative, that is, in favour of the department and against the assessee. We direct the parties to bear their respective costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Income-tax Appellate Tribunal, Cochin Bench.
Appendix
'271(1). If the Income-tax Officer or the Appellate Assistant commissioner, in the course of any proceedings under this Act, is satisfied that any person -
(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or.....
274. (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.....
(3) An appellate Assistant Commissioner on making an order under this chapter imposing a penalty, shall forthwith send a copy of the same to the Income-tax Officer.
275. No order imposing a penalty under this Chapter shall be passed -
(a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Appellate Assistant commissioner under section 246 or an appeal to the Appellate Tribunal under sub-section (2) of section 253, after the expiration of a period of -
(i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or
(ii) six months from the end of the month in which the order of the Appellate Assistant Commissioner or, as the case may be, the Appellate Tribunal is received by the Commissioner, which ever period expires later;
(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.
explanation. - In computing the period of limitation for the purposes of this section, -
(i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129;
(ii) any period during which the immunity granted under section 245H remained in force; and
(iii) any period during which a proceedings under this chapter for the levy of penalty is stated by an order or injunction of any court,
shall be excluded.
250. (1) The Appellate Assistant commissioner shall fix a day and place for the hearing of the appeal, and shall give notice of the same to the appellant and to the Income-tax Officer against whose order the appeal is preferred.
(2) The following shall have the right to be heard at the hearing of appeal -
(a) the appellant either in person or by and authorised representative;
(b) The income-tax Officer, either in person or by a representative.
(3) The Appellate Assistant Commissioner shall have the power to adjourn the hearing of the appeal from time to time.
(4) the Appellate Assistant commissioner may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Income-tax Officer to make further inquiry and report the result of the same to the Appellate Assistant Commissioner.
(5) The Appellate Assistant Commissioner may, at the hearing of an appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the Appellate Assistant commissioner is satisfied that the omission of that ground from the form of appeal was not willful or unreasonable.
(6) The order of the Appellate Assistant Commissioner disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision.
(7) On the disposal of the appeal, the Appellate Assistant Commissioner shall communicate the order passed by him to the assessee and to the commissioner.
254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it think fit.
(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer.
Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or other wise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.
(3) The Appellate Tribunal shall send a copy of any orders passed under this section to the assessee and to the Commissioner.
(4) Save as provided in section 256, orders passed by the Appellate Tribunal on appeal shall be final.'