A.N. Sen, J.
1. Burmah-Shell Oil Storage and Distributing Company of India Ltd. (hereinafter referred to as the company or the petitioner) has presented this writ petition challenging the validity of two notices one bearing No. CC-XXIII/5-b/67-68/79, dated the 17th August, 1971, issued by the Income-tax Officer, Central Circle XXIII, Calcutta, and the other bearing No. 1426/IAC/ICFP-124/67-68, dated the 18th August, 1971, issued by the Inspecting Assistant Commissioner of Income-tax, Range-1(C), Calcutta.
2. The petitioner is a company incorporated under the provisions of the English Companies Acts with liability of its members limited by shares and has its registered office at Burmah House, Piper Sway, Swindon, in the United Kingdom. The petitioner carries on business, inter alia, at Burmah Shell House, Ballard St., Bombay-1, and also at No. 31, Binoy Badal Dinesh Bag, in the town of Calcutta. The business of the company consists in the importation and of purchase and storage, sale and distribution of petroleum and allied products. The capital of the company has been contributed in pounds sterling and as on 31st December, 1966, theauthorised capital of the company consisted of 2,50,00,000, divided into 1,25,00,000 ' A ' ordinary shares of pound one each and 1,25,00,000 ' B ' ordinary shares of pound one each. All the shares of the company have been issued and are fully paid up. The accounts of the company are expressed in terms of pounds sterling including the profit and loss account of the company. The company is obliged by law to lay before its shareholders at its annual general meeting a profit and loss account expressed in terms of pounds sterling. The financial year of the company is from January to December. The company has been assessed to income-tax in India for a number of years. For the assessment year 1967-68, the company duly filed its return and the assessment year in question in the present proceeding is the assessment year 1967-68. On the 5th of June, 1966, the rupee was devalued. As a result of the devaluation of the rupee the petitioner in respect of its trading for the financial year 1966, claims to have suffered a loss in consequence of the fall in the sterling value of its current assets held in India including oil stocks. It appears that the petitioner has further provided in respect of depreciation an amount based on its original actual cost in terms of sterling of its capital assets, which by reason of the said devaluation was greater in terms of rupees than it would othewise have been, and the petitioner claimed in his income-tax return for the assessment year 1967-68, depreciation on the enhanced basis on account of the devaluation. The petitioner also claimed development rebate and terminal or balancing charge in respect of assets discarded or sold on the basis of their original actual cost in sterling. Assessment year 1967-68 was the first year in which these questions fell to be considered and the petitioner had in its return for the said year claimed deduction for the loss on devaluation and the said greater depreciation on its fixed assets and also the said development rebate. The return of the petitioner for the assessment year 1967-68 was duly filed and sent with a covering letter and in the said letter and also in the return, the petitioner specifically pointed out that it was claiming devaluation loss and the said greater depreciation. In course of the assessment proceedings on the basis of the said return filed by your petitioner for the assessment year 1967-68, the Income-tax Officer made several queries and asked for several clarifications all of which were duly furnished by the petitioner. In course of the said proceedings, the petitioner also filed a revised return under cover of a letter dated 20th May, 1971. In the said revised return, the petitioner again made it clear that it had claimed devaluation loss and the said greater depreciation as well as development rebate and terminal charge on the aforesaid basis of devaluation of the rupee. After the filing of the revised, return the petitioner at the request of the Income-tax Officer furnished a statement of depreciation and development rebate on the basisthat no greater amount was allowable by virtue of devaluation. On the basis of the loss suffered by the petitioner on account of devaluation and on the basis of the claim of the petitioner for greater depreciation and also development rebate the petitioner in the return originally filed had shown substantial loss of over Rs. 68,00,000 (Sixty-eight lakhs). In the course of the assessment proceeding before the Income-tax Officer, the petitioner was represented by Shri V. Newatia of M/s. Price Waterhouse Peat & Co., and Shri O.P. Mathur, Taxation Officer of the company. They were heard by the Income-tax Officer and the Income-tax Officer for reasons recorded in his order disallowed the entire claim of the petitioner on account of devaluation loss and added back an amount of Rs. 8,19,01,945 to the petitioner's income claimed by the petitioner by way of deduction on this account. The Income-tax Officer also disallowed a large part of the petitioner's claim on account of depreciation, terminal allowance and development rebate. On the basis of the view expressed by the Income-tax Officer that the entire claim of the petitioner on account of devaluation loss and that the greater part of the claim of the petitioner on account of depreciation, terminal allowance and development rebate were not allowable and on the basis of the said claims being rejected and being added to the income of the petitioner as a necessary consequence of such rejection, the total income of the petitioner was assessed at Rs. 8,25,26,427. Against the said order of assessment by the Income-tax Officer, the petitioner preferred an appeal before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner of Income-tax for reasons recorded in his order dated 4th December, 1972, substantially upheld the order of the Income-tax Officer and the Appellate Assistant Commissioner on the question of the devaluation loss held that the fall in the sterling value of the Indian assets which was a notional or hypothetical loss and it was not a real loss sustained during the year of account. Against the order of the Appellate Assistant Commissioner, the petitioner has preferred a further appeal to the Income-tax Appellate Tribunal which is still pending.
3. In the course of the assessment proceedings the Income-tax Officer considered it fit to initiate penalty proceedings against the petitioner and in the assessment order itself the Income-tax Officer has recorded--' proceedings for leyy of penalty under Section 271(1)(c) have been initiated separately'. On the 17th of August, 1971, the Income-tax Officer, Central Circle XXIII, Calcutta, issued the following notice bearing No. CCXXIII/ 5-b/67-68/79 to the principal officer of the company at Bombay :
'Whereas in the course of proceedings before me for the assessment year 1967-68, it appears to me that you have concealed the particulars of your income or deliberately furnished inaccurate particulars of such income and whereas the penalty proceedings have to be referred to the InspectingAssistant Commissioner of Income-tax. According to Sub-section (2) of Section 274 of the Income-tax Act, 1961, you are hereby informed that the case for levy of a penalty under Clause (c) of Sub-section (1) of Section 271, is being referred by me to the Inspecting Assistant Commissioner of Income-tax, Range I(c), Cal. Further proceeding in regard to the levy of a penalty will take place before the said Inspecting Assistant Commissioner of Income-tax as provided in Sub-section (2) of Section 274.'
4. This notice appears at page 151 of the annexures to the petition.
5. The Inspecting Assistant Commissioner issued a notice bearing No. 1426/IAC/ICFP-124/67-68, dated 18th August, 1971, under Section 274(2} read with Section 272 of the Income-tax Act, 1961, to the principal officer of the company at Bombay and the said notice reads as follows :
'Whereas the Income-tax Officer, Central Circle XXIII, Calcutta, has under Sub-section (2) of Section 274 of the Income-tax Act, 1961, referred your case to me in connection with the penalty proceedings under Clause (c) of Sub-section (1) of Section 271 and whereas it appears to me that you have concealed the particulars of your income or deliberately furnished inaccurate particulars of such income for the assessment year 1967-68.
You are hereby requested to appear before me at 11-30 AM on 20th September, 1971, and show cause why an order imposing a penalty on you, should not be made under Section 271(1)(c) of the said Act. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative you may show cause in writing on or before the said date which will be considered before any such order is made tinder Section 271(1)(c).'
6. This notice appears at page 152 of the annexures to the petition.
7. The validity of the aforesaid two notices had been questioned in this writ petition filed by the company. The principal grievance of the company appears to be that the conditions which are necessary to be fulfilled for levy of any penalty and for initiating the necessary proceedings for imposition of penalty are totally absent and there is no justification for issuing the said notices and for starting the penalty proceeding against the petitioner and for continuing the same. After the said notices had been issued it appears that various letters were exchanged between the company and the authorities and in the letters addressed by the company or on its behalf, the company tried to explain the position and satisfy the authorities that in the facts and circumstances of this case there was or could be no concealment of the income and the company had not furnished any inaccurate particulars in the return. After the position had been explained to the Inspecting Assistant Commissioner of Income-tax by the letter dated 25th of February, 1974, addressed by Price, Water-house, Peat & Co. to the Inspecting Assistant Commissioner of Income-tax,the Inspecting Assistant Commissioner on 2nd March, 1974, addressed the following letter to the company with a copy thereof to M/s. Price, Water-house, Peat & Co.:
' Since the points raised by me in connection with the above are answered by you in the form of written submission, and for doing so the case has been fixed for further hearing on 12th March, 1974, I would request you to please state your views as to why your case should not be considered to be covered by the provisions of the Explanation to Section 271(1)(c) of the Income-tax Act, 1961. In this respect, I would like you to refer in particular to that portion of the Explanation which states ......that the failure to return the correct income did not arise from anyfraud or any gross or wilful neglect on his part......'
8. This letter appears at page 164 of the annexures to the petition. This letter of the Inspecting Assistant Commissioner was answered by Price, Waterhouse, Peat & Co. on behalf of the company on the 6th of March, 1974, and along with the said letter the company enclosed the opinion of counsel on the question of company's claim for increased depreciation. In the said letter it has, inter alia, been stated :
'We also take this opportunity to place on record that the question of other disallowances, including devaluation loss other than pertaining to depreciation have been discussed with you and/or recorded in our/the company's earlier letters to you and that you verbally confirmed at our meeting on 27th February, 1974, that you were satisfied with the explanations on these matters and that you would drop the penalty proceedings if you were also satisfied with the company's explanation for making the claim for depreciation.
In the circumstances, it seems that the penalty proceedings can be now dropped and that there is no need for further explanations from the company. If you agree, please let the company have your confirmation immediately that you will be pleased to drop the penal proceedings, under advice to us, so that the company is spared further expenses in thismatter.'
9. This letter is at pages 656-57 of the annexures to the petition. Asthe authorities concerned did not inform the company that the penalty proceedings against the company had been dropped, the company has presented this petition under Article 226 of the Constitution for the issue of appropriate writs for quashing the said two notices and for prohibiting the authorities from continuing the said penalty proceeding against the petitioner and also for restraining the authorities from taking any further proceedings in the' matter of adjudging or imposition of any penalty against the company.
10. Mr. Ginwalla, learned counsel appearing in support of this application, has drawn my attention to the relevant provisions contained in Section 271 of the Income-tax Act, 1961. The provision of the said section material for the purpose of this application may be set out :
'271. Failure to furnish returns, comply with notices, concealment of income, etc.--(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......
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty......
Explanation.--Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section.'
11. Referring to the aforesaid provisions Mr. Ginwalla has argued that the conditions laid down in the said section the fulfilment of which can only justify an action for taking penalty proceedings by the authorities are totally absent in the facts and circumstances of this case. He argues that no case for imposition of penalty has been made out and requirements of the section for imposition of any penalty are not satisfied and the notices issued by the authorities are, therefore, without jurisdiction. Mr, Ginwalla has submitted that, in the instant case, there has been no concealment of any income and incorrect particulars have been furnished in the return. It is his submission that a full and frank disclosure with all necessary particulars has been made by the company in the return and the company has not concealed any part of the income and has not furnished any inaccurate particulars of the income and there is no question of deliberately furnishing any inaccurate particulars of such income in the return. Mr. Ginwalla has contended that the company after having submitted proper return setting out correctly all particulars of income has claimed certain allowances on the basis of devaluation loss, increased depreciation and development rebate. It is his contention that the claim of the company for deduction of devaluation loss, increased depreciation and development rebate is clearly justified in law and the Income-taxOfficer was not right in disallowing the said claim of the company ; and in view of the claim of the company in respect of the said items being disallowed by the Income-tax Officer, the petitioner is pursuing the matter and has taken appropriate proceedings and the appeal filed by the petitioner against the decision of the Income-tax Officer which was upheld by the Appellate Assistant Commissioner is now pending before the Tribunal. Mr. Ginwalla has argued that though in this proceeding the court is not undoubtedly concerned with the merits of the said claims of the company for deduction, the said claims of the company can never be considered to be frivolous, fraudulent or mala fide. It is his argument that the said claims of the company which the company has made and is pursuing on expert legal advice are clearly based on cogent legal grounds and there is no authoritative judicial pronouncement covering the said questions raised by the company. Mr. Ginwalla has drawn my attention to the reason given by the Income-tax Officer, while rejecting the contention of the company in course of the assessment proceeding and also of the Appellate Assistant Commissioner while rejecting the appeal of the company. Referring to the said reasons Mr. Ginwalla has argued that apart from the question of correctness or otherwise of the said reasons which will be decided in the appropriate proceeding, the reasons clearly go to indicate that the company has sought to raise certain questions of law on proper and cogent grounds which have, however, not found favour with the Income-tax Officer. Mr. Ginwalla has contended that, in the facts and circumstances of this case, there cannot be any manner of doubt that the company has raised certain legal contentions claiming necessary deduction on account of devaluation loss suffered by the company, for increased depreciation and development rebate due to such devaluation. According to Mr. Ginwalla the claim of the company for necessary deduction based on the legal contentions put forward by the company can never amount to any concealment of the income of the company and it also can never be said that the company has furnished inaccurate particulars of its income by seeking to raise the said legal pleas. Mr. Ginwalla has submitted that an analysis of the relevant provisions contained in Section 271 clearly goes to indicate that the following requirements have to be satisfied for imposition of any penalty (1) the Income-tax Officer must be satisfied in the course of the assessment proceedings, (2) that the party concerned has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, (3) in a case where the Explanation is attracted, such concealment or furnishing of inaccurate particulars were not done fraudulently or were not acts of gross or wilful negligence of the assessee. Mr. Ginwalla argues that unless the said requirements are satisfied penalty proceedings against any party cannot be lawfully and validly initiated, as no penalty Can be imposed unlessthe requirements for imposition of penalty are satisfied. Mr. Ginwalla contends that in the facts and in the circumstances of this case there cannot be any question of fulfilment of any of the conditions which may justisfy the imposition of the penalty on the petitioner. It is the contention of Mr. Ginwalla that in the instant case there could have been no satisfaction on the part of the Income-tax Officer in the course of the assessment proceedings that the company has concealed any part of its income or has furnished any inaccurate particulars of its income in the return. Mr. Ginwalla has argued that the order of the Income-tax Officer in the assessment proceeding clearly goes to indicate that before him the company had raised certain questions of law in support of the company's claim for deduction of devaluation loss, increased depreciation and development rebate. It is the argument of Mr. Ginwalla that full and frank disclosure was there with all particulars and proper material and on the basis thereof the company, after getting proper advice, had made the claims for deduction and raised the aforesaid contentions of law which the Income-tax Officer for reasons recorded in his order did not accept. Mr. Ginwalla argues that the question whether the Income-tax Officer is right or wrong in rejecting the contentions and claims of the company is indeed immaterial for the present proceeding, as the questions of law urged by the company before the Income-tax Officer on the materials which have all been fully disclosed and placed before the Income-tax Officer in course of the assessment proceeding can never constitute the concealment or furnishing of inaccurate particulars as contemplated in Section 271 of the Act. Mr. Ginwalla submits that as the questions of law urged by the company before the Income-tax Officer can never amount to any concealment or furnishing of any inaccurate particulars, there can never be any satisfaction on the part of the Income-tax Officer in the course of the assessment proceeding that the company has concealed its income or that it has furnished inaccurate particulars. It is the argument of Mr. Ginwalla that rejection of any legal contentions raised by any party and refusal to entertain any claim for deduction made on cogent legal grounds can never constitute concealment or furnishing of inaccurate particulars and no Income-tax Officer can, therefore, be satisfied that an assessee has concealed his income or has furnished inaccurate particulars, only because the Income-tax Officer has chosen to reject the contention urged on behalf of the assessee in support of the assessee's claim for deduction and has disallowed such claims for deduction put forward on legal grounds. Mr. Ginwalla has commented that the order of the Income-tax Officer, in the instant case, clearly indicates that the questions of law urged on behalf of the petitioner before the Income-tax Officer in support of the petitioner's claim for deduction on account of devaluation loss, increased depreciation and development rebate, did not find favour with him forreasons recorded by him in his order which clearly indicates that no facts are suppressed or are in dispute. It is the argument of Mr. Ginwalla that apart from the question that the rejection of a question of law properly taken by an assessee in support of any claim put forward by him on the basis of full and frank disclosure of all particulars and materials can never have the effect of any concealment of the income or of furnishing of any inaccurate particulars within the Act, the facts and circumstances of this case and the order passed by the Income-tax Officer in the instant case clearly establish that there could have been no question of any concealment of income or of furnishing any inaccurate particulars. Mr. Ginwalla, therefore, submits that the Income-tax Officer cannot, in the facts and circumstances of this case, be satisfied that there has been any concealment of income on the part of the company or that the company has furnished any inaccurate particulars, as there were indeed no materials which can bring about such satisfaction. Mr. Ginwalla in this connection has further commented that the notices issued by the authorities and the subsequent correspondence between the parties also go to indicate that the authorities did not indeed know whether, according to the authorities, it was a case of concealment of income or of furnishing of inaccurate particulars within the meaning of Section 271(1)(c) of the Act. It is the further comment of Mr. Ginwalla that the authorities also did not know whether the case came under Section 271(1)(c) of the Act or the case was one covered by the Explanation. Mr. Ginwalla contends that as the basic requirement of the section, namely, the satisfaction of the Income-tax Officer in the course of the assessment proceeding has not been, as the same can never be, fulfilled in the facts and circumstances of the instant case, there can be no question of any imposition of penalty and there can be no justification for issuing the said notices.
12. Mr. Ginwalla has next contended that the facts and circumstances of the present case clearly establish that the company has not concealed any part of the income and the company has not furnished any inaccurate particulars. Mr. Ginwalla has argued that it is a limited company and its balance-sheet is duly audited and the audited balance-sheet has to be placed before the shareholders. It is the argument of Mr. Ginwalla that full and frank disclosure had been made by the company and the company has furnished detailed and accurate particulars and all relevant documents and papers had been made available before the Income-tax Officer in course of the assessment proceedings and all queries and questions have been properly answered. Mr. Ginwalla has argued that the company has raised certain questions of law for claiming deduction of devaluation loss, increased depreciation and development rebate and raising the pleas of law, according to Mr. Ginwalla, can never result in concealment of theincome or furnishing inaccurate particulars by the company. According to Mr. Ginwalla there can, therefore, be no satisfaction of the condition as to concealment of income or of furnishing of inaccurate particulars by the company. Mr. Ginwalla has next argued that the Explanation can have no application in the instant case, as the Explanation will only apply on the basis of the deeming provision contained therein; but the deeming provision will have no application except in cases of fraud or of gross or wilful neglect. Mr. Ginwalla contends that raising legal pleas and urging questions of law for getting relief to which a person may be entitled or to which a person may consider himself to be entitled, can never constitute fraud or gross or wilful neglect on the part of any such person. Mr. Ginwalla has argued that in the facts and circumstances of this case the company has raised the aforesaid contentions of law claiming the said deduction after taking proper advice in the matter and the said contentions of the company have yet to be finally adjudicated upon. It is the argument of Mr. Ginwalla that as raising the said questions of law can never be considered to be an act of fraud or of gross or wilful neglect, the Explanation will also have no application. Mr. Ginwalla has argued that though the requirements of Section 271 are not satisfied in the instant case, the authorities concerned are still persisting in proceeding with the penalty proceedings by applying wrong principles of law. The wrong principles of law which, according to Mr. Ginwalla, are being sought to be applied by the authorities concerned in persisting with the penalty proceeding wrongfully and illegally, are (1) legal contentions, which do not find favour with the authority, if raised before the authority, will result in concealment of income and furnishing of inaccurate particulars, (2) urging all questions of law in support of claims for deduction before the Income-tax Officer will be an act of fraud or of gross or wilful neglect on the part of the assessee, if the contentions are not accepted by the Income-tax Officer, (3) mere rejection of a question of law urged before the Income-tax Officer by the Income-tax Officer may form the basis of satisfaction that the assessee has concealed its income or has furnished inaccurate particulars. Mr. Ginwalla has argued that by applying the above principles which are all clearly wrong principles of law, the authorities concerned are seeking to assume, and exercise jurisdiction in the matter of the penalty proceedings against the petitioner. In support of his contention that by applying wrong principles of law no such jurisdiction can be assumed or exercised and the court will issue a writ of prohibition, if any inferior Tribunal or authority chooses to proceed to act by applying such wrong principles of law in the matter of exercise of its jurisdiction. Mr. Ginwalla has referred to the following passage in Halsbury's Laws of England (3rd edition). Vol. 11, at page 117 (Art. 218) :
'Prohibition goes as soon as the inferior Tribunal proceeds to apply a wrong principle of law when deciding a fact on which the jurisdiction depends. Where proceedings are pending before an inferior court, part of which is within, and part is outside, the jurisdiction of the court, no prohibition lies until the court has actually gone beyond its competency and jurisdiction. In any event, where the jurisdiction of the inferior court depends on the judicial determination of facts the order does not lie until the court has wrongfully on these facts given itself jurisdiction.'
13. Mr. B.L. Pal, learned counsel appearing on behalf of the revenue authorities, has submitted before me that at this stage and in this proceeding the court should not interfere with the penalty proceedings initiated against the petitioner. Mr. Pal has argued that unlike the case of reopening an assessment under Section 147 of the Act, no condition precedent need be satisfied for the assumption of jurisdiction for initiating penalty proceedings against any assessee. It is the argument of Mr. Pal that the jurisdiction to initiate penalty proceedings is vested under the Act in the authorities who are, however, only competent to impose the penalty, if the requirements of Section 271 are satisfied. Mr. Pal argues that in the course of the penalty proceedings it will be for the authorities concerned to decide whether the requirements of Section 271 have been satisfied or not, and if the authorities concerned are satisfied on a consideration of the relevant materials placed before the authority concerned in the course of the penalty proceeding that the requirements of Section 271 have been satisfied, the authority concerned will proceed to impose penalty, as the authority concerned is lawfully empowered to do so. If, however, the authority concerned, argues Mr. Pal, is of the opinion on a consideration of the relevant materials that the requirements of Section 271 have not been satisfied, the authority concerned will not exercise the power of imposing any penalty against the petitioner. Mr. Pal has contended that the statute does not require any notice to be given to the petitioner for initiating the penalty proceedings and the notice that has been given to the petitioner is not a statutory notice. It is the contention of Mr. Pal that the notices have been given in compliance with the provisions contained in Section 274 to give the assessee the necessary opportunity of showing cause as to why penalty should not be imposed on the petitioner. Mr. Pal argues that the said notices not being statutory notices cannot be challenged and the validity thereof cannot be questioned in this writ proceeding, Mr. Pal has further argued that, in the instant case, the Explanation contained in Section 271 is clearly attracted and in view thereof it becomes the duty of the petitioner to satisfy the appropriate authority in the course of the penalty proceeding that there has been no fraud or gross or wilful neglect on the part of the petitioner and the onus of proving the same clearly rests onthe petitioner. Mr. Pal has contended that the facts and circumstances of the case go to show that there may be gross or wilful neglect on the part of the petitioner in making the claims for deduction for devaluation loss, for increased depreciation and development rebate, as the said claims have been made in clear disregard of the provisions contained in the Act. Mr. Pal argues that in the facts and circumstances of this case it cannot be said that the petitioner has raised a pure legal contention and the authorities concerned have initiated the penalty proceeding only on the ground that the legal contentions raised by the petitioner have not been accepted. Mr. Pal has drawn my attention to the provisions contained in Section 32 of the Act and he has argued that the provisions contained in the said section clearly indicate that claim for increased depreciation has been made in utter disregard of the provisions contained in the said section. Mr. Pal has in this connection also drawn my attention to the statement made in paragraph 7 of the affidavit-in-opposition filed on behalf of the department and affirmed by Krishna Jiban Mukherjee on the 20th day of August, 1974. Mr. Pal has argued that as the Explanation is clearly attracted in the instant case, the question whether there has been fraud or any gross or wilful neglect will have to be decided in the penalty proceeding itself before the appropriate authority and it will be for the petitioner to satisfy the authority concerned that there has been no fraud or gross or wilful neglect on its part. It is the argument of Mr. Pal that the said question is one essentially for the determination by the appropriate authority in the penalty proceeding and as the appropriate authority is perfectly competent and has jurisdiction to decide the said question, this court in this proceeding and at this stage should not interfere with the said proceeding now pending before the appropriate authority. Mr. Pal has further argued that if the petitioner feels in any way aggrieved by the decision of the authority in the penalty proceeding, the petitioner can take necessary and appropriate action for redress of his grievance in accordance with the provisions contained in the Act by preferring an appeal against the order of the authorities concerned. It is the argument of Mr. Pal that as the Act provides a complete, machinery for redress of the grievance of the petitioner, if there be any, in the matter of imposition of any penalty on the petitioner, the special jurisdiction of this court should not be allowed to be invoked and the court should not exercise its power under Article 226 of the Constitution. In this connection, Mr. Pal has referred to the decision of the Supreme Court in the case of Gita Devi Aggarwal v. Commissioner of Income-tax : [1970]76ITR496(SC) and he has relied on the following observations at pages 497-98 :
'It is well settled that when an alternative and equally efficacious remedy is open to a litigant, he should be required to pursue that remedyand not invoke the special jurisdiction of the High Court for issue of a prerogative writ. It is true that the existence of an alternative remedy does not affect the jurisdiction of the court to issue a writ; but, as observed by this court in Raskid Ahmed v. Municipal Board, Kairana : [1950]1SCR566 , the existence of an adequate legal remedy is a thing to be taken into consideration in the matter of granting writs and where such a remedy exists, it will be a sound exercise of discretion for the High Court to refuse to entertain a petition under Article 226 unless there are good grounds therefor.
The legal position has been clearly stated by Shah J., speaking for the court, in Shivram Poddar v. Income-tax Officer : [1964]51ITR823(SC) .
It is, however, necessary once more to observe, as we did in C.A. Abraham's case : [1961]41ITR425(SC) , that the Income-tax Act provides a complete machinery for assessment of tax, and for relief in respect of improper or erroneous orders made by the revenue authorities. It is for the revenue authorities to ascertain the facts applicable to a particular situation, and to grant appropriate relief in the matter of assessment of tax. Resort to the High Court in exercise of its extraordinary jurisdiction conferred or recognised by the Constitution in matters relating to assessment, levy and collection of income-tax may be permitted only when questions of infringement of fundamental rights arise, or where on undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess. In attempting to bypass the provisions of the Income-tax Act by inviting the High Court to decide questions which are primarily within the jurisdiction of the revenue authorities, the party approaching the court has often to ask the court to make assumptions of facts which remain to be investigated by the revenue authorities.'
14. Mr. Pal has commented that the purpose of introducing the Explanation in Section 271 of the Income-tax Act by the Finance Act of 1964 is to provide that where the income returned by an assessee is less than eighty per cent. of the assessed income, the assessee shall be deemed to have concealed his income or furnished inaccurate particulars thereof and be liable to penalty accordingly, unless he furnishes evidence to prove his bona fides in the matter. In this connection Mr. Pal has referred to the Finance Bill of 1964 as contained in the statute portion of [1964] 51 ITR 21 of the said report. He has drawn my attention to Clause 40 of the said bill which seeks to amend Section 271 of the Act at page 35 of the said report and the said Clause 40 runs as follows :
''Amendment of Section 271.--In Section 271 of the Income-tax Act, in Sub-section (1),--
(i) in Clause (c), the word 'deliberately' shall be omitted; (ii) the following Explanation shall be inserted at the end, namely '-
'Explanation.--Where the total income returned by any person is less than ninety per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section'.'
15. Mr, Pal has also drawn my attention to the relevant note on Clause 40 appearing at page 65 of the said report. The said note reads thus :
'Clause 40 seeks to amend Section 271 of the Income-tax Act to provide that where the income returned by an assessee is less than ninety per cent. of the assessed income the assessee shall be deemed to have concealed his income or furnished inaccurate particulars thereof and be liable to penalty accordingly, unless he furnishes evidence to prove his bona fides in the matter.'
16. Mr. Pal has submitted that as in the instant case the income returned by the petitioner is less than the statutory percentage of the assessed income and the Explanation is attracted in consequence thereof, the petitioner has become liable to penalty, as the petitioner is deemed to have concealed its income or furnished inaccurate particulars by virtue of the provisions contained in the Explanation, unless the petitioner furnishes evidence to prove his bona fides in the matter. It is his argument that the petitioner is required to furnish evidence of his bona fides to prove that there has been no fraud or gross or wilful neglect on his part before the appropriate authority in the penalty proceeding itself and as the appropriate authority is the proper forum where such evidence has to be furnished it cannot be said that the appropriate authority lacks jurisdiction or is acting in excess of its jurisdiction in proceeding with the penalty proceeding against the petitioner.
17. On the basis of the aforesaid contentions Mr. Pal has submitted that the present petition should not be entertained. The provisions contained in Section 271 of the Act which confers the power of imposing penalty on the authorities concerned, go to show that the power to impose penalty can be exercised, if the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceeding under the Act is satisfied that any of the conditions laid down in Sub-section (1)(a), (b) or (c) of the saidsection has been satisfied. Section 274(1) of the Act lays down that no order imposing a penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Sub-section (2) of Section 274 requires that in a case falling under Clause (c) of Sub-section (I) of Section 271, if the minimum penalty imposable exceeds a sum of Rs. 1,000, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers for the imposition of penalty. The statute does not lay down any condition to be satisfied before the appropriate authority can assume jurisdiction to initiate penalty proceedings or before any penalty proceedings can be initiated by the appropriate authority. Unlike the provisions contained in Section 147 of the Act for the purpose of reopening an assessment, no condition precedent is prescribed by the statute the fulfilment of which is imperative for assumption of jurisdiction for initiation of penalty proceedings. The Act also does not require any statutory notice to be given for initiating penalty proceedings against an assessee. The requirement of the statute is to hear the assessee or to give the assessee a reasonable opportunity of being heard before an order imposing a penalty is passed. A notice is usually given to an assessee to show cause why a penalty should not be imposed by the appropriate authority, if the authority concerned is satisfied that a fit case for exercise of the power of imposition of penalty on the basis of the provisions contained in Section 271 of the Act has arisen, and the notice is issued for the purpose of hearing the assessee or giving the assessee a reasonable opportunity of being heard before passing the order of imposition of a penalty in compliance with the requirements of Section 274 of the Act. The notice given to the assessee for affording the assessee a reasonable opportunity is not a statutory notice and such opportunity may also be given to the assessee otherwise than by a notice. The requirement of the statute is not the issuing of a notice. The statute requires that before an order imposing the penalty is passed the assessee has to be heard or the assessee must be given a reasonable opportunity of being heard. Whether an assessee has been heard or has been given a reasonable opportunity of being heard or not, must necessarily depend on the facts of each particular case. The contention of Mr. Pal that no particular conditions as conditions precedent are required to be fulfilled for assumption of jurisdiction to initiate penalty proceedings and for initiation of penalty proceedings by the appropriate authority is, therefore, correct. It is also true that the notices which have been issued to the petitioner are not statutory notices. It is, however, equally clear that though the jurisdiction is vested in the appropriate authority for initiating penalty proceedings against any assessee and no condition precedent need be fulfilled for assumption of the jurisdiction, the authority concernedcan only exercise the power of imposing a penalty, if the requirements of Section 271 are satisfied after hearing the assessee or giving the assessee a reasonable opportunity of being heard. Generally speaking, it will be for the authority concerned to be satisfied after hearing the assessee or giving the assessee a reasonable opportunity of being heard in the penalty proceeding whether a case for imposition of penalty on the basis of the provisions contained in Section 271 of the Act has been made out or not. If the authority concerned decides in the penalty proceeding that a case /or imposition of penalty has been made out, he will proceed to impose penalty according to law ; and if he is, however, of the opinion that no such case has been made out he will not proceed to impose any penalty. An assessee aggrieved by any order of imposition of penalty has his remedy provided under the Act and may take necessary action for redress of his grievances in accordance with the provisions contained in the Act. Though, generally speaking, the question whether a fit case for imposition of penalty has been made or not has to be determined usually in any penalty proceeding by the appropriate authority and though an assessee aggrieved by an order of imposition of penalty may have his remedy under the Act, yet, in appropriate cases, to my mind, the court may interfere in this jurisdiction with the penalty proceedings, provided the court is satisfied that the facts and circumstances of the case require and justify the interference by the court in this jurisdiction in the interest of justice. Whether a proper case has been made out for interference by this court in this jurisdiction with any penalty proceedings, will necessarily depend on the facts and circumstances of each particular case. The existence of remedy under the Act against an order of imposition of penalty and the fact that the question whether a fit case for exercise of the power of imposition of penalty on the basis of the provisions contained in Section 271 of the Act has arisen or not can be determined by the appropriate authority in the penalty proceeding itself, will not, to my mind, constitute an absolute bar to the exercise of the jurisdiction of the court in a proceeding under Article 226 of the Constitution. Article 226 of the Constitution confers very wide powers on the court in the larger interest of justice. The exercise of the power is essentially in the discretion of the court and the court has necessarily to exercise its discretion judicially on a proper consideration of all relevant materials, facts and circumstances of the case. If, on a consideration of all the relevant materials, facts and circumstances of a case, the court is of the opinion that the ends of justice require interference the court may intervene and stop the proceeding by issuing appropriate writs. If, on the other hand, on consideration of the relevant materials, facts and circumstances, the court is of the opinion that interference by the court with the penalty proceeding will not be proper and conducive to the interest ofjustice, the court will refuse to intervene and entertain the writ petition. In the instant case the Income-tax Officer has clearly proceeded on the basis, as the notice dated 17th August, 1971, issued by him to the company shows, that a case for imposition of penalty under Section 271(1)(c) of the Act has arisen. The notice by the Income-tax Officer specifically mentions, ' It appears to me that you have concealed particulars of your income or deliberately furnished inaccurate particulars of such income' and the notice further states : ' That the case for levy of a penalty under Clause (c) of Sub-section (1) of Section 271 is being referred by me to the Inspecting Assistant Commissioner of Income-tax, Range 1(c), Calcutta.' The notice does not refer to the Explanation in Section 271 at all. The notice issued by the Inspecting Assistant Commissioner dated 18th August, 1971, also makes it absolutely clear that the penalty proceeding against the petitioner was being initialed under the provisions of Section 271(1)(c) of the Act. In the said notice dated 18th August, 1971, by the Inspecting Assistant Commissioner also there is no reference to the Explanation, The facts and circumstances of this case, to my mind, clearly indicate and establish that there has been no concealment of the particulars of income by the petitioner and the petitioner has not furnished any inaccurate particulars. Full and detailed particulars with all relevant materials have been submitted by the petitioner. After furnishing all necessary particulars of the petitioner's income the petitioner raised the legal contentions before the Income-tax Officer in the assessment proceeding that the petitioner was entitled to the benefit of devaluation loss, increased depreciation and development rebate. The contentions raised by the petitioner do not in any way indicate that there had been any concealment of the particulars of the income of the petitioner or that the petitioner had furnished any inaccurate particulars of the petitioner's income. On the basis of the particulars furnished and on the basis of the materials which were there before the Income-tax Officer in the assessment proceeding, the petitioner had raised the aforesaid contentions which are indeed contentions of law and those contentions of law do not yet appear to have been finally decided or settled by any authoritative judicial pronouncement. The Income-tax Officer has no doubt rejected the said contentions of the petitioner in the assessment proceeding. The said questions, however, await final determination. Whether the said contentions of the petitioner are ultimately upheld or turned down, it cannot, in my opinion, be said that the said contentions are frivolous, dishonest or mala fide. By raising the said contentions in the facts and circumstances of this case, it can never be said that the petitioner has concealed the particulars of the petitioner's income or has furnished inaccurate particulars of the petitioner's income. The facts and circumstances of this case, to my mind, clearly go to show that the Income-tax Officerhas proceeded on the basis that the petitioner has concealed particulars of the petitioner's income or has failed to furnish accurate particulars of the petitioner's income only on the ground of his rejection of the contentions raised by the petitioner. In my opinion, the rejection of the contentions raised by the petitioner in the facts and circumstances of this case and on the materials on record, cannot lead to the conclusion that there has been any concealment of the particulars of income by the petitioner or that the petitioner has furnished inaccurate particulars of its income. In the facts and circumstances of this case it does not appear, to my mind, that there exists any material which could properly lead to the satisfaction on the part of the Income-tax Officer in the course of the assessment proceeding that the petitioner has concealed particulars of its income or has furnished inaccurate particulars of its income. The only material which the Income-tax Officer appears to have considered for being satisfied that there has been concealment of particulars of income by the petitioner or that the petitioner has furnished inaccurate particulars of its income, is the rejection of the contentions raised by the petitioner before the Income-tax Officer in the assessment proceeding. As the contentions raised by the petitioner before the Income-tax Officer in the assessment proceeding did not find favour with him and were rejected by him for reasons recorded by him in the assessment order, the Income-tax Officer appears to be satisfied that the petitioner has concealed particulars of its income or that the petitioner has not furnished accurate particulars of the income. To my mind, this does not and cannot constitute a material which can lead to the satisfaction of the Income-tax Officer that the petitioner has concealed particulars of its income or has furnished inaccurate particulars of the income. The satisfaction of the Income-tax Officer is the basic requirement for exercise of the power of imposition of penalty and is indeed a condition precedent to the exercise of the power of imposition of penalty under Section 271, though it may not constitute any condition precedent to the assumption of the jurisdiction for initiating the penalty proceeding. The satisfaction of the Income-tax Officer may be his subjective satisfaction but there must be materials which go to show that the satisfaction of the Income-tax Officer is justified. The sufficiency or the adequacy of the materials may or may not be considered by the court, but the court must, in any event, be satisfied that materials do exist. As in the instant case there does not exist any material which can lead to the satisfaction of the Income-tax Officer that the petitioner has concealed particulars of its income or has furnished inaccurate particulars of the income, the power conferred on the authority by the Act for imposing any penalty on the petitioner can never be exercised. As I have already observed, the penalty proceedings against the petitioner have been initiated on the basis of theprovisions contained in Section 271(1)(c) of the Act and no reference has been made in the two notices to the petitioner to the Explanation contained in Section 271. The facts and circumstances of the case clearly establish that there has been no concealment of the particulars of the income by the petitioner and the petitioner has not furnished any inaccurate particulars of its income. I have already held that there does not exist any material which can lead to the satisfaction of the Income-tax Officer that there has been any concealment of the particulars of the income by the petitioner or that the petitioner has furnished any inaccurate particulars of its income. In that view of the matter, no penalty can be imposed on the petitioner on the basis of the provisions contained in Section 271(1)(c) and the authority concerned must be held to be incompetent in the facts and circumstances of this case to exercise its power of imposition of any penalty on the petitioner under Section 271 on the basis of the provisions contained in Section 271(1)(c) of the Act. The Explanation contained in Section 271, it appears, was referred to for the first time by the Inspecting Assistant Commissioner by his letter dated 2nd March, 1974, in course of the penalty proceeding, after the petitioner had answered the points raised by the authority concerned. In this letter dated 2nd March, 1974, the Inspecting Assistant Commissioner states 'I request you to please state your views as to why your case should not be considered to be covered by the provisions of the Explanation to Section 271(1)(c) of the I.T. Act 1961. In this respect I would like you to refer in particular to the portion of the Explanation which states ' that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part'.' From the said letter it, therefore, appears that the Explanation was invoked for considering or deciding the question as to whether the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on the part of the petitioner. I have already held that in the instant case there has been no concealment on the part of the petitioner of the particulars of the income and the petitioner has not furnished any inaccurate particulars of the petitioner's income. The discrepancy between the income assessed by the Income-tax Officer has arisen, as the contention of the petitioner regarding the claim for devaluation loss, increased depreciation and development rebate on the basis of the materials and full particulars placed, was rejected by the Income-tax Officer. I have already held that the contentions which were raised by the assessee in the assessment proceedings are indeed contentions of law and the said contentions cannot be considered to be frivolous, dishonest or mala fide. At the time of initiation of the penalty proceedings the authority concerned has entirely proceeded on the basis of Section 271(1)(c) of the Act and has not relied on the Explanation at all. The facts and circumstances of this case, therefore,clearly go to indicate that the satisfaction of the Income-tax Officer was on the basis of the provisions contained in Section 271(1)(c) of the Act and was not on the basis of the provisions contained in the Explanation. Even if the said Explanation can be invoked in justification of the penalty proceedings in view of the discrepancy in the income returned and income assessed, the said Explanation cannot be applied and relied upon for exercise of the power of imposition of penalty on the petitioner in the instant case. The said Explanation provides that in the event of certain discrepancy arising between the income returned by an assessee and assessed by the Income-tax Officer the assessee will be deemed to have concealed the particulars of his income or to have furnished inaccurate particulars of such income unless the failure to return the correct income arises from any fraud or any gross or wilful neglect on his part. The deeming provision contained in the Explanation will, therefore, have no application in the absence of any fraud or gross or wilful neglect on the part of the assessee. The Act of raising the legal contentions which the petitioner urged before the Income-tax Officer in the assessment proceeding and which according to the assessee are sound and tenable and are still being pursued by the assessee in appropriate proceedings, cannot, in my opinion, constitute fraud or gross or wilful neglect on his part. I have already observed that the contentions raised by the petitioner cannot be considered to be frivolous, dishonest and mala fide and there is no authoritative judicial pronouncement on the said contentions. Final adjudication on the said contentions is yet awaited. A legal contention put forward cannot generally constitute an act of fraud or of gross or wilful neglect. Different considerations may arise if the contention put forward is found to be frivolous, vexatious, dishonest or mala fide. As, in my opinion, in the instant case the contentions raised on behalf of the assessee cannot be considered to be frivolous, vexatious, dishonest or mala fide, raising the said contentions can never constitute an act of fraud or of gross or wilful neglect on the part of the petitioner. The argument of Mr. Pal with reference to the various provisions contained in the statute that the said contentions of the petitioner are not sound, is not of any assistance in the facts and circumstances of this case and is not of any material consequence. The said contentions await final adjudication and even if the said contentions are ultimately rejected, it cannot, in my opinion, be said that by raising the aforesaid contentions the assessee committed an act of fraud or of gross or wilful neglect. Legal contention bona fide raised, whether it is ultimately accepted or rejected by the appropriate authority, will not generally be an act of fraud or gross or wilful negligence. As, in the facts and circumstances of this case, there is no fraud or gross or wilful negligence on the part of the petitioner, the provisions contained in the Explanation to Section 271 ofthe Act cannot be attracted, even if it can be otherwise said that the said Explanation applies, because of the discrepancy in the income returned by the petitioner and the income assessed by the Income-tax Officer. The Explanation cannot in the facts and circumstances of this case, be invoked or relied upon by the authority for exercising the power of imposition of penalty on the petitioner. The conditions which are necessary to be fulfilled for exercising the power of imposing penalty under Section 271 of the Act do not exist in the instant case and in the absence of the said conditions the authority concerned is not competent to exercise the power of imposing any penalty on the petitioner.
18. It appears that the authority concerned is proceeding with and continuing the penalty proceeding against the petitioner on the basis of erroneous assumptions of law. No disputed questions of fact arise in this case. The facts and circumstances of this case are quite clear and they require no investigation. The facts and circumstances of the case clearly indicate that the authority concerned has assumed that by raising the legal contentions which were urged on behalf of the petitioner in the assessment proceeding and which were rejected by the Income-tax Officer, the petitioner has concealed the particulars of its income and has furnished inaccurate particulars of its income. The authority concerned also appears to proceed on the further assumption that by virtue of the provisions contained in the Explanation the petitioner must be deemed to have concealed the particulars of the income or to have furnished inaccurate particulars of the income and the failure on the part of the petitioner is due to fraud or gross or wilful negligence on his part. Both these assumptions on the part of the authority concerned are clearly erroneous and in the facts and circumstances of this case the authority concerned by continuing the penalty proceedings on the basis of the aforesaid erroneous assumptions is acting improperly and is committing an error of law. On the basis of the aforesaid erroneous assumptions the authority concerned is seeking to exercise the jurisdiction of imposing penalty on the petitioner. It is quite clear that if the authority concerned did not proceed on the erroneous assumptions and had correctly applied the legal principles, the authority concerned would have appreciated that the authority concerned had no jurisdiction in the instant case to exercise the power of imposing any penalty on the petitioner. By applying wrong principles of law the authority concerned is seeking to exercise jurisdiction of imposing penalty on the petitioner and is continuing with the penalty proceeding against the petitioner.
19. It may be true that the authority concerned may not ultimately impose any penalty on the petitioner after having fully considered the submissions of the petitioners and after having heard the petitioner. It mayalso be true that if the authority concerned chooses to impose any penalty,the petitioner may have a remedy by way of an appeal against the order ofthe authority. These considerations, in my opinion, cannot, in the factsand circumstances of this case, have the effect of depriving the court of thejurisdiction and power it has under Article 226 of the Constitution. In thefacts and circumstances of this case, I am of the opinion that it will not beproper for the court to refuse to exercise its discretion to interfere in thisproceeding. The facts and circumstances of this case, to my mind, clearlyindicate that the continuance of the penalty proceeding is clearly unjustifiedand is causing unnecessary harassment to the petitioner. I have alreadyheld that the conditions laid down in Section 271 of the Act do not exist inthe instant case and the authority concerned is not competent to exercisethe power of imposition of any penalty on the petitioner. I have furtherheld that the authority concerned is seeking to proceed with the matter byapplying wrong legal principles and on the basis of erroneous assumptionsand this case involves no disputed questions of fact. In my opinion, thefacts and circumstances of this case clearly go to indicate that if the authority concerned had correctly appreciated and applied the principles of law,the authority concerned would have dropped the proceeding to saveunnecessary harassment to the petitioner. The facts and circumstances ofthe case further go to indicate that the existence of the alternative remedyby way of appeal may not be fully effective as, apart from the financialaspects of the matter, the harassment of the petitioner will indeed be great.The decisions of the Supreme Court relied on by Mr. Pal lay down well-settled principles and I do not consider it necessary to deal with the sameat any length. As the Supreme Court has observed in the case of Gita DeviAggarwal v. Commissioner of Income-tax : [1970]76ITR496(SC) :
' It is true that the existence of an alternative remedy does not affect the jurisdiction of the court to issue a writ; but as observed by this court in Rashid Ahmed v. Municipal Board, Kairana : [1950]1SCR566 , the existence of an adequate legal remedy is a thing to be taken into consideration in the matter of granting writs and where such a remedy exists it will be a sound exercise of discretion for the High Court to refuse to entertain a petition under Article 226 unless there are good grounds therefor.'
20. I have already observed that in the instant case the alternative remedy may not be equally effective. I have also already held that in the instant case there is no question of fact in dispute and the authority concerned is continuing the penalty proceeding against the petitioner by applying wrong principles of law and on the basis of erroneous assumptions. In the facts and circumstances of this case the authority concerned, in my opinion, doesnot have any jurisdiction to exercise the power of imposition of any penalty on the petitioner, as the conditions for imposition of such penalty stipulated in Section 271 of the Act are non-existent. The notices may not be statutory notices ; but it is on the basis of the said notices, the penalty proceedings against the petitioner have been initiated and are being continued. In my opinion, therefore, it is a fit case where the court should intervene in this proceeding. I must, therefore, hold that the penalty proceeding against the petitioner is incompetent and the said proceeding must be quashed. The rule is, therefore, made absolute and the respondents are prohibited from continuing the proceedings against the petitioner under the impugned notices which are also hereby quashed. In the facts and circumstances of this case, I make no order as to costs.