Stating That He Could File Returns Only By 23.10.1987 On Account Of Search In His Business Premises By The Income-Tax Department. Even v. We Have Heard Sri. John Ramesh, Counsel Appearing For The

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.M.JOSEPH MONDAY, THE 16TH OCTOBER 2006 / 24TH ASWINA 1928 ITR.No. 150 to 153 of 1999() --------------------- AGAINST THE ORDER IN RA 225, 226,227 & 228/Coch/96 IN WTA.361 to 364/Coch/1991 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ----------- T.A. ABDUL KHADER, CHANGANASSERY. BY ADV. SRI.JOHN RAMESH K.I.JOHN RESPONDENT: ------------- THE COMMISSIONER OF WEALTH TAX, TRIVANDRUM. BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT THESE TAX REFERENCES HAVING BEEN FINALLY HEARD ON 16/10/2006, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &K.M.JOSEPH, JJ. -------------------------------------------- -------------------------------------------- Dated this the 16th day of October, 2006 JUDGMENT Ramachandran Nair,J. The common question referred to us by the Income-tax AppellateTribunal, Cochin Bench, under Section 27(1) of the Wealth Tax Actarising from the order of the Tribunal in the Wealth Tax Appeals of thepetitioner for the assessment years 1983-84 to 86-87 is the following: Whether, on the facts and in the circumstances of the case,the Appellate Tribunal was justified in law in holding thatthe penalty proceedings were valid in view of Section 42Cinserted in the Wealth Tax Act? 2. Petitioner who did not file wealth tax returns for the aboveassessment years was served with separate notices under Section 18(2) of the Wealth Tax Act proposing to levy penalty under Section 18(1) ofthe said Act. Since petitioner did not respondent to notices, freshnotices were issued on 16.10.1989 against which petitioner filed replies stating that he could file returns only by 23.10.1987 on account ofsearch in his business premises by the Income-tax Department. Even though petitioner requested to drop the penalty proceedings nocontention was raised that the notice proposing penalty was illegal orwithout jurisdiction. Even in the first appeal challenging the penaltyorder, no ground was raised against validity of the notice. However,for the first time, petitioner raised a contention before the tribunal thatnotice initiating penalty proceedings under Section 18(1) of the Actwas invalid as the same did not specify the provision of the Actviolation of which attracts penalty. Even though petitioner relied on thedirect decision of this Court in N.N. SUBRAMANIA IYER V. UNIONOF INDIA, (1974) 97 I.T.R. 228 wherein a learned single Judge of thisCourt held that penalty notice in printed form in which the ground onwhich penalty was sought to be levied was not indicated by striking outthe other Sections and grounds was invalid, Tribunal upheld thevalidity of the notice by reference to Section42C of the Act. So far asthe quantum of penalty is concerned, Tribunal granted some relief tothe petitioner by way of reduction. However, since the Tribunal hasupheld the validity of the penalty notice by reference to Section 42C ofthe Act, petitioner got the above question referred to this Court for ourdecision. 3. We have heard Sri. John Ramesh, counsel appearing for the petitioner, and senior counsel Sri.P.K. R. Menon, appearing for therespondent. 3. We have heard Sri. John Ramesh, counsel appearing for the petitioner, and senior counsel Sri.P.K. R. Menon, appearing for therespondent. 4. Since the defective notice, which is the sole basis of referencecase is not an annexure in the reference case before us, we requestedcounsel for the petitioner to produce a copy of the notice and he hasproduced original of the same before us. We find from the notice thatit is in printed form and is one issued under Section 18(2) of the Act.The proposal in the ultimate portion of the notice is to levy penaltyunder Section 18(1) of the Act. Three situations are covered by thenotice, which can obviously be alternative or cumulative. First one isfailure to file return, second one is failure to comply with notice issuedunder Section 16 and the third one is for concealment of particulars ofnet wealth or deliberately furnishing inaccurate particulars. We findfrom the original notice produced in Court that two grounds werestruck-off and the proposal in the notice is to levy penalty underSection 18(1) only for default in furnishing return. If the notice issuedfor other assessment years is of the same pattern then petitioner'scontention based on the above referred decision of this Court that theground of penalty is not made known to the petitioner by not strikingout other grounds is factually incorrect, because the Officer in fact has struck off other two grounds retaining the proposal of penalty only onthe ground of failure to file return. However, it is seen from the noticethat the Section under which return was not filed, namely, Section 14(1), 14(2) of Section 17 was not made clear in the notice because noneof the three Sections was struck-off in the notice. 5. Now the question to be considered is whether failure of theOfficer to mention whether penalty proposed is for non-filing of returnunder Section 14(1) or 14(2) or Section 17 will invalidate penaltyproceedings. While the case of the petitioner based on the abovereferred single Bench decision and Division Bench decision of thisCourt in P.N. SASIKUMAR V. C.I.T., (1988) 170 I.T.R. 80 is thateven Section 42C cannot save the penalty proceedings, senior counselfor the respondent relied on the decision of the Andhra Pradesh HighCourt C.I.T. V. CHANDULAL, 152 I.T.R. 238 and contended thatsingle Bench decision of this Court does not apply to this case and inany case it has to be overruled based on the decision of the DivisionBench of the Andhra Pradesh High Court above referred. Alternativelyhe contended that the defect, if any, in the notice proposing penalty isso insignificant and it's validity is therefore protected by virtue ofoperation of Section 42C of the Act which came into force by introduction of Taxation Amendment Act 1975 with effect from1.10.1975. Since the Tribunal has upheld the penalty proceedings byreference to Section 42C and the question referred is also withreference to the Section, we extract hereinbelow Section 42C for easyreference. 42C. Return of wealth, etc., not to be invalid on certaingrounds. No return of wealth, assessment, notice,summons or other proceeding furnished or made or issuedor taken or purported to have been furnished or made orissued or taken in pursuance of any of the provisions of thisAct shall be invalid or shall be deemed to be invalid merelyby reason of any mistake, defect or omission in such returnof wealth, assessment, notice, summons or otherproceeding, if such return of wealth, assessment, notice,summons or other proceeding is in substance and effect inconformity with or according to the intent and purpose ofthis Act. The above Section is in substance same as Section 292B of the Income- 42C. Return of wealth, etc., not to be invalid on certaingrounds. No return of wealth, assessment, notice,summons or other proceeding furnished or made or issuedor taken or purported to have been furnished or made orissued or taken in pursuance of any of the provisions of thisAct shall be invalid or shall be deemed to be invalid merelyby reason of any mistake, defect or omission in such returnof wealth, assessment, notice, summons or otherproceeding, if such return of wealth, assessment, notice,summons or other proceeding is in substance and effect inconformity with or according to the intent and purpose ofthis Act. The above Section is in substance same as Section 292B of the Income- tax Act, 1960. The purpose of the Section, as made clear from it, isthat mistaken or defective actions or omissions should not invalidateproceedings initiated or completed which is in substantial compliancewith statutory scheme. Therefore in order to uphold a defectiveproceeding, what has to be considered is whether the action taken insubstance is in conformity with the intent and purpose of the Act. Applying this test to the facts of this case, we find the notice issuedunder Section 18(2) of the Act was in conformity with the mandatoryprinciple of natural justice provided in the statute. The questionwhether the action initiated is tenable is to be considered with referenceto the follow-up action taken by the petitioner also which will disclosehow he has understood the notice or the proposed action. Even thoughreply to the notice is not produced, the assessing officer while issuingpenalty has stated that petitioner has explained the delay in filing thereturn as on account of search conducted by the Income-taxDepartment in his business premises. Therefore not only that theOfficer has issued the notice as one proposing penalty for failure to filereturn, but the assessee has also understood it in the same manner andhas replied answering the allegation on merits. In this case, petitionerhimself admits that he has not filed return under Section 14(1) but hasfiled a belated return against a notice under Section 17 of the Act.Therefore it is obvious that penalty proposed is for not filing the returnin terms of requirement of Section 14(1) of the Act. The positionwould have been different had the petitioner filed return under Section14(1) and was called upon to file another return by notice issued underSection 17 of the Act which does not arise in this case. In this context, we are in complete agreement with the Division Bench decision of theAndhra Pradesh High Court wherein they have stated that mere failureto strike-off in-appropriate portion in a notice will not render the noticeautomatically invalid, unless in a further enquiry it is shown that byreason of the notice not properly conveying the gist of the offence tothe assessee, prejudice is caused to him. We are of the same view asthat of the Andhra Pradesh High Court that as a general proposition oflaw, it cannot be said that a notice is rendered invalid just because in-appropriate portions in the notice are not struck-off. In other words,the grievance of the party on account of failure of the Officer to strikeoff unnecessary portion of the notice will have to be tested on the factsof every case while deciding it's validity. In this case, we have alreadyfound on facts that the officer has struck off portions in the noticepertaining to penalty for non-compliance with statutory notice and forconcealment of particulars of return. We are in agreement with theorder of the Tribunal that failure to strike off Section 14(2) or Section17 from the notice in this case does not affect the validity of penaltynotice issued under Section 18(2) of the Act for levying penalty fornon-filing of return under Section 14(1) of the Act. We thereforeanswer the question referred in the affirmative, that is, in favour of the revenue and against the assessee.