- (1.) In this application under Article 226 of the Constitution of India, the petitioner is challenging an order passed on January 28, 1975, by respondent No. 1 under Section 264 of the I.T. Act.
(2.) The petitioner's case as made out in the petition is as follows : The petitioners are the partners of M/s. Gidwany Brothers of 73, Netaji Subhas Road, Calcutta. The petitioners have l/5th share each in the said business. The petitioners have no other income. This writ petition relates to the assessment year 1962-63, and the relevant accounting year is the year ending March 31, 1962. In the assessment year 1962-63, M/s. Gidwany Brothers (hereinafter referred to as "the said firm"), filed its return showing an income of Rs. 9,763 and also filed an application for registration on March 27, 1962. According to the petitioners, the share-income of the petitioners on the basis of the said return was within the exempted limit, so the petitioners had no statutory obligation to file any return. At the time of making an assessment for the said assessment year 1962-63, the ITO treated a sum of Rs. 1,46,000 as income from undislosed sources and the business income was determined at Rs; 14,330 and thereby the total income of the said firm was computed at Rs. 1,60,398. The ITO made the said assessment in the status of an unregistered firm after refusing registration under Section 185 of the I.T. Act, 1961 (hereinafter referred to as "the said Act"). The petitioners state that as the said firm has been treated as an unregistered firm, the petitioners had no statutory obligation to file any return in respect of the share income from the said firm. Being aggrieved and dissatisfied with the said order of assessment and also the order refusing registration to the said firm, the petitioners preferred appeals before the AAC. The AAC, by his order dated May 28, 1968, disposed of the quantum appeal and granted relief of Rs. 42,500 to the said firm. In respect of the appeal against the order of refusal of registration, the AAC, by his order dated May 28, 1968, confirmed the order of the ITO. Being aggrieved and dissatisfied with the said orders of the AAC, the said firm preferred two appeals before the Appellate Tribunal. The Tribunal, by its order dated November 27, 1971, gave a relief of Rs. 26,000 in respect of the quantum appeal and thereby the total income of the said firm was reduced to Rs. 90,568. In respect of the other appeal, the Tribunal by its order dated November 26, 1971, held that the firm was not a bogus one and the firm, as constituted by the instrument of partnership dated August 15, 1959, had a legal existence and, therefore, the orders of the authorities below were cancelled. By the said order, the Tribunal directed the ITO to grant registration to the said firm for the said assessment year 1962-63. Thereafter, the ITO, 'I' Ward, Dist. IV (2), respondent No. 2, passed an order under Section 254 of the said Act on January 15, 1972, to give effect to the said orders of the Tribunal. By the said order, the respondent No. 2 granted registration to the said firm and determined the status of the said firm as a registered firm and allocated the total income of the said firm according to the profit-sharing ratio in the hands of the partners. The said order of the ITO was received on January 18, 1972. The petitioners state that in view of the said order of the ITO dated January 15, 1972, treating the said firm as a registered firm, a statutory obligation came upon the petitioners for the first time to file returns in respect of the said assessment year 1962-63. The petitioners stated that on or about February 17, 1972, the petitioners filed returns of income for the said assessment year 1962-63 before the ITO, Dist. IV(2), Calcutta, showing total incomes of Rs. 18,410, Rs. 17,210, Rs. 18,710 and Rs. 19,010, respectively, as allocated by respondent No. 2, and obtained necessary receipts therefor. Thereafter, on or about November 7, 1972, the petitioners received letters from respondent No. 2 dated November 1, 1972, whereby the petitioners were intimated that as per the Tribunal's order, registration was granted to the firm, M/s. Gidwany Brothers, for the assessment year 1962-63, and as a result thereof, the partners were directly taxable as per the allocation of income from the said firm. Since the petitioners are partners of the said firm for which the petitioners have filed returns of income for the said assessment year, the petitioners were asked to show cause why proceedings under Section 147 of the said Act should not be taken. Thereafter, by a letter dated November 10, 1972, the said firm intimated respondent No. 2 that the partners had no objection to the reopening of the assessment proceedings under Section 147 of the said Act, in their individual case. On or about February 28, 1973, the petitioners received notices, all dated February 22, 1973, under Section 148 of the said Act for the said assessment year 1962-63, issued by respondent No. 2, whereby the said respondent intended to reassess the income of the petitioners for the said assessment year 1962-63 as he had reason to believe that the petitioners' income chargeable to tax for the said assessment year had escaped assessment within the meaning of Section 147 of the said Act. By the said notices, the petitioners were required to deliver to respondent No. 2, the returns, in the prescribed form, within 30 days from the date of service of the said notices. In the said notices, it was stated that the said notices were issued after obtaining the necessary satisfaction of the CBDT. The petitioners state that in response to the said notices dated February 22, 1973, the petitioners by letters, all dated February 28, 1973, intimated respondent No. 2 that the income-tax returns in the prescribed form were filed by the petitioners on February 17, 1972. On the basis of the returns submitted by the petitioners on February 17, 1972, respondent No. 2 completed the assessment of the petitioners for the said assessment year 1962-63 under Section 143(1) of the said Act and determined the total income as shown in the returns. On the basis of the said assessments, the petitioners received notices of demand under Section 156 of the said Act and also challans for payment of the tax. The petitioners state that it appears from the said challans that respondent No. 2 had charged interest of Rs. 1,325, Rs. 1,169, Rs. 1,341 and Rs. 1,385, respectively, under Section 139 of the said Act and had also charged interest of Rs. 949, Rs. 854, Rs. 1,216 and Rs. 1,250, respectively, under Section 217 of the said Act. According to the petitioners, respondent No. 2 has neither any authority to charge interest under Section 139 of the said Act, nor has any authority to charge interest under Section 217 of the said Act, as, the conditions precedent for the imposition of the said interest were not satisfied in the case of the petitioners. Being aggrieved and dissatisfied with the said action of respondent No. 2, the petitioners on May 3, 1974, filed revision applications before respondent No. 1, under Section 264 of the said Act. In the said applications it was stated by the petitioners that in the facts and circumstances of the case no interest under Section 139 of the said Act is chargeable and furthermore, the interest charged under Section 217 of the said Act should be waived as the assessments had been completed after a lapse of more than one year of the submission of the returns and the said delay was not attributable to the assessee. Thereafter, by orders all dated January 28, 1975, received by the petitioners on February 19, 1975, respondent No. 1 dismissed the petitioners' said revision applications under Section 264 of the said Act for the reasons mentioned in revision order No. 10/264/WB-X/74-75 dated January 28, 1975. The petitioners state that in deciding the said revision applications, respondent No. 1 misdirected himself both in fact as well as in law. The petitioners state that it will appear from the said order dated January 28, 1975, that respondent No. 1 failed to appreciate the difference between a registered firm and unregistered firm under the said Act and thereby erred in holding that, as the petitioners knew that large additions had been made in the hands of the firm on account of the hundi loans latest by March 29, 1967, the petitioners should have filed the returns at best by that time. The petitioners further state that respondent No. 1 erred in holding that the petitioners knew all the time that the petitioners' income as well as that of the said firm were high enough to warrant the petitioners' filing the returns of income and since the petitioners had not done it, the penal interest under Section 139 of the said Act has rightly been levied. The petitioners state that respondent No. 1 went wrong, in fact, in holding that the assessments for 1962-63 were completed by the ITO, respondent No. 2, on February 5, 1974, February 7, 1974, February 12, 1974 and February 12, 1974, respectively. The petitioners further state that it will appear from the records of the case that the petitioners filed the returns for the assesement year in question on February 17, 1972, and respondent No. 2 completed the assessments for the said year on February 12, 1974, February 7, 1974, February 12, 1974, and February 12, 1974, respectively, under Section 143(1) of the said Act and there were no laches or delay on the part of the petitioners for the completion of the said assessments, and so, the decision of respondent No. 1 that the assessments have been completed within one year from the date of the filing of the returns was factually incorrect. The petitioners further state that as the petitioners had no statutory obligation to file the returns for the assessment year 1962-63, until the registration was granted to the said firm, there was no question of filing any estimate of advance tax under Section 212(2) of the said Act and, therefore, no interest was chargeable under Section 217 of the said Act. Two broad submissions have been made by Mr. Dutt in support of this rule. Firstly, he has submitted that no penal interest under Section 139 of the Act could be imposed in the facts and circumstances of this case. On this branch of his submissions, he has firstly submitted that it is now well settled that the law applicable in a given case would be the law in force for the assessment year. In the present case, there is a new proviso to Sub-section (1) and there is a new Sub-section (8) of Section 139, but this would not apply in the facts of this case, because the law correctly applicable is the law prevailing on April 1, 1963 (sic). The old proviso contemplates an application for the extension of time to file the return and wherein an order of extension is in fact made by the officer. It is submitted that no such application was made or order of extension passed in the facts and circumstances of this case. In support of this contention reliance is placed on the following decisions : CIT v. Isthmian Steamship Lines Reliance Jute and Industries Ltd. v. CIT and National Hotel and Dilkusha Cabin v. ITO.
(3.) The second branch of the submission of Mr. Dutt, on this point, is that so far as the interest is concerned even if the ITO was entitled to impose any such interest, in the facts and circumstances of this case, no such interest is recoverable from the petitioner inasmuch as no order to this effect has been made by the ITO concerned. In the assessment order, there is no reference to such interest. In the demand notice also there is no such reference. This imposition of penal interest is only referred to in the challan itself which is without authority of law. In this connection, he has relied on the decision in the case of Mulakh Raj Bimal Kumar v. ITO.;