1990 PLP 570 (PTD)

MUHAMMAD MAZHARUL HAQ, J.‑‑The following question of law, has been stated to this Court for its opinion by the Income‑tax Appellate Tribunal, Karachi Bench, Karachi under section 66 of the repealed Income‑tax Act, 1982; "Whether on the facts and in the circumstances of the case the learned Tribunal was justified in cancelling the penalty levied under subsection (1) of section 46 of the Income‑tax Act for failure to pay tax under section 18‑A, on the ground that no show‑cause notice was served upon the assessee?" The question arises in these circumstances. The assessment year involved is 1974‑

75. The last income of the assessee for the assessment year 1972‑73 was Rs. 1,46,

991. The tax on the said income worked out Rs. 88,

194. The assessee had to pay advance tax for the assessment year 1974‑75 on its basis. It failed to pay first instalment of Rs. 22,048 under section 18‑A which fell due on 15‑9‑1973. The Income‑tax Officer, therefore, by his order dated 22‑11‑1973 imposed a penalty under section 46(1) of the repealed Income‑tax Act, 1922 at the rate of 5% which worked out at Rs. 1,

102. Aggrieved by this order, the assessee filed direct appeal before the Income‑tax Appellate Tribunal, Karachi Bench, Karachi. It was contended on its behalf before the Tribunal that the penalty was imposed without issuing a show‑cause notice to it and hence the impugned order was bad in law for having been passed in violation of the principle of natural justice. It was thus sought to be set aside on the basis of the decisions of the Tribunal already recorded in ITA No. 1054/KB of 1972/73 dated 22‑4‑1974 and ITA No. 1095/KB of 1972‑73 dated 30‑4‑1974. When the appeal came up for ‑nearing on 28th August, 1975 before the Appellate Tribunal the departmental representative conceded the point and, consequently, the Tribunal cancelled' the impugned penalty order. Hence this reference at the instance of Revenue. We have heard Mr. Shaikh Haider, Advocate on behalf of the applicant and Mr. Abdul Saeed Khan Ghori, Advocate on behalf of the respondent. It was not disputed by the learned counsel for the applicant that no show cause‑notice was issued prior to the imposition of penalty under section 46(1) of the repealed Income‑tax Act. He, however, urged that notwithstanding the non -service of notice of hearing on it, the assessee was obliged to pay the advance tax under section 18‑A and its failure to do so rendered it liable to the imposition of the penalty and hence the impugned order of penalty was proper and legal. It was, on the other hand, urged by Mr. Abdul Saeed Khan Ghori, learned counsel for the respondent that having conceded before the Appellate Tribunal that the impugned order of levy of penalty under section 46(1) of the Act, without giving notice to the assessee, was bad in law, it was not open to the Commissioner of Income‑tax to file this reference application. Relying upon the decision of the Lahore High Court in Paramount Electric Company v. Income‑tax Officer, Circle 11, Lahore 1973 P T D 511, Mr. Abdul Saeed Khan Ghori further contended that the impugned penalty order had monetarily affected the assessee and hence it could not be passed without affording it (the assessee) an opportunity of hearing. In his submission, the proceedings before the Income‑tax Officer were of quasi judicial nature and hence the assessee was entitled to be afforded a chance of hearing even though no such specific provision was made in section 46(1) of the Act, the counsel urged that the principle laid down in the aforesaid authority of the Lahore High Court is attracted with full force to the facts of this case. We are not inclined to deal with the above first‑noted contention of the learned counsel for the assessee inasmuch as the question of law referred t above has been stated by the Tribunal to us for our opinion. This objection could, if at all, be taken before the Appellate Tribunal. In so far as the passing of the impugned order under section 46(1) of the Act, imposing the penalty without notice to the assessee is concerned, we entertain no doubt that it cannot be sustained for having been passed in violation of the maxim `audi alteram partem'. It is an undeniable fact that the impugned order has adversely affected the assessee. It is by now a well‑settled proposition of law by authorities that the above‑noted maxim applies with full force to the proceedings concerning liability to pay tax. If any authority is required to be cited then a reference may be made to P L D 1952 SC

45. It is clearly provided in section 46(1) of the Act that `when an assessee is in default in making a payment of tax the Income‑tax Officer may in his discretion direct that, in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty'. It is also an undisputed proposition of law that whenever law confers on a Court or quasi‑judicial authority a discretionary power it envisages the exercise thereof in a judicial manner. How can the Income‑tax Officer come to the conclusion that this is a fit case for exercise of his discretion against the assessee, if he does not provide a chance to him to show cause against order of penalty proposed to be passed against him. We are thus clearly of the view that the Tribunal was justified in setting aside the impugned order of levy of penalty, which was admittedly passed without issuing show‑cause notice to the assessee. Accordingly our answer to the question stated by the Commissioner of Income‑tax is in affirmative. The above are the reasons for our short order dated 30‑1‑1990. MBA/C‑155/K Reference answered in the affirmative.