Law: Income Tax Ordinance, 1979

Section: 46(1),136(2)

(a) Income-tax Ordinance (XXXI of 1979)---- -- S. 46(1)-Imposition of penalty-Show-cause notice to assessee before imposing penalty necessary -Assessee being defaulter was entitled to explain reasons which prevented him from paying tax-Such expla­nation could have bearing on exercise of discretion by Income-tax Officer and fixation of quantum of penalty-Possibility for non-comp­liance with demand notice being some unavoidable cause or presence of some other mitigating circumstances warranting lesser penalty could not be ruled out-Discretionary powers to be exercised judicially and not arbitrarily-Application of rule of natural justice. The assesaee who is treated as being a defaulter, before be is burdened with the penalty, is entitled to explain the reasons which prevented him from paying the tax. Such explanation can have a bearing on the exercise of discretion, by the I. T O., and the fixation of the quantum of penalty. May be, the non-compliance with the demand notice, is, the result of some unavoid­able cause or there are come other mitigating circumstances, warranting lesser penalty-Subsection (1) prescribes the maximum penalty, and any variation in the imposition, within that limit, is, in the Income-tax Officer's discretion. This discretion has to be exercised on the foundation of some material. Evidently, apart from the departmental record, such material is to be furnish­ed by the assessee, in the form of his explanation. The discretionary power which ostensibly, is unfattered, is, subject to implied limitation, namely, that it is to be exercised judicially and not arbitrarily and further the Income-tax Officer must address himself to the circumstances of the case before him. While exercising discretionary powers, under section 46(1), the Income-tax Officer must act in a lawful manner, which includes the grant of opportunity of hearing, to the affected persons. Unless the statute itself lays down to the contrary, the rule of natural justice, that no one should be condemned unheard, is to be read in every statute, empowering passing of orders having penal consequences. Commissioner of Income-tax v. Fazal-ur-Rehman P L D 1964 S C 410 and Paramount…

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