K. C. AGRAWAL J. - This is a petition under article 226 of the Constitution for quashing the orders of the Commissioner of Income-tax dated September 17, 1976 (annexure 25), and the order dated September 14, 1975 (annexure 18).
The petitioner is a partnership concern carrying on business at Kanpur. Assessments for the assessment years 1969-70, 1970-71 and 1971-72, were completed in due course. The petitioner-firm thereafter filed the returns for the assessment years 1972-73 and 1973-74. These assessment proceeding were pending completion. On April 24, 1974, the petitioner filed a disclosure petition disclosing an amount of Rs. 1,25,000 to be assessed in 5 years from the assessment years 1969-70 to 1973-74 in equal amounts of Rs. 25,000 each. The application also contained a prayer for waiver of the penalties under section 271(4A) of the Act. On September 20, 1974, a letter was sent by the Commissioner of Income-tax to the petitioner initimating that the application for waiver having been filed only after the detection by the department, the Commissioner intended to reject the application for waiver. A reply was filed by the petitioner on October 4, 1974, reiterating his request for waiver. on September 4, 1975, the Commissioner of Income-tax rejected the application filed on April 24, 1974, and on October 4, 1974, on the ground that as the question for waiver of penalty could arise only when a show-cause notice for the levy of penalty was issued, the applications filed by the petitioner were not maintainable.
Subsequently, the assessment order was passed by the Income-tax Officer in respect of the assessment years mentioned above on March 31, 1975. While passing the assessment order, the Income-tax Officer also directed that action under section 271(1)(c) of the Act would be taken against the petitioner. The petitioner filed two more applications, one on April 24, 1975, and the other on October 31, 1975, renewing his request for waiver of the penalty imposable. The first application was filed under section 271(4A) while the second had been made under the amended section 273A. As the second application should be deemed to have superseded the first one, which really became infructuous due to the deletion of section 271(4A) we are concerned in this writ petition only with the second application. This application contained the prayers respecting the waiver of penalties as well as interest. The prayer made is quoted below :
'Alternatively the petition may be considered as a fresh petition for the same purpose, be decided on merits and penalties leviable under sections 271(1)(a), 271(1)(c) and 273(c) as also interest section 215 and under section 217 be waived.'
The Commissioner of Income-tax rejected the application by the impugned order dated September 17, 1976. Against the aforesaid order the present writ petition has been filed in this court. Before proceeding to decide the case, we wish to extract the relevant provisions of the Act which would assist in deciding the point in issue.
Section 271 deals with failure to furnish returns, comply with notices, concealment of income, etc. The relevant portion of the said section reads :
'(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 -
(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or............
(c) has concealed the particulars of his income or furnish inaccurate particulars of such income,
he may direct that such person shall pay by way of penalty.......' in the cases mentioned above to the extend indicated by section 273.
Section 273A confers power on the Commissioner of Income-tax to reduce or waive the penalty. Sub-section (1) of section 273A lays down thus :
'(1) Notwithstanding anything contained in this Act, the Commissioner may, in his discretion, whether on his own motion or otherwise, -
(i) reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of sub-section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub-section (1) of section 139; or
(ii) reduce or waive the amount of penalty imposed or imposable on a person under cause (iii) of sub-section (1) of section 271; or
(iii) reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 or the penalty imposed or imposable under section 273, if he is satisfied that such person -.........
(b) in the case referred to in clause (ii), has, prior to the detection by the Income-tax Officer, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars;......'
In the instant case, the prayer made by the petitioner was for the waiver of the penalty imposable on him under clause (iii) of section 271(1) as well as for the waiver of the amount of interest payable under sections 215 and 217 of the Act.
Before the amendment made by the Taxation Laws (Amendment) Act, 1975, the power of waiver was conferred by section 271(4A) and (4)(b). This was, however, deleted by the aforesaid amendment and section 273A was added. The main object of the aforesaid section 273A appears to be to facilitate voluntary disclosure of the concealed income by holding out temptation to the businessmen of giving relief against penalties and interest which may have been incurred by them under the normal law. The power conferred by this section can be exercised by the Commissioner of Income-tax waiving the penalty which has either already been imposed by an order passed by the Income-tax Officer or that may be imposable. Similar provision of waiver exists with respect to the interest. The amount of interest can be waived by the Commissioner of Income-tax whether it has already been paid or payable in future. Of course, the power conferred can be exercised only when the contingencies or the conditions for its exercise have been made out. It is not correct, as held by the Commissioner of Income-tax, that the power could be exercised by him only when the penalty had been actually imposed. The words 'reduce or waive the amount of penalty imposable' clearly connote a penalty which is liable to be imposed or can be imposed. The use of the word 'imposable' does not justify the construction of section 273A made by the Commissioner of Income-tax. An assessee incurs the penalty or the liability of payment of interest when he either does not file the return within time or that the amount disclosed does not represent his correct income. The penalty may be imposed by the Income-tax Officer either in the course of the assessment or after the assessment is over. It, therefore, appears to us that the scope of the power of the Commissioner should not be confined to the stage where the penalty has already been imposed.
It takes within its ambit even a case where the liability to pay penalty has been incurred and that may be imposed upon it. Similarly, the words used in clause (iii) of sub-section (1) of section 273A 'or payable'. Under this clause, the Commissioner of Income-tax is authorised to reduce or waive the interest which may not have been actually levied and is capable of been imposed in future. In this view of the matter, the first ground for rejecting the application given by the Commissioner of Income-tax is wholly untenable. He was not justified in rejecting the prayer made by the petitioner on this ground.
It is clear from the prayer made (quoted above) that the petitioner wanted the penalty as well as interest which may be imposable and payable by him to be waived. A close reading of the judgment of Commissioner of Income-tax rejecting the application would show that he did not deal with the prayer made for the reduction or waiver of the penalty at all. In the whole judgment, he dealt with the question of the waiver of interest alone. As would be seen from the provisions quoted above, the power conferred on the Commissioner of Income-tax under section 273A is also with respect to the waiver of the amount of penalty imposed or imposable. Under clause (b), the amount in the clause of penalty as referred to in clause (ii) the Commissioner can, prior to the detection by the Income-tax Officer of the concealment of the particulars of income or of the inaccuracy of the particulars furnished in respect of such income, waive or reduce the amount of penalty provided, of course, the disclosure was made by the assessee voluntarily and in good faith. In the instant case, the Commissioner of Income-tax did not deal with the prayer for the waiver of the penalty. Since the Commissioner has not dealt with the prayer made by the petitioner, the impugned order passed by him rejecting the application is liable to be quashed on this ground.
Coming to the question relating to the waiver of interest, the Commissioner of Income-tax posed two questions which were required to be decided in that connection. These questions were, (1) whether waiver can be allowed in a case where the assessment has been made consequent upon the issue of a notice under section 148; and (2) whether the assessees disclosure in the facts and circumstances of the case can be considered to be in good faith.
It would be seen from the facts stated above that the application for the disclosure was made by the petitioner on April 23, 1974. It was only after the filing of the said application that for starting reassessment proceedings notices under section 148 were issued with respect to the assessment years 1969-70, 1970-71, 1971-72. The petitioner thereafter filed the returns which were in conformity with the disclosure already made. Seen in this background, it cannot be said that the action taken by the petitioner was not voluntary and that his application for the waiver of the interest was liable to be rejected. For invoking the power of reduction or waiver of interest under clause (c) read with clause (iii) of section 273A(1), what is required to be shown is that the assessee has, prior to the issue of notice to him under section 148, voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed. The Commissioner did not give any finding that the disclosure application filed by the petitioner-firm on April 23, 1973, due to any compulsion or under any order passed by any competent authority. The order of the Commissioner shows that the said application was filed by the petitioner on his own without being influenced or asked by any one. In these circumstances it is not correct to say that the disclosure made was not voluntary. Had the Commissioner found that the disclosure was made because of any detection made by the Income-tax Officer the matter would have been different. But on the findings given it is not possible to say that the disclosure made was not voluntary.
The Commissioner of Income-tax also appears to be wrong in holding that the disclosure made by the petitioner was not in good faith. It may be true that the object of the petitioner-firm for making disclosure was to be get round the difficulty of introducing secret cash but that is not a ground on which the benefit of section 273A(1)(iii) could be denied to him. The good faith which is required to be established for invoking the aforesaid provision is that in making the disclosure the petitioner must have acted honestly. In other words, he should not have been guilty of having acted dishonestly in making the disclosure. The fact that before making the disclosure his conduct had been dishonest or that he did not act in good faith is irrelevant for the purposes of applying these provisions. The disclosure is made by an assessee under this section for the purposes of getting the benefits provided therein. The fact that in the past the assessee did not make a full disclosure of his income and concealed the same as immaterial. We are, therefore, of the opinion that the ground on which the Commissioner of Income-tax rejected the application filed by the petitioner for the reduction of interest is not tenable in law.
The discussion made above would show that the Commissioner of Income-tax rejected the application filed by the petitioner without apprising himself of all relevant facts. Under these circumstances he has to be asked to decide the application filed by the petitioner afresh after having regard to the relevant consideration and in the light of the observations made above.
In the result the writ-petition succeeds and is allowed. The order of the Commissioner of Income-tax dated September 17, 1976 (annexure 25), and September 4, 1975, are quashed. The Commissioner is directed to decide the application of the petitioner afresh in accordance with law and in the light of the observations made above. The petitioner is entitled to the costs.