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K.M. Radha Krishna Chettiar and Company Vs. Commissioner of Income-tax and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberW.P. No. 3878 of 1988
Judge
Reported in[2000]244ITR374(Mad)
ActsIncome Tax Act, 1961 - Sections 132 and 273A
AppellantK.M. Radha Krishna Chettiar and Company
RespondentCommissioner of Income-tax and anr.
Appellant AdvocateV. Ramachandran, Adv. for;K. Mani and;M. Krishna Kumar, Advs.
Respondent AdvocateS.V. Subramaniam, Adv.
Cases ReferredS. G. Jaisinghani v. Union of India
Excerpt:
direct taxation - assessment - sections 132 and 273a of income tax act, 1961 - respondent summarily rejected application filed by petitioner seeking relief under section 273a on ground that disclosure made after search conducted under section 132 - respondent has not applied his mind while rejecting application - no finding as to compliance or otherwise of conditions imposed under section 273a - no reasons assigned for refusing relief sought for by petitioner under section 273a while exercising his discretion - discretion conferred on respondent under section 273a not fairly and bona fide exercised but arbitrarily - impugned order required interference due to which same quashed. - order under section 273a of the income-tax act, 1961 by its petition under section 273a of the income-tax act, 1961, the asses-see has soug'ht for waiver of interest and penalties in respect of the assessment years 1979-80 to 1983-84. 2. on a perusal of the records, it is seen that there was an action under section 132 of the income-tax act, 1961, consequent to which the assessee had filed returns of income admitting' unaccounted incomes arising to it. since the assessments for the abovesaid assessment years were all completed after action under section 132, i see no reason to entertain the present petition filed under section 273a of the income-tax act, 1961. 3. in the circumstances, the petitions are rejected. (sd.) n. rangachary,commissioner of income-taxt. n.-v, madras-34.'hence the.....
Judgment:
ORDER

UNDER SECTION 273A OF THE INCOME-TAX ACT, 1961

By its petition under Section 273A of the Income-tax Act, 1961, the asses-see has soug'ht for waiver of interest and penalties in respect of the assessment years 1979-80 to 1983-84.

2. On a perusal of the records, it is seen that there was an action under Section 132 of the Income-tax Act, 1961, consequent to which the assessee had filed returns of income admitting' unaccounted incomes arising to it. Since the assessments for the abovesaid assessment years were all completed after action under Section 132, I see no reason to entertain the present petition filed under Section 273A of the Income-tax Act, 1961.

3. In the circumstances, the petitions are rejected.

(Sd.) N. Rangachary,

Commissioner of Income-tax

T. N.-V, Madras-34.'

Hence the above writ petition.

15. The respondents filed a detailed counter affidavit justifying the impugned proceedings dated January 28, 1988, on the ground that the returns of income admitting the unaccounted income were filed only after the search conducted in the petitioner's premises under Section 132 of the Act.

16. The respondents state that a search was conducted by the income-tax authorities under Section 132 of the Act on March 29, 1983, and thereafter a notice under Section 148 was issued to the petitioner on March 23, 1985, for reopening the assessment for the years 1979-80 to 1982-83. It is only thereafter, that the petitioner, by its letter dated December 31, 1985, offered to have an assessment for the unaccounted income spread over the years 1979-80 to 1982-83. But by its letter dated January 4, 1986, the petitioner went back and sought the entire unaccounted income assessed for the year 1983-84, contrary to its own request to assess the unaccounted income spread over the years 1979-80 to 1982-83.

17. Even though it was admitted that the petitioner-firm had not disclosed the complete income for these years, the order dated March 12. 1991, passed by the Income-tax Appellate Tribunal during the pendency of the above writ petition clearly proves that the petitioner did not return the complete and correct income as per the details of the amounts returned, amounts assessed originally and amounts finally assessed after the search. Hence, the respondents contend that the request of the petitioner seeking waiver of interest and penalty under Section 273A of the Act is neither bona fide nor justified.

18. That apart, during the course of action under Section 132 of the Act, it was also found that a letter obtained from the pawnor to the effect that only half the weight of the jewels pledged were kept in a jewel pouch along with the jewels pledged by the pawnor concerned. Therefore, the respondents contend that the petitioner had deliberately suppressed the unaccounted income while submitting its returns during 1979-80 to 1982-83.

19. According to the respondents, the offer by the petitioner as its unaccounted income assessed under Section 69 of the Act on December 31, 1985, is not only long after the assessment made for the years 1979-80 to 1982-83 but also after a considerable time from the date of search, namely, March 29, 1983, and again after the notice issued under Section 148 on March 23, 1985, and, therefore, the same cannot be considered as either bona fide or voluntary disclosure enabling him to claim waiver of interest and penalty under Section 273A of the Act,

20. In the light of the above facts and circumstances of this case, Mr. V. Ramachandran, learned senior counsel for the petitioner, contends that Section 273A confers a discretion coupled with a duty to be performed by the first, respondent-Commissioner ; the refusal to appreciate the merits of the case of the petitioner and failure to exercise such discretion conferred under Section 273A of the Act, by summarily rejecting the waiver of interest and penalty by the impugned order dated January 28, 1988, vitiates the entire proceedings.

21. Learned senior counsel appearing for the petitioner, further contends that mere search under Section 132 of the Act or the initiation of any proceedings under Section 132 would not automatically disentitle the petitioner to claim the benefits conferred under Section 273A of the Act ; or merely because the returns were filed after the search, it would not cease to be a voluntary or bona fide disclosure. In this connection, he relies upon the decisions reported in Vedadri (K.C.) v. CIT : [1973]87ITR76(Mad) and A V. Joy, Alukkas Jewellery v. CIT : [1990]185ITR638(Ker) .

22. Mr. V. Ramachandran, learned senior counsel for the petitioner, further contends that even where action is taken under Section 132 of the Act, still the first respondent is under a statutory obligation to apply his mind to get himself satisfied, whether the disclosures are true and complete, made voluntarily and in good faith, and to give a finding whether the conditions contemplated under Section 273A are satisfied or not. Therefore, the first respondent should apply his mind to the merits of the case and give a finding as to :

(i) whether the conditions under Section 273A are satisfied or not ; and

(ii) if they are satisfied whether he would waive the penalty or interest or whether he would reduce the amount of penalty or interest, as the case may be.

23. In any event, Mr. V. Ramachandran, learned senior counsel for the petitioner, contends that assuming without admitting that the petitioner is not entitled to the relief under Section 273A(1) and (2) for the reason that he had made the disclosure only after the search and that he had not disclosed it voluntarily, the Commissioner still ought to have exercised his power under Section 273A(4) and granted the relief therein either by reducing or waiving the penalty payable by the assessee under the Act. Learned senior counsel, therefore, contends that the refusal to exercise such power conferred on the first respondent under Section 273A(4), again, vitiates the impugned proceedings.

24. Per contra, Mr. S. V. Subramaniam, senior standing counsel appearing on behalf of the respondents, arguing in support of the impugned proceedings, highlights the conditions prescribed under Section 273A(1) that the alleged full and true disclosure should be made voluntarily and in good faith ; should be made prior to the issue of notice under Section 148 ; and the term 'voluntarily' used under Section 273A(1) indicates an action free of any constraint of search by the Department. In support of his contention, learned senior standing counsel relied upon the decision in Hakam Singh v. CIT : [1980]124ITR228(All) . In the instant case, admittedly, the disclosures were made only after the search conducted by the Department in the petitioner's premises on March 29, 1983.

25. Learned senior standing counsel further contends that the word 'detected' used in this context would include a case where the Assessing Officer had conducted a search and started investigation into the matter. In this connection, learned senior standing counsel relies upon the decisions in K. M. Rajan, Rajan and Co. v, CIT : [1990]186ITR376(Ker) and Tribhovandas Bhimji Zaveri v. Union of India : [1993]204ITR368(SC) .

26. Learned senior standing counsel also distinguishes the decision in A. V. Joy, Alukkas Jewellery v. CIT : [1990]185ITR638(Ker) and contends that the said decision is not applicable to this case, because, in that case, admittedly, the disclosures were made within 15 days after the search which is protected under Explanation 2 to Section 273A as the said Explanation 2 was in force only during the period October 1, 1984, to May 24, 1985, as the Government felt that it was not proper and justified to provide immunity to the persons who choose to come forward to declare their concealed income only after incriminating evidence had been found in their possession.

27. In reply to the contentions of Mr. S. V. Subramaniam, learned senior standing counsel for the respondents, Mr. V. Ramachandran, learned senior counsel appearing for the petitioner, stresses the non-obstante clause used under Section 273A of the Act, and contends that its operation is untrammelled by any other provision of the Act, which includes the search and the investigation initiated under Section 132 of the Act.

28. Again, Mr. V. Ramachandran, learned senior counsel for the petitioner, impresses the words, 'if he is satisfied' and contends that the Commissioner would get himself satisfied about the compliance or non-compliance of the conditions prescribed under Section 273A(1) of the Act, before rejecting the petition filed by the petitioner under Section 273A.

29. Learned senior counsel for the petitioner further contends that the application is made under Section 273A and the Commissioner is, therefore, expected to ensure compliance with the conditions prescribed under Section 273A(1) of the Act by exercising his judicial discretion and failure to exercise such discretion judicially, fairly and reasonably before initiating the impugned proceedings, would vitiate the entire proceedings. Mr. V. Ramachandran contends that the Commissioner had not applied his mind nor satisfied himself whether the conditions prescribed under Section 273A had been complied with ; nor was there any finding or reason available in the impugned proceedings for rejecting the relief sought for by the petitioner under Section 273A, except a mere ground that the disclosure was made subsequent to the search and initiation of the proceedings under the Act. In this connection, learned senior counsel for the petitioner relies upon the decisions in Anwar Ali v. CIT : [1992]196ITR354(AP) ; Sujatha Rubbers v. ITO : [1992]194ITR355(AP) ; Public Carriers Truck Owners Association v. CIT and N. Subha-karan v. CIT : [1992]198ITR720(Ker) .

30. On the other hand, Mr. S. V. Subramaniam, learned senior standing counsel for the respondents, contends that the question of getting satisfied about the compliance with the conditions prescribed under Section 273A(1) or the question of exercising the judicial discretion would arise only if the conditions contemplated under Section 273A are complied with ; if the conditions prescribed under Section 273A(1) are not complied with, there would be no justification in complaining that the Commissioner has failed to exercise the discretion conferred on him ; and in support of his contention, he relies upon the decision in Smt. Harbans Kaur v. CWT : [1997]224ITR418(SC) ,

31. It may be rioted that learned senior counsel for the petitioner also relies upon the very same decision, and contends that the want of satisfaction as to the compliance of conditions prescribed under Section 273A vitiates the impugned proceedings.

32. I have given a careful consideration to the submissions of both sides. In order to appreciate the submissions of both sides in the light of the above decisions, it is relevant to refer to Section 273A which reads as follows :

'273A. Power to reduce or waive penalty, etc., in certain cases.--(1) Notwithstanding anything contained in this Act, the Chief Commissioner or 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 Clause (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--(a) in the case referred to in Clause (i), has, prior to the issue of a notice to him under Sub-section (2) of Section 139, voluntarily and in good faith made full and true disclosure of his income ;

(b) in the case referred to in Clause (ii), has, prior to the detection by the Assessing 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 ;

(c) in the cases referred to in Clause (iii), has, prior to the issue of a notice to him under Sub-section (2) of Section 139, or where no such notice has been issued and the period for the issue of such notice has expired, 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,

and also has, in all the cases referred to in Clauses (a), (b) and (c), co-operated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year.

Explanation 1.--For the purposes of this Sub-section, a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract the provisions'of Clause (c) of Sub-section (1) of Section 271.

(2) Notwithstanding anything contained in Sub-section (1),--

(a) if in a case the penalty imposed or imposable under Clause (i) of Sub-section (1) of Section 271 or the minimum penalty imposable under Section 273 for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate of the penalty imposed or imposable under the said clause or of the minimum penalty imposable under the said section for those years, exceeds a sum of one hundred thousand rupees, or

(b) if in a case falling under Clause (c) of Sub-section (1) of Section 271, the amount of income in respect of which the penalty is imposed or imposable for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate amount of such income for those years, exceeds a sum of five hundred thousand rupees,

no order reducing or waiving the penalty under Sub-section (1) shall be made by the Chief Commissioner or Commissioner except with the previous approval of the Board.

(3) Where an order has been made under Sub-section (1) in favour of any person, whether such order relates to one or more assessment years, he shall not be entitled to any relief under this section in relation to any other assessment year at any time after the making of such order.

(4) Without prejudice to the powers conferred on him by any other provision of this Act, the Chief Commissioner or Commissioner may, on an application made in this behalf by an assessee, and after recording his reasons for so doing, reduce or waive the amount of any penalty payable by the assessee under this Act or stay or compound any proceeding for the recovery of any such amount, if he is satisfied that-

(i) to do otherwise would cause genuine hardship to the assessee, having regard to the circumstances of the case ; and

(ii) the assessee has co-operated in any enquiry relating to the assessment or any proceeding for the recovery of any amount due from him :

Provided that where the amount of any penalty payable under this Act or, where such application relates to more than one penalty, the aggregate amount of such penalties exceeds one hundred thousand rupees, no order reducing or waiving the amount or compounding any proceeding for its recovery under this sub-section shall be made by the Chief Commissioner or Commissioner except with the previous approval of the Board. (5) Every order made under this section shall be final and shall not be called into question by any court or any other authority.

(6) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989, shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.'

33. The points that arise for consideration in the above writ petition are as follows :

(i) Whether, under the facts and circumstances of the case, the petitioner has made a true and complete disclosure, voluntarily and in good faith ?

(ii) The mere fact that such disclosure was admittedly made subsequent to the search under Section 132 of the Act disentitles to claim the benefits under Section 273A, particularly in the light of non-obstante clause in Section 273A(1) ?

(iii) Whether the impugned proceedings are supported by reasons and justified in law

34. No doubt, the disclosure was made after the search conducted under Section 132 of the Act. In this connection, it is relevant to refer to the decision relied upon by both learned counsel for the petitioner and the respondents reported in K. C. Vedadri v. CIT : [1973]87ITR76(Mad) , wherein this court has held as follows (headnote) :

'It is not necessary that a person who files a return under Section 139(4) of the Income-tax Act, 1961, should contemporaneously or soon thereafter, file an independent application under Section 271(4A) and move the Commissioner to exercise his discretion to reduce or waive the minimum penalty imposable. Section 271(4A) deals only with a power and is not indicative of the procedure as is normally understood and hence the Commissioner is bound, while exercising his jurisdiction under Section 264, to consider in appropriate cases, whether he should exercise his judicial discretion as contemplated in Section 271(4A). The word 'reduce' in Section 271(4A) also gives the clue that he could only reduce the penalty which has already been imposed. Though the word used in Section 271(4A) is discretion, it is obvious that the Commissioner who is deemed to be a quasi-judicial Tribunal, should see that no principles of natural justice are violated or no set prescriptions of law are ignored and he should judicially view the entire material before him and exercise his so-called discretion judiciously.

The mere fact that an outer limit is fixed by Section 139(4) for filing a return in the absence of a notice under Section 139(2) does not affect the power of the Income-tax Officer to act under Section 271 to find out whether there was reasonable cause on the part of the assessee in the matter of furnishing of returns under Section 139(1) and impose penalty in an appropriate case.'

35. In A. V. Joy, Alukkas Jewellery v. CIT : [1990]185ITR638(Ker) , a Division Bench of the Kerala High Court has held as follows (headnote) :

'Held, that the Commissioner of Income-tax had refused to exercise his discretion to waive the interest under sections 139(8) and 217 and penalty under sections 271(1)(a) and 273(2)(b) on the ground that the returns filed were not voluntary in nature because they had been filed only after the search. Explanation 2 to Section 273A which was in force from October 1, 1984, to May 24, 1985, gave certain benefits, if the disclosures were made within fifteen days of the search. The disclosures in question had been made within fifteen days of the search. It may be that during the search certain matters or documents relating to a particular assessment year might have come to the knowledge of the Income-tax Officer. But, the assessee, taking advantage of the provisions contained in Section 273A of the Act, might have made a full disclosure, not only for any particular year to which the documents obtained from search related, but also for all the earlier or subsequent years. The return and the disclosure would nevertheless be voluntary even though the intention of the assessees in so doing was only to save the penalty. Hence, the disclosure or the filing of return after the search by itself would not be decisive of the fact that the returns and disclosures were not voluntary. On a perusal of the impugned orders, it could be seen that there was no detailed consideration of these aspects by the Commissioner. The Commissioner of Income-tax had to examine for what period suppression was found out after search, what was the nature of the suppression and omission, the gravity of the offending act, subsequent conduct of the assessee, quantum of penalty, etc. The Commissioner had not considered the application under Section 271(1)(a) and 273(2)(b) as required by law. Merely because the returns were filed after the search, they would not cease to be voluntary or bona fide disclosure. Therefore, the impugned orders of the Commissioner were liable to be set aside. (The Commissioner was directed to reconsider the matter relating to imposition of penalty under sections 271(1)(a) and 273(2)(b)).'

36. On the other hand, in K. M. Rajan, Rajan and Co. v. CIT : [1990]186ITR376(Ker) , distinguishing the said decision in A V. Joy, Alukkas Jewellery v. CIT : [1990]185ITR638(Ker) , the Division Bench of the Kerala High Court has held as follows (headnote) :

'As a result of the survey, certain defects and discrepancies in the accounts were noticed by the officials. The assessee had itself admitted that it was forced to file the revised return only on account of the pressure exerted by the survey party which clearly indicated that it never had the intention of making a voluntary disclosure. Therefore, the levy of interest was justified.'

37. The facts of both the cases, viz.,

(i) A. V. Joy, Alukkas Jewellery v. CIT : [1990]185ITR638(Ker) , and

(ii) K. M. Rajan, Rajan and Co. v. CIT : [1990]186ITR376(Ker) , are centred on the point whether the petitioners therein were entitled to invoke the benefit of Explanation 2 to Section 273A of the Income-tax Act. But, in the instant case, such question does not arise at all, because, Explanation 2 to Section 273A was inserted on October 1, 1984, by the TLA Act of 1984 and got deleted by the Finance Act of 1985 on May 24, 1985. Even though both the decisions are not directly relevant to the issue raised in the above writ petition, still I find that in both the decisions, the Division Bench of the Kerala High Court found that there was an application of mind by the Commissioner as to the compliance of the condition prescribed under Section 273A(1) either for granting or refusing the relief under Section 273A(1) which deserves my consideration to decide the issue raised in the above writ petition.

38. Referring to the decision in Hakam Singh v. CIT : [1980]124ITR228(All) , it may be noted that the Division Bench of the Allahabad High Court has held as follows (headnote) :

'The term 'voluntary' in Section 273A of the Income-tax Act, 1961, has been used to indicate an action free of any constraint. A return filed under the constraint of exposure to adverse action by the Income-tax Department will not be voluntary within the meaning of Section 273A. The action of an assessee in filing a return after the books of account had been seized at a raid would be impelled by the compelling circumstance that the assessee was likely to be dealt with, under the penal provisions of the Income-tax Act. The action of an assessee in filing a return under such a constraint cannot be said to be voluntary.'

39. Similarly, the apex court in Tribhovandas Bhimji Zaveri v. Union of India : [1993]204ITR368(SC) , has held as follows (headnote) ;

'The object of the Voluntary Disclosure of Income and Wealth Act, 1976, is to motivate the voluntary declaration of concealed income and with that object in mind the Schedule to the Act prescribes concessional rates of tax. A declaration of concealed income made after books or other documents or valuable assets have been seized cannot be said to be a voluntary disclosure ; it is made because the books, documents and assets seized would disclose to the assessing authority the concealment of income.'

40. Undoubtedly, in both the above decisions, namely, (i) Hakam Singh v. CIT : [1980]124ITR228(All) , and (ii) Tribhovandas Bhimji Zaveri v. Union of India : [1993]204ITR368(SC) , the fact remains that the Commissioner had not summarily rejected the benefit conferred under Section 273A(i) ; but only after getting himself satisfied that the conditions prescribed under Section 273A(1) were not complied with.

41. In Anwar Ali v. CIT : [1992]196ITR354(AP) , the Andhra Pradesh High Court has held that (headnote of 51 Taxman) :

'The discretion conferred on the Commissioner under Section 273A is a quasi-judicial power and that has to be exercised judiciously, reasonably, but not capriciously and arbitrarily. The conditions mentioned in Sub-sections (1) and (4) of Section 273A are sine qua non of the exercise of discretionary power under that section. The extent of discretionary jurisdiction under Section 273A varies from reducing the penalty/interest to waiver of penalty/interest completely. Though no circumstances or criteria can be laid down, in which the penalty/interest may be reduced or waived, the Commissioner has to exercise his jurisdiction having regard to all the relevant circumstances of the case. The order under Section 273A has to be a speaking order and the Commissioner is bound to give reasons for limiting the relief to reduction of penalty/interest or for waiving a percentage of penalty/interest as against the claim of the assessee to the waiver of penalty/interest completely. In the instant case, no doubt, the Commissioner had applied his mind which was reflected in the reduction of penalty to 50 per cent., yet the order suffered from the vice of absence of reasons. From the impugned order it could be inferred that though the conditions precedent for the exercise of the jurisdiction had been satisfied, the Commissioner had not given any reason as to why the relief was limited to waiving 50 per cent, of penalty and interest. For these reasons, the impugned order had to be quashed. The Commissioner was accordingly directed to consider the matter afresh and pass appropriate orders in the light of the observations made above. The writ petition was accordingly allowed.'

42. In Sujatha Rubbers v. ITO : [1992]194ITR355(AP) , the Andhra Pradesh High Court has again held as follows (headnote) :

'A person entrusted with a discretion must direct himself properly in law. The discretion conferred upon the Commissioner under Section 273A of the Income-tax Act, 1961, compels him to take into account relevant factors and eschew irrelevant factors from consideration. Under the provisions of Section 273A, the Commissioner of Income-tax has the discretion to 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 provided the assessee has voluntarily and in good faith made full and true disclosure of his income. The word 'voluntarily' cannot be construed in isolation with reference to the general animus or state of mind of the assessee. From the legal obligation to file a return, no element of fear could be either attributed or inferred. The word 'voluntarily' in the context of Section 273A(1), therefore, has to be construed as filing of the return by the assessee without being prompted by the animus to avoid or pre-empt adverse exposure or penal action. The Commissioner, before rejecting the returns as not voluntary, must have material based upon which, it is reasonable to infer that, in all probability, but for the filing of the 'voluntary' return, the assessee would have been subjected to penal action or adverse exposure. Fear on the part of the assessee, without anything more, cannot be a ground for not exercising the discretion under Section 273A. The fear must be traceable to the imminent or proximate exposure of the assessee to penal action, but for the filing of the voluntary return under Section 273A and, in order to enquire into this subjective element, there must be in existence objective facts warranting such an inference.

Held, that, in the instant case, without considering the effect of the survey operations on the conduct of the assessee, the Commissioner reached the conclusion that the returns filed were not voluntary and this conclusion was clearly impermissible in law. The aspect of fear that was alleged to have prompted the assessee to file the revised returns which was made out to be a ground for not exercising discretion under Section 273A was an irrelevant factor in the context of the failure of the Commissioner to give reasons indicating the genuine link between the fear and the probability of exposure to penal action. Hence, all the three revised returns filed by the petitioner must be construed to be 'voluntary returns' within the meaning of Section 273A and the refusal of the Commissioner of Income-tax to consider them was not valid. His order was liable to be quashed.'

43. In Public Carriers Truck Owners' Association v. CIT , the Rajasthan High Court has held that (headnote) :

'The Commissioner who has been clothed with the powers to reduce or waive interest and penalties under Section 273A of the Income-tax Act, 1961, has to take a decision by exercising his discretion judiciously and objectively. In a case of bona fide mistake on the part of the assessee, if the Commissionee is satisfied, that all the conditions under Section 273A were fulfilled, the penalty is to be waived in full, unless the authority gives reasons for not granting full waiver and such reasons have to be cogent and germane. So far as the question of waiver of interest is concerned, even if it is found that it was a case of bona fide mistake on the part of the assessee, the fact cannot be lost sight of that the amount which should have come to the Revenue in time, has remained with the assessee and, therefore, there is no question of complete and full waiver of interest, even if all the conditions mentioned in Section 273A are satisfied, unless such circumstances are shown by the assessee as warrant waiver of the interest in full.

If the amount of interest and penalties is only reduced instead of granting full waiver, the Commissioner of Income-tax is under an obligation to give reasons for his doing so. Such a duty or obligation arises out of the language of Section 273A itself inasmuch as Section 273A, at the very outset, starts with a non obstante clause and a statutory discretion has been conferred upon him to reduce or waive the amount of penalty and interest, on his own motion or otherwise.

Held, on the facts, that the Commissioner of Income-tax had not recorded that the assessee had not satisfied the conditions mentioned under Section 273A nor had he recorded the reasons for not allowing full waiver of the penalty or with regard to the reduction of the amount of penalty and interest to the extent indicated in the orders. His order was not valid and was liable to be quashed.'

44. In N. Subhakaran v. CIT : [1992]198ITR720(Ker) , the Kerala High Court has held as follows (headnote) :

'The Commissioner of Income-tax exercises discretionary power when passing an order under Section 273A of the Income-tax Act, 1961, on an application for waiver of interest. The order should ex facie disclose the application of mind and should contain reasons in support of the order. When an order is sought to be impugned on the ground that the officer concerned has not exercised his discretion properly in the sense that the reason in support of the order has not been disclosed in the order, the defect cannot be cured by furnishing the reason by an affidavit. If that is allowed, an order which is bad in the beginning may, by the time it comes to the court when challenged, get validated by the grounds supplied in the affidavit.

For the assessment year 1983-84, the petitioner filed his return on January 30, 1985, disclosing his total income at Rs. 52,418 stated to be the share income from four firms of which one was D. K. B. and Co. The income returned was based on the share income of the firms as originally disclosed in their returns. D. K. B. and Co., however, filed a revised return disclosing a further sum of Rs. 41 lakhs. Thereafter, the petitioner's reassessment was completed making suitable additions to his share income from D. K. B. and Co. Interest was levied under sections 139(8) and 215. The petitioner applied for waiver of interest. The Inspecting Assistant Commissioner waived 50 per cent. of the interest charged under Section 139(8) and 25 per cent. of the interest charged under Section 215. The Commissioner of Income-tax confirmed the order. On a writ petition challenging the order : Held, that the interest levied for the year 1982-83 under Section 139(8) and Section 217 had been cancelled. The contention of the petitioner that when he filed his return, he could not have anticipated the revised return filed by the firm and the further fact that the second respondent had completely waived the interest in the case of the firm as well as the other points raised in the petition had not been adverted to, by the Commissioner of Income-tax. The order of the Commissioner of Income-tax to the extent that it related to the assessment year 1983-84 was not valid and was liable to be quashed. The Commissioner of Income-tax was to pass appropriate orders on the revision petition filed by the assessee for the assessment year 1983-84.'

45. That apart, in Smt. Harbans Kaur v. CWT : [1997]224ITR418(SC) , the apex court while dealing with the discretionary power conferred on the Commissioner of Income-tax under Section 18B of the Wealth-tax Act, 1957, which is analogous to Section 273A of the Income-tax Act, 1961, has held as follows (page 420) :'

'If the conditions stipulated in the section are satisfied the Commissioner has a discretion in the matter. In exercise of that discretion, the Commissioner can either reduce the amount of the penalty or he may even waive the entire penalty. It is for the Commissioner to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted.

The words 'the Commissioner may in his discretion . . . reduce or waive the amount of penalty' in Section 18B of the Act are clear enough to show that the power conferred on the Commissioner is to be exercised by him in such manner as he deems just and proper. When a discretion is conferred on an authority the same must be exercised fairly and not arbitrarily, justly and not fancifully, vide S. G. Jaisinghani v. Union of India : [1967]65ITR34(SC) .

Even, if the Legislature has not used the words 'in his discretion' in Section 18B(1), the Commissioner could have exercised only a discretionary power in view of the employment of the word 'may'. Now, when Parliament used both expressions 'may' and 'in his discretion' together, the position is placed beyond the pale of any doubt that the Legislature wanted an officer of the rank of the Commissioner to be reposed with the discretionary power to choose between entire waiver or reduction in any proportion.

Of course, when the Commissioner, instead of giving a complete waiver, chooses to give only a reduction for the penalty amount he must indicate in his order that he has applied his mind in that regard. In this view, there is no warrant for the proposition that the Commissioner, if satisfied of the compliance of conditions, has only one choice, i.e., to waive the penalty in entirety. Otherwise, it may mean that the Commissioner can in a case where conditions are not satisfied, reduce the penalty amount. When conditions are not satisfied, the Commissioner cannot do either. Only when the said conditions are satisfied that the occasion arises for the Commissioner to exercise his discretion not before.'

46. Interpreting Section 273A in the light of the above decisions, namely :--

(i)Anwar Ali v. CJT : [1992]196ITR354(AP) ;

(ii) Sujatha Rubbers v. ITO : [1992]194ITR355(AP) ;

(iii) Public Carriers Truck Owners' Association v. CIT ;

(iv) N. Subhakaran v. CIT : [1992]198ITR720(Ker) ; and

(v) Smt. Harbans Kaur v. CWT : [1997]224ITR418(SC) it is clear that :

(a) the Commissioner has got an over-riding power while exercising his discretion under Section 273A, in view of the non-obstante clause therein;

(b) such an overriding power conferred on the Commissioner under Section 273A is available irrespective of the fact that the disclosure is made either prior or subsequent to the search under Section 132 ;

(c) while exercising such discretionary power, certainly, the Commissioner is expected to get himself satisfied as to the compliance or otherwise of the conditions imposed under Section 273A ;

(d) the exercise of such discretion should be based on reasons and the reasons should be supported with the relevant factors ; or otherwise, the discretion should not be based on irrelevant considerations ;

(e) the relevancy or irrelevancy, may differ from case to case according to the facts and circumstances of each case ; the Commissioner is, therefore, necessarily compelled to take into account, the relevant factors alone and eschew the irrelevant factors from consideration under the facts and circumstances of each case, which should be tested on the available materials to decide whether the assessee made the disclosure of his income voluntarily, in good faith, fully and truly ;

(f) 'voluntarily' cannot be construed in isolation with reference to the general animus or state of mind of the assessee to avoid or to pre-empt adverse exposure of penal action ;

(g) discretion, either to accept or reject the voluntary disclosure, should be based on the state of mind of the assessee free from the element of fear, realising his legal obligation to make the disclosure voluntarily, fully and truly ;

(h) the state of mind of the assessee free from fear should be inferred from the test of reasonableness relating to the imminent and proximate exposure of the assessee to penal action.

(i) all these relevant factors should be spelt out by a speaking order of the Commissioner while exercising his discretionary power conferred under Section 273A, indicating the bona fides or otherwise of the assessee in disclosing the materials voluntarily, fully and truly, as well as, the link between fear and probability of exposure to penal action ;

(j) the speaking order, therefore, should, apparently, reflect the judicious application of mind by the Commissioner objectively ; but not subjectively ;

(k) the exercise of such judicial discretion by the Commissioner, therefore, is coupled with a statutory duty or obligation to apply his mind on the principles referred to above, and to satisfy himself whether the conditions imposed under Section 273A are complied with or not ;

(1) the judicious exercise of discretion, therefore, should be fair, reasonable, just, fine and bona fide, but not arbitrary.

47. Therefore, the first respondent is under a statutory obligation to give reasons to get himself satisfied whether the conditions under Section 273A are complied with or not, and thereafter, should exercise his discretion whether to grant or refuse the benefits conferred under Section 273A, as sought for by the petitioner.

48. On a reading of the impugned order dated January 28, 1988, I find that the first respondent has summarily rejected the application filed by the petitioner seeking relief under Section 273A, merely on the simple ground that the disclosure was made after the search conducted under Section 132 of the Act. It is evident that the first respondent had not applied his mind ; because, there is no finding as to the compliance or otherwise of the conditions imposed under Section 273A ; nor the first respondent had assigned any reason whatsoever for refusing the relief sought for by the petitioner under Section 273A while exercising his discretion ; nor the first respondent had applied his mind or satisfied himself whether the petitioner made the disclosure with a fear relating to the imminent and proximate exposure to penal action. Therefore, the discretion conferred on the first respondent under Section 273A was not fairly, justly and bona fide exercised, but arbitrarily and erroneously, as a result of which, the first respondent had not even considered the claim of the petitioner for the relief under Section 273A(4) but summarily rejected his petition filed under Section 273A.

49. Hence, the impugned order requires my interference and accordingly the same is quashed; and, consequently, the matter is remitted back to the first respondent for fresh consideration on merits with a direction to the first respondent to pass appropriate orders as per law within twelve weeks from the date of receipt of this order.

50. In the result, the writ petition is ordered accordingly. However, there will be no order as to costs.


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