Karnataka High Court
Tilakraj Bhaktavarmal vs Commissioner Of Income-Tax And Another on 27 March, 1995
Equivalent citations: ILR1995KAR1932, [1995]216ITR621(KAR), [1995]216ITR621(KARN)
Author: Tirath S. Thakur
Bench: T.S. Thakur
JUDGMENT
Tirath S. Thakur J.
1. In the petition for a writ of certiorari, the petitioner calls in question an order passed by the Commissioner of Income-tax, Karnataka-II, rejecting the petitioner's application under section 273A(1) of the Income-tax Act, 1961, for waiver of penalty imposable under section 271(1)(c) of the Income-tax Act. A few facts necessary for the disposal of the petition may be stated at this stage.
2. The petitioner filed a return for the assessment year 1985-86, declaring a total income of Rs. 10,360. An order of assessment under section 143(3) of the Act was passed by the Income-tax Officer on January 30, 1987. Some time later, the petitioner claims to have discovered that he had advanced a loan of Rs. 2,25,000 to one Sri S. G. Patil, on a pro note, out of the cash resources available with him, which amount had not been disclosed by the petitioner in the return filed. He appears to have been advised to disclose the same which he did in a disclosure statement filed on October 12, 1988, before the Commissioner of Income-tax, in which he made a request for waiver of penalties leviable in exercise of the powers under section 273A of the Income-tax Act.
3. The request made by the petitioner remained pending for over four years, and was finally rejected by the Commissioner in terms of his order impugned in this petition. The Commissioner held that the revised return filed by the petitioner on October 24, 1988, was involuntary and had been motivated by a search. He further held that the condition regarding full and true disclosure of income by the assessee was not satisfied so as to justify waiver of the penalty under section 273A(1).
4. Aggrieved, the petitioner has filed the present writ petition for a writ of certiorari as already pointed out earlier.
5. Mr. Hanumantha Rao, learned counsel appearing for the petitioner, argued that the impugned order passed by the Commissioner was violative of the principles of natural justice for admittedly no opportunity of being heard was granted to the petitioner before the making thereof. He relied upon the judgment of the Supreme Court in C. B. Gautam's case [1993] 199 ITR 530 and P. V. Pai v. R. L. Rinawma, Dy. CIT in support of his submission that it was imperative for the Commissioner to have granted an opportunity to the petitioner before dismissing the application filed by the latter. He further argued that the reason given by the Commissioner for rejecting the application was wholly untenable as the return filed by the petitioner was not only voluntary but in good faith making full and true disclosure of his income. He relied upon :
(i) Laxman v. CIT [1988] 174 ITR 465 (Bom); (ii) Smt. Shantha Devi v. WTO ; (iii) K. Ramulu and Bros. v. CIT ; (iv) Sujatha Rubbers v. ITO ; and (v) Tarloki Nath Avinash Chander (HUF) v. CIT , in support of his submission that the conduct of a search in the premises of another person even though related to or associated with the assessee did not ipso facto mean that the return filed by the petitioner was either "involuntary" or "in bad faith".
6. Mr. Dattu, learned counsel appearing for the respondents, on the other hand, urged that the Commissioner was, while considering and disposing of an application under section 273A(1), not discharging any quasi-judicial functions so as to attract the application of the principles of audi alteram partem to the proceedings conducted by him. He urged that the language and the scheme of section 273A(1) of the Income-tax Act, 1961, did not postulate the grant of any hearing to an assessee applying for the waiver of penalties imposable under section 271(1)(c) of the Income-tax Act. He placed heavy reliance upon the judgment of a Division Bench of this court in Indian Telephone Industries Co-operative Society Ltd. v. ITO [1972] 86 ITR 566 and Mool Chand Mahesh Chand v. CIT .
7. The order passed by the Commissioner is very brief and may be reproduced in extenso. The same reads thus :
"By petition filed on October 14, 1988, the petitioner seeks waiver of penalty under section 271(1)(c) of the Income-tax Act for the assessment year 1985-86.
It is seen from the records that the subsequent return of income filed is beyond the period within which the return originally filed could have been revised, is penalty (sic) motivated by the search. The assessee cannot be said to have fulfilled the conditions of full and true disclosure of his income. In the circumstances, one of the primary conditions for waiver under section 273A(1) is not satisfied. Hence, the petition is rejected.
(Sd.) (M. N. Nambiar), Commissioner of Income-tax, KTK-II, Bangalore."
8. A bare perusal of the order shows that the same calls in aid three distinct reasons for the dismissal of the application made by the assessee. In the first place, the order records that the revised return has been filed by the assessee beyond the period within which the return originally filed could have been revised. This reason, it was fairly conceded by Mr. Dattu, is not of much consequence in the context of the requirements of section 273A(1) of the Income-tax Act. Whether or not the return was filed within or beyond the period prescribed for the filing of a revised return, it was agreed on both the sides, was not very germane to the question whether the penalty imposable upon the petitioner should or should not be waived.
9. The second reason which the order records is that the revised return filed by the petitioner-assessee was motivated by search. As to when was the search conducted, in whose business or residential premises was the same conducted and as to what relevance did the said search have with the petitioner or the filing of his revised return, is not disclosed by the order. The order is silent on all these aspects, even when it makes the alleged search a basis for refusing to grant relief by way of waiver prayed for by the petitioner.
10. The third and the only other reason given by the order is that the assessee had not fulfilled the conditions of full and true disclosure of his income. As to what is the basis of this observation is also not clear from the order, though the same ought to have been disclosed looking to the fact that the income declared by the petitioner in his revised return had been accepted by the assessing authority to the last penny, and no additions were made to the income. It is, therefore, difficult to appreciate as to how the disclosure made by him was found by the Commissioner to be either incomplete or untrue.
11. Suffice it to say that the order passed by the Commissioner is not a reasoned or what is termed as a speaking order. It leaves in obscurity the process of reasoning by which the Commissioner has arrived at his conclusions. The disclosure of the reason and the material on which the same was based, was essential for making a legally sustainable order. Their absence brings in a fatal defect in the order which is difficult to countenance.
12. I am in this regard supported by a Division Bench judgment of their Lordships in Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, , where their Lordships have observed thus (at page 1789) :
"It is now settled law that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. That has been laid down by a long line of decisions of this court ending with N. M. Desai v. Testeels Ltd. (C.A. No. 245 of 1970, decided on December 17, 1975 (SC)) .... If courts of law are to be replaced by administrative authorities and Tribunals, as indeed, in some kinds of cases, with the proliferation of administrative law, they may have to be so replaced, it is essential that administrative authorities and Tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and Tribunals exercising quasi-judicial function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law."
13. It was next contended by Mr. Rao that the order impugned had been passed by the Commissioner without providing to the petitioner an opportunity of being heard. He submitted that the principles of natural justice required the grant of a hearing to this petitioner before a decision adverse to him could be taken on the same.
14. Mr. Dattu, on the other hand, argued that the proceedings before the Commissioner for waiver under section 273A of the Act were not in the nature of quasi-judicial proceedings and, therefore, no opportunity of hearing under the said provision. In support of this submission, Mr. Dattu placed heavy reliance upon a Division Bench judgment of this court in India Telephone Industries Co-operative Society Ltd. v. ITO [1972] 86 ITR 566.
15. The question as to whether the proceedings before the Commissioner under section 273A are quasi-judicial proceedings so as to attract the principles of natural justice may have been academic keeping in view the fact that the order passed by the Commissioner is being quashed by me for the reasons earlier set out, but the fact that the petitioner is claiming such a right even after the matter is remitted back to the Commissioner makes it necessary for me to deal with the point raised on its merits.
16. In A. K. Kraipak v. Union of India, , the question that fell for consideration was whether the principles of natural justice could be made applicable to administrative actions also. Their Lordships observed that the dividing line between an administrative power and a quasi-judicial power is very thin and is being gradually obliterated. It was pointed out that for determining whether a power is an administrative power or a quasi-judicial power one has to look to the nature of the power conferred, the person or persons to whom it is conferred, the frame-work of the law conferring the power, the consequences ensuing from the exercise of that power and the manner in which that power is expected to be exercised. It was observed that in a welfare State like ours, the jurisdiction of administrative bodies was inevitably increasing at a rapid rate and that the concept of rule of law would lose its validity if the instrumentalities of the State were not charged with the duty of discharging their functions in a fair and just manner. The requirement of acting judicially was held to be nothing but a requirement to act justly and fairly and the procedures which are considered inherent in the exercise of a judicial power were held to be merely those which facilitate if not ensure a just and fair decision. The court pointed out that in recent years, the concept of quasi-judicial power has been undergoing a radical change and that what was considered an administrative power years back was now being considered as a quasi-judicial power. The following passage is instructive in this regard (at page 155) :
"With the increase of the power of the administrative bodies; it has become necessary to provide guidelines for the just exercise of their power. To prevent the abuse of that power and to see that it does not become a new despotism, courts are gradually evolving the principles to be observed while exercising such powers. In matters like these, public good is not advanced by a rigid adherence to precedents. New problems call for new solutions. It is neither possible nor desirable to fix the limits of a quasi-judicial power. But for the purpose of the present case, we shall assume that the power exercised by the selection board was an administrative power and test the validity of the impugned selections on that basis."
17. The court then assumed that the power which the selection board constituted for selecting candidates for induction into the I.F.S. was an administrative power, but went on to apply the principles of natural justice even to the exercise of such a power and held that an unjust decision in an administrative inquiry may have more far-reaching implication than a decision in a quasi-judicial enquiry, and that while arriving at a just decision in quasi-judicial as well as administrative enquiries, the principles would apply with equal force. The following passage from the judgment may be gainfully reproduced in this regard (at page 156) :
"The aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words, they do not supplant the law of the land but supplement it. The concept of natural justice has undergone a great deal of change in recent years. In the past it was thought that it included just two rules, namely, (1) no one shall be a judge in his own cause (Nemo debet esse judex propria cause), and (2) no decision shall be given against a party without affording him a reasonable hearing (audi alteram partem). Very soon thereafter a third rule was envisaged and that is that quasi-judicial enquiries must be held in good faith, without bias and not arbitrarily or unreasonably. But in the course of years many more subsidiary rules came to be added to the rules of natural justice. Till very recently it was the opinion of the courts that unless the authority concerned was required by the law under which it functioned to act judicially there was no room for the application of the rules of natural justice. The validity of that limitation is not questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Oftentimes it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far reaching effect than a decision in a quasi-judicial enquiry. As observed by this court in Suresh Koshy George v. University of Kerala-Civil Appeal No. 990 of 1968, dated July 15, 1968 the rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of that case, the framework of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose. Whenever a complaint is made before a court that some principle of natural justice had been contravened the court has to decide whether the observance of that rule was necessary for a just decision on the facts of that case."
18. In Rasiklal Ranchhodbhai Patel v. CWT [1980] 121 ITR 219 (Guj), the order passed by the Commissioner of Wealth-tax under section 18(2A) of the Wealth-tax Act for waiver of penalty was called in question, inter alia, on the ground that the Commissioner had not recorded any reasons for declining the prayer made by the assessee. A Division Bench of the Gujarat High Court relying upon the judgment in :
(i) Woolcombers of India Ltd. v. Woolcombers Workers' Union, ;
(ii) Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, , held that the Commissioner's reasoning was only a pretence and an apology for reasons, wholly insufficient to satisfy the requirements of audi alteram partem. The order passed by the Commissioner was accordingly struck down and the matter remitted back to him for consideration.
19. In Shiv Narain Dhabhai v. CWT , a similar question arose for consideration before a Division Bench of the Rajasthan High Court. That was a case in which the Commissioner of Wealth-tax had rejected the petitioner's application for waiver of penalty.
20. It was contended on behalf of the assessee that the rejection of the application without granting a personal hearing to the assessee is in violation of the principles of natural justice. Reliance was in this connection placed upon Rasiklal's case [1980] 121 ITR 219 (Guj) and S. Sannaiah v. CIT [1974] 95 ITR 435 (Mys). Dealing with the argument the High Court held that the power exercised by the Commissioner of Wealth-tax under section 18B is a quasi-judicial power and an order in exercise of that power was required to be supported by proper reasons. It was further observed that the grant of personal hearing to the assessee in support of his application was to depend upon the facts and circumstances of each case. Looking to the facts of the case, the Commissioner was held entitled to decide whether a personal hearing to the assessee was necessary or only an opportunity to clarify the points that were sought to be used against him would suffice. The view taken by the court is summed up in the following passage (at page 228 of 121 ITR) :
"It is true that there is no provision for personal hearing on an application under section 18B and it would, therefore, naturally depend upon the facts and circumstances of each case whether a personal hearing should be granted or the assessee should be given a notice to explain certain points which may arise in the case and which may not have been clarified in the application itself. But the fact remains that the order contemplated under section 18B is a quasi-judicial order and, therefore, it must be supported by reasons. It is also necessary that the principle of audi alteram partem should be applied before passing the order as the Commissioner acts in a quasi-judicial manner. No doubt, discretion has been vested in him to reduce or waive the amount of penalty imposed or imposable, but the discretion must be exercised judiciously and not arbitrarily."
21. To the same effect is the judgment of a Division Bench of the Allahabad High Court in Mool Chand Mahesh Chand v. CIT [1978] 115 ITR 1, where the Allahabad High Court, upon consideration of a similar question, held that even though there was nothing in section 273A of the Income-tax Act requiring the Commissioner to give an oral hearing to the assessee before deciding the application, yet the requirement of giving a hearing flows from the principle of fairness which has to be observed in administrative as well as quasi-judicial proceedings. "Normally", it was observed "hearing" means "oral hearing" at which the party may be represented. But, in a suitable case, the "hearing" may be held on paper by permitting the person concerned to make his representation and the arguments in writing. A personal hearing, it was held, was not always a concomitant of the principles of natural justice.
22. In C. B. Gautam v. Union of India , the question that fell for consideration of the court was whether, while making a pre-emptive purchase under section 269UD of the Income-tax Act, the Revenue was obliged to grant an opportunity of being heard to the person concerned against making an order under the said provision. The court noticed that the provisions contained in Chapter XX-C of the Income-tax Act, did not carry with them any requirement of giving the concerned parties an opportunity of being heard before an order for concerned purchase of the property by the Central Government is made. Relying upon its judgment in A. K. Kraipak v. Union of India, ; Hira H. Advani v. State of Maharashtra, (sic) ; and Vayyapuri Kuppusami v. State Maharashtra, (sic) , the apex court held that the courts have generally read into the provisions of the relevant sections the requirement of giving a reasonable opportunity of being heard before passing an order which would have an adverse civil consequence for the parties affected. The court accordingly read into the provisions of Chapter XX-C of the Act, the requirement of affording to the intending purchaser and the intending seller a reasonable opportunity of showing cause against the making of an order for compulsory purchase.
23. From a conspectus of the case-law referred to above, the following principles can be deduced :
(i) The power exercised by the Commissioner of Income-tax under section 273A of the Income-tax Act, must be held to be quasi-judicial in character keeping in view the nature of the power conferred, the person to whom it is conferred, the framework of the law conferring that power, the consequences that ensue from the exercise of that power and the manner in which that power is expected to be exercised;
(ii) Keeping in view the nature of the power, the Commissioner of Income-tax exercising the same is under an obligation to act fairly and objectively and record reasons for the exercise of the power one way or the other;
(iii) The power exercised being quasi-judicial in character, the Commissioner of Income-tax is obliged to abide by the natural justice and to grant to the assessee concerned a reasonable opportunity of being heard in support of his prayer for waiver of penalty;
(iv) The grant of an oral hearing to the assessee is not a necessary concomitant of the principles of audi alteram partem and so long as the assessee concerned is given an opportunity to present his case, and meet the material and the circumstances sought to be used against him by the authority for refusing the relief to him, the order eventually passed will not be open to question on the ground that no personal hearing was provided to the assessee;
(v) As to whether the opportunity of being heard granted to the petitioner/assessee was fair and reasonable would depend upon the facts and circumstances of each case for the principles of natural justice apply differently to different situations.
24. Reliance by Mr. Dattu, upon a Division Bench judgment of this court in Indian Telephone Industries Co-operative Society Ltd. v. ITO [1972] 86 ITR 566 appears to me to be misplaced. That was a case in which the question that this court was considering was whether an oral hearing to the assessee was imperative. This court observed that such a hearing was not required to be granted, as the nature of power exercisable under section 271(4A) of the Act, which made a similar provision for waiver of penalty at the hands of the Commissioner of Income-tax was not a quasi-judicial power. While there can be no dispute with the proposition that even if the power is quasi-judicial in nature an "oral hearing" to the assessee concerned in all situations cannot be deemed to be necessary, the view taken by this court that the power exercised by the Commissioner under section 271(4A) of the Act was not a quasi-judicial power, appears to me to be per incuriam.
25. The judgment of the Supreme Court in A. K. Kraipak's case, , does not appear to have been brought to the notice of their Lordships while deciding the said case. Applying the tests laid down in Kraipak's case, and in Smt. Maneka Gandhi v. Union of India, , I have no hesitation in holding that the power exercised by the Commissioner of Income-tax while considering the applications under section 273A of the Income-tax Act, is a quasi-judicial power which in the very nature of things is required to be exercised, fairly, judiciously and objectively and subject to the rules of natural justice including the obligation to grant a hearing and to record reasons for the conclusions ultimately arrived at.
26. Applying the above test there is no gainsaying that the order passed by the Commissioner of Income-tax, rejecting the application filed by the petitioner for waiver of penalty on the ground that the disclosure made by the petitioner was motivated by search was in violation of the principles of natural justice. I say so because admittedly while rejecting the application filed by the petitioner, the Commissioner of Income-tax at no stage called upon the petitioner to explain the circumstance eventually used against him for the dismissal of his application. He was not called upon to explain as to why the disclosure made by him be not treated to be motivated by reason of the holding of the search referred to in the impugned order. Inasmuch as the petitioner was deprived of an opportunity of making a representation and explaining the circumstance used against him, the order must be deemed to have been vitiated even granting that it was not necessary for the Commissioner to have personally heard the petitioner-assessee in support of his application.
27. In the result, this petition succeeds and is accordingly allowed. The impugned order dated January 12, 1993, of the Commissioner of Income-tax-II, is hereby quashed. The matter is remitted back to the Commissioner for fresh consideration in accordance with law and keeping in view the observations made hereinabove. Needless to say, the petitioner shall be entitled to approach the Commissioner for the grant of a personal hearing in support of the application which request shall also be considered by the Commissioner and appropriate orders passed in regard thereto. In the circumstances of the case, however, I leave the parties to bear their own costs.