Andhra HC (Pre-Telangana)
City Dry-Fish Co. vs Commissioner Of Income-Tax And Anr. on 26 April, 1990
Equivalent citations: [1990]186ITR9(AP)
JUDGMENT Ramanujulu Naidu, J.
1. This is petition filed under article 226 of the Constitution of India for the issue of a writ of certiorari quashing the order dated January 11, 1985, passed by the first respondent in H.R.S. No. 1/62/IT/1981-82 after calling for the records connected therewith and for directing the first respondent to act according to law.
2. The petitioner, a registered firm, engaged in the business of purchasing and selling dry fish, is an assessee on the rolls of the Income-tax Officer, A-Ward, Vijayawada, the second respondent. For the assessment years 1977-78, 1978-79 and 1979-80, the second respondent assessed the petitioner-firm to tax on total incomes of Rs. 1,03,970, Rs. 1,19,170 and Rs. 1,42,700, respectively. On September 11, 1980, the staff of the Income tax Department conducted a survey operation under section 133A of the Income-tax Act, 1961, hereinafter referred to as "the Act". During the said operation, some books of account of the petitioner-firm left in the custody of the accountant of the firm were seized from his residential house and taken possession of by the Income-tax Department with the consent of the petitioner-assessee. The second respondent, thereupon, reopened the assessments of the petitioner-firm for the assessment years 1977-78 to 1979-80, by means of notices issued under section 148 of the Act for the purpose of bringing to tax some more income on the basis of the accounts found in the house of the accountant of the petitioner-firm and taken possession of. In response to the said notices, the petitioner-firm submitted returns for those assessment years, disclosing, on the basis of the books of account recovered, incomes higher than the incomes that were disclosed in the original returns. The total incomes disclosed in the returns submitted in response to the notices under section 148 of the Act were Rs. 2,43,916 for the assessment year 1977-78, Rs. 4,01,045 for the assessment year 1978-79 and Rs. 3,52,170 for the assessment year 1979-80. By the time the survey operations were conducted, the petitioner-firm had already filed its return for the assessment year 1980-81 disclosing its income at Rs. 2,07,035. Since the assessment for that assessment year was not made by then, the petitioner-firm filed a revised return on December 27, 1980, disclosing an income of Rs. 3,79,689 on the basis of the books of account recovered. For the assessment year 1981-82, the assessee filed its return on July 25, 1981, disclosing an income of Rs. 4,23,981 based on the books of account recovered.
3. The second respondent made reassessment for the assessment years 1977-78, 1978-79 and 1979-80 and made assessment for the year 1980-81 and 1981-82 on November 30, 1981, practically accepting the incomes as returned later by the petitioner-firm, expect for some minor disallowances of expenditure or minor additions to the incomes made on technical grounds. Only the disallowance of Rs. 85,622 made on a technical ground in the assessment for the assessment year 1980-81 relating to the reserve credited by the firm to its profit and loss account was challenged by the petitioner-firm in appeal. The second respondent further charged interest aggregating to Rs. 1,02,879 under sections 139(8), 215 and 216 of the Act for the aforesaid five assessment years. The total tax liability of the firm for five assessment years inclusive of the aforementioned interest aggregated to Rs. 5,46,118, out of which the firm had so far paid Rs. 4,82,246, inclusive of the advance tax and tax under section 140A of the Act already paid. The balance of Rs. 53,176 remaining unpaid represents part of the penal interest levied, waiver of which was sought by the firm. While it is so, the second respondent further initiated penalty proceeding against the firm under section 271(1)(c), section 273(a) and section 140A(3) of the Act. For the assessment years 1977-78, 1978-79, 1979-80 and 1981-82, he levied penalties aggregating to Rs. 4,90,949. He, however, kept the penalty proceedings pending for the assessment year 1980-81 till the disposal of the appeal filed by the firm disputing the technical disallowance of the reserve credited to the profit and loss account. The penalty imposable for that assessment year on the basis adopted for the levy of penalties for the rest of the assessment years would come to Rs. 2,00,000. The penalties thus imposed and imposable for the five assessment years under consideration would come to Rs. 6,90,949 approximately.
4. It is alleged that payment of such as colossal amount of nearly Rs. 7,00,000 by way of penalties in addition to the addition to the payment of huge amounts by way of tax and penal interest is far beyond the resources of the firm and its partners, and that enforcement of the penalty orders would cripple their business and reduce them to penury. An application was, therefore, filed on behalf of the firm before the first respondent under section 273A(4) of the Act praying for waiver or reduction of the penalties on the two grounds set out in the said statutory provision, i.e., on the ground that enforcement of the penalties would cause genuine hardship to the assessee, having regard to the circumstances of the case and on the ground that the petitioner-firm and its partners had co-operated with the Department in the enquiry relating to the assessment and all other proceeding for the recovery of the amounts due from the firm. The petitioner-firm had submitted detailed statement before the first respondent explaining how enforcement of the liabilities or penalties aggregating to nearly Rs. 7,00,000 would cause hardship to the petitioner-firm and its partners. Inter alia, the firm explained that though outwardly it might appear that the firm was earning lakhs of profit every year, the net per capita income of each partner from the business would approximately work out to Rs. 12,000 per year. It was also pointed out that there were as many as 19 partners in the firm, that the total number of members in the families of all the partners was round about 120 and that there was hardly any scope to save anything from the income derived from the business of the firm. Details of the assets and liabilities of the firm were also furnished to indicate that while the assets of the partner did not exceed Rs. 1,50,000 in value, their liabilities including the debit balances in their capital accounts in the books of the firm as on September 30, 1983, the penalties imposed on the firm and the individual tax liabilities of the partners and the interest payable on the arrears of taxes would aggregate to Rs. 8,26,696. It was further submitted by the petitioner-firm that after search and seizure of the books of account of the firm from the residence of the accountant of the firm, the then Inspecting Assistant Commissioner, Mr. Seetharamaiah, held out an assurance to the firm that if the firm offered for assessment the entire income as disclosed by the said books of account, the Department would show sympathetic consideration in the matter of levy of interest and penalties.
5. By the impugned order dated January 11, 1985, the first respondent, however, declined to exercise, in favour of the petitioner-firm, the discretion vested in him under section 273 A(4) of the Act, to waive or reduce the penalties to the extent necessary. As to the assurance held out by the then Inspecting Assistant Commissioner and pleaded by the petitioner-firm, it was observed by the first respondent that there was nothing on record to bear out the same. On the question as to whether the assessee satisfied the second condition of having co-operated with the Department in the enquiry relating to the assessments or in the proceedings for the recovery of the amounts of tax due from it, the first respondent held that the assessee could not claim to have satisfied the condition, inasmuch as the firm filed false returns originally for the assessments years 1977-78 to 1980-81 and the Department had laid its hands on the genuine books of account during the survey and search operations, and that the assessee had no choice expect to file returns in response to the notices under section 148 of the Act disclosing incomes on the basis of the genuine books of account recovered for the assessment year 1977-78 to 1979-80 and like wise to file a revised return for the assessment year 1980-81 and the return for the assessment year 1981-82 on the basis of those books of account. As regards the first condition prescribed under section 273A(4) of the Act, the first respondent observed that the non-reduction of the penalties would not cause genuine hardship to the assessee, for the reason that the aggregate of the penalties would work to an amount equal to its income for two years only, the income earned by the assessee being Rs. 4,00,000 every year. The first respondent further held that as per the terms of the partnership deeds dated October 16, 1978 and October 18, 1978, the outgoing or retired partners had no obligation for payment of taxes, penalties, etc., as the firm reconstituted thereunder had taken over those liabilities and that payment of penalties by the firm would not, therefore, cause any genuine hardship.
6. It may be noted that, for the assessment years 1977-78, 1978-79 and 1979-80, the second respondent assessed the petitioner-firm to tax on total incomes of Rs. 1,03,970, Rs. 1,19,170 and Rs. 1,42,700, respectively. At the time of survey operations conducted by the staff of the Income-tax Department resulting in detection and seizure of duplicate sets of accounts from the residential house of the accountant of the petitioner-firm, the assessment of the petitioner-firm for the assessment year 1980-81 was pending. Subsequent to the seizure of the duplicate books of account of the petitioner-firm, the second respondent sought to reopen the assessment for the assessment years 1977-78 to 1979-80 by means of issue of notices under section 148 of the Act. In response thereto, the petitioner-firm submitted revised returns for the aforesaid assessment years, disclosing, on the basis of the books of account recovered, incomes higher than the incomes that were disclosed in the original returns. As the assessments for the assessment year 1980-81 had not been completed by then, the petitioner-firm also filed a revised return for the said assessment year on the basis of the books of account recovered. For the assessment year 1981-82, the petitioner-firm filed its return on July 25, 1981, disclosing income based on the books of account recovered. The second respondent made reassessment for the assessment year 1977-78 to 1979-80 and made assessment for the year 1980-81 and 1981-82, practically accepting the incomes as returned later by the petitioner-firm, except for some minor disallowance of expenditure or minor additions to the incomes made on technical grounds. Only the disallowance of Rs. 85,622 made on a technical grounds in the assessment for the assessment year 1980-81 relating to the reserve credited by the firm to its profit and loss account was challenged by the petitioner-firm in appeal. The second respondent, while making reassessments and assessment, not only charged interest for all the five assessment years, but also initiated penalty proceedings for the assessment years 1977-78, 1978-79, 1979-80 and 1981-82 against the petitioner-firm. He, however, kept the penalty proceedings pending for the assessment year 1980-81 till disposal of the appeal filed by the petitioner-firm, disputing the technical disallowance of the firm reserve credited to the profit and loss account of the petitioner-firm. It was stated before us by learned counsel for the petitioner and not disputed by learned standing counsel for the Income-tax Department, that the Tribunal set aside the assessment of the petitioner-firm for the assessment year 1980-81 and remitted the matter to the second respondent for fresh disposal in the light of the directions given by it. It was also brought to our notice that, against the orders passed by the second respondent levying penalty for the assessment years 1977-78, 1978-79, 1979-80 and 1981-82, the petitioner-firm preferred appeals before the Commissioner of Income-tax (Appeals), that when the same were dismissed, the assessee preferred second appeals before the Income-tax Appellate Tribunal and that the same are pending.
7. It is the case of the petitioner that the then Inspecting Assistant Commissioner, Sri M. Seetharamaiah, held out an assurance to the petitioner that if the firm offered for assessment the entire income as disclosed by the duplicate books of account recovered, sympathetic consideration in the matter of levy of penalties and interest would be shown and that the assurance motivated the assessee to file revised returns for the assessment years 1977-78 to 1980-81 and the original return for the assesment year 1981-82 on the basis of the duplicate books of account recovered.
8. In fact, in reply to the notices issued to the petitioner-firm as to why penalties should not be levied, it was pleaded, inter alia, by the petitioner-firm that initiation of the proceedings of penalty was contrary to the assurance held out to the petitioner-firm by the then Inspecting Assistant Commissioner, Sri M. Seetharamaiah, and that, tempted and induced by the said assurance, the petitioner-firm, with a view to purchase peace and avoid levy of penalties, filed revised returns for the assessment year 1977-78 to 1980-81 and the original return for the assessment year 1981-82, on the basis of the books of account recovered. Unfortunately for the petitioner, Sri Seetharamaiah died. We may at once state that the assurance pleaded by the petitioner, if true, is germane and has certainly a bearing on the question whether non-waiver or non-reduction of the penalties would result in genuine hardship to the petitioner-firm as the penalties imposed and imposable for the five assessment years would come to Rs. 7,00,000 approximately. In fact, it was also brought to our notice that five calendar cases were instituted against the petitioner-firm, its managing partner and its accountant, arrayed as A-1 to A-3, by the second respondent before the Special Judge for Economic Offences at Hyderabad, for fabrication of books of account, concealment of income, etc., that in one of those cases, i.e., in C.C. No. 10 of 1983, the assurance held out to the petitioner-firm was pleaded before the learned special judge, that two witnesses were examined on behalf of the petitioner-firm in support of their plea, and that one of the witnesses examined as D.W. -2, the tax consultant of the petitioner-firm deposed that, but for the assurance held out to the petitioner-firm by the late M. Seetharamaiah, the then Inspecting Assistant Commissioner, the petitioner-firm would not have been advised to file revised returns. The petitioner-firm's plea found acceptance with the learned special judge, as noticed from the judgment dated September 28, 1987, rendered by the learned special judge. The material portion of the judgment dated September 28, 1987, may be usefully extracted as hereunder :
"... A-1 and A-2 had examined D.W. -1, their representative and D.W. -1, Zainul Abideen, a senior chartered accountant from Madras who had recently retired from active practice. I see no reason as to why a senior chartered accountant belonging to a respectable profession hailing from Madras, a place far remote from Vijayawada should come all the way to Hyderabad to swear falsely in favour of A-1 and A-2. I have no hesitation to accept the evidence of D.W. -2 that there was some sort of assurance from M. Seetharamaiah as a result of which the returns were filed in pursuance of the notices."
9. We, however, hasten to add that the finding recorded by the learned special judge is not binding upon the first respondent, though we are inclined to accept the submission made on behalf of the petitioner-firm that no evidence in support of the plea of assurance was adduced before the first respondent, in the fond hope that the assurance held out to the petitioner-firm by the then Inspecting Assistant Commissioner, the late M. Seetharamaiah, would have formed part of record. It is not denied that, except the duplicate sets of accounts seized during the survey operations, there was nothing else to show any concealment of income by the petitioner-firm. There appears to be no good reason for the petitioner-firm to file revised returns on the basis of the books of account recovered, but for some assurance given to the petitioner-firm by the then Inspecting Assistant Commissioner, the late Sri M. Seetharamaiah. The revised returns filed by the petitioner-firm not only subjected the petitioner to higher amounts of tax, but also to levy of interest. The petitioner-firm was not spared the same, but was made to suffer levy of penalties in a sum of Rs. 7,00,000 approximately besides launching prosecution. The individual partners of the firm were also made liable to pay additional amounts of tax in their individual assessments.
10. We now advert to the scope of power conferred under section 273A of the Act as it stood at the material point of time. Sub-section (1) and (4) of the said section may be usefully extracted for the purpose of appreciating the contentions debated before us :
"273A. (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 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 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 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;
(c) in the cases referred to in clause (iii), has, prior to the issue of notice to him under 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 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 arrangement 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.
11. Explanation. - For the purpose 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 provision of clause (c) of sub-section 271...
(4) Without prejudice to the powers conferred on him by any other provision of this Act, the 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."
12. Section 273A(1) as it stood at the material point of time dealt with the power of the Commissioner to reduce or waive two specific instances of penalties imposed or imposable and one specific instances of interest levied or leviable. The conditions precedent for exercise of that power were enumerated in clauses (a), (b) and (c) read with the Explanation appended thereto. Section 273A(4) empowered the Commissioner to reduce or waive the amount of any penalty, and not interest, payable by an assessee under the Act on an application made in that behalf by the assessee. Two conditions listed therein must be satisfied for exercise of the power. The first condition was that non-exercise of the power would cause genuine hardship to the assessee having regard to the circumstances of the case, while the second condition was that the assessee had co-operated in any enquiry relating to the assessment or any proceeding for the recovery of any amount due from him.
13. It may be recalled that, in the application filed by the petitioner-firm for waiver of the amounts of penalties imposed or imposable, the particular of amounts of tax levied in reassessments and original assessments were furnished. The total amount of the penalties was in a sum of Rs. 7,00,000 approximately. In and by the impugned order, the first respondent observed that the annual income of the petitioner-firm was Rs. 4 lakhs and that the aggregate of the penalties imposed or imposable on the petitioner-firm would work out to its income for two years. In the application filed by the petitioner-firm before the first respondent, it was pointed out that though outwardly, might appear that the petitioner-firm was earning lakhs of rupees as of profit every year, there were as many as 19 partners in the firm, that the net per capita income of each partner from the business would approximately work out to Rs. 12,000 per year, that the total number of members in the families of all the partners was round about 120 and that there was hardly any scope to save anything from the income derived from the business of the firm. Details of the assets and liabilities of the firm were also furnished to indicate that the petitioner-firm was not possessed of any liquid assets and that while the assets of the partners of the firm did not exceed Rs. 1,50,000 in value, their liabilities including the debit balances in their capital account in the books of the firm as on September 30, 1983 the penalties imposed on the firm, the individual tax liabilities of the interest payable on the arrears of taxes, would aggregate to Rs. 8,26,696.
14. It was urged by learned counsel for the petitioner-firm, with considerable force, that the first respondent simply brushed aside the above submissions made before him in support of its plea that non-exercise of the power under section 273A(4) of the Act would result in genuine hardship to the assessee.
15. It was also urged by learned councel for the petitioner-firm, that the reason assigned by the first respondent that the outging or retired partners had no obligation for payment of taxes, penalties, etc., as the firm reconstituted thereunder had taken over those liabilities and that payment of penalties by the reconstituted firm would not cause any genuine hard-ship to the petitioner-firm, is wholly untenable.
16. It was pointed out that, when the petitioner-firm was reconstituted, there were no liabilities of penalties imposed or imposable, that only the outstanding liabilities of the petitioner-firm were taken over by the new partners of the reconstituted firm, that the same was lost sight of by the first respondent and that the inference drawn by the first respondent and that the inference drawn by the first was wholly wrong, if not perverse.
17. It may be recalled that, while dealing with the main submission put forward by the petitioner-firm that the assurance held out to the petitioner-firm motivated the firm to submit revised returns for four out five assessments and fresh return for the remaining assessment year, the first respondent observed that the assurance pleaded was not borne out by the record. We discussed this question in detail earlier and we reiterate that the plea of assurance pleaded by the petitioner-firm, if true, is germane and has certainly a bearing on the question whether non-waiver or non-reduction of the penalties would result in genuine hardship to the petitioner-firm as the penalties imposed and imposable for the five assessment years would come to Rs. 7,00,000 approximately.
18. It may be noted that the application of the petitioner-firm for waiver or reduction of the penalties was also rejected by the first respondent on the ground of non-compliance with the second condition prescribed under sub-section (4) of section 273A of the Act. The material portion of the impugned order passed by the first respondent may be usefully extracted hereunder :
"It could be observed from the facts set-out heretobefore that the assessee filed returns originally for the assessments years 1977-78 to 1980-81 and only when books of account, etc., were discovered during survey and search operations revealing large scale concealment by the assessee-firm, it came forward to file a revised for the assessment year 1980-81 and to file returns based on the seized books for the assessment years 1977-78 to 1979-80 in response to notices under section 148. For the assessment year 1981-82, the assessee had no choice but to file the return declaring the income at Rs. 4,23,981 as the material showing that the assessee has that much income has already come into possession of the Department consequent upon the survey and search operations. Therefore, it cannot be said that the assessee had co-operated in any enquiry relating to the assessments under consideration."
19. The second condition precedent for exercise of the power conferred under sub-section (4) of section 273A of the Act is that the assessee had co-operated in any enquiry relating to the assessment or any proceeding for recovery of the amount due from him. Significantly, the first respondent did not observe that the petitioner-assessee had not co-operated in any proceeding for recovery of any amount due from him petitioner-firm challenged the disallowance of Rs. 85,622 made on a technical ground in its assessment for the assessment year 1980-81 relating to the reserve credited by the firm to its profit and loss account, in appeal and that the appeal was allowed by the Income-tax Appellate Tribunal setting aside the assessment for the year 1980-81 and remitting the matter to the second respondent for fresh disposal in the light of the directions given by it. In the impugned order, the first respondent did not state that the assessee had not co-operated in any enquiry relating to the assessment on the ground that it preferred an appeal before the Income-tax Appellate Tribunal questioning the assessment for the assessment year 1980-81. In fact, while interpreting an analogous provision contained in section 273A(1) of the Act, a Division Bench of the High Court of Andhra Pradesh consisting of myself and Kondaiah C.J. held in Seetha Mahalakshmi Rice and Groundnut Oil Mill Contractors Co. v. CIT that the power to reduce or waive the penalty could be exercised by the Commissioner irrespective of the assessee pursuing the remedies of appeal to the Appellate Assistant Commissioner or the Tribunal with or without success.
20. In Madhukar Manilal Modi v. CWT , the assessee therein filed his return of net wealth under section 14(1) of the Wealth-tax Act, 1957, on November 29, 1971, the returns were filed only on September 19, 1973, a few days before the assessment for 1971-72 was completed. Since the returns were not filed within the time limited by law, the Income-tax Officer imposed penalty for late filing of returns for all the three assessment years. No notice under section 14(2) was served on the assessee for late filing of the returns. The assessee made an application to the Commissioner under section 18(2A) praying that the Commissioner should, in his discretion, waive the amount of minimum penalty imposable on him in respect of all the three assessments years. The Commissioner waived the minimum penalty imposable on the assessee for late filing of the return for the assessment year 1971-72, but refused to waive the penalty for the assessment year 1969-70 and 1970-71, on the grounds, viz., (1) that the returns for the assessment years 1969-70 and 1970-71 were filed only after the assessee was asked during the course of the assessment proceeding for the assessment year 1970-71 to file those returns and those returns were, therefore, not voluntarily returns, and (2) that the assessee was not a new assessee when he filed the returns for the assessment years 1969-70 and 1970-71 and therefore, it was not a fit case to waive or reduce the penalty imposed under the Act. In a petition challenging the order of the Commissioner, a Division Bench of the Gujarat High Court held as follows (headnote) :
"Firstly, that the Commissioner completely misdirected himself in law in reading into section 18(2A) the condition that the assessee had not voluntarily filed returns for the two assessment years in question since he did so only after he as asked to do so during the course of the assessment proceeding for the assessment year 1971-72. Though section 18(2A)(a) uses the word 'voluntarily', the said word has to be read with the expression 'made full disclosure of his net wealth'. The condition which the Legislature has imposed is that in cases where an assessee ahas, prior to the issue of notice to him under section 14(2), filed return but has not done so within the time limited by law, he must satisfy the Commissioner that the he has made full disclosure of his net wealth voluntarily and in good faith. The word 'voluntarily', therefore, has no to be read in the context of the filing of the return.
21. Secondly, by the were fact that a return has been filed under the advice, suggestion or even at the behest (otherwise than by a notice under section 14(2)) of the Wealth-tax officer, it does not cease to be a voluntary return.
22. Thirdly, there is nothing in section 18(2A) which restricts the relief to assessees who file their returns for the first time. Imposition of such as condition would amount to addition of new condition in the relevant statutory provision.
23. Therefore, the Commissioner, upon an apparent misconstruction of the scope of his statutory power, had refused to exercise the discretion vested in him by law and the assessee was entitled to succeed."
24. In the result, the Commissioner was directed to take up for reconsideration the assessee's application under section 18(2A) and determine it afresh in accordance with law and in the light of the observations made in the judgment. The principle of this decision was applied to the corresponding provision in section 271(4A) of the income-tax Act in Mahavir Transport Co., Ltd. v. CIT .
25. It may be noted that section 18(2A) of the Wealth-tax was in parimateria with section 271(4A) of the Income-tax Act before amendment of the Income-tax Act by the Taxation Laws (Amendment) Act, 1975, which was replaced by section 273A(4) of the Income-tax Act with effect from October 1, 1975. Filing of a return is an act of the assessee and enquiry into the correctness of the return is made under section 142 of the Act. The question of disclosure of the correct income in the return is relevant for the purpose of levying penalty and not for the purpose of waiver or reduction of penalty. In other words, the first respondent imported irrelevant consideration in deciding the question whether the petitioner assessee had co-operated in any enquiry relating to the assessment.
26. In Dr. Paramjit Singh Grewal v. CIT , the assessee therein filed an application under section 271(4A) for waiving the minimum penalty imposable under section 271(1)(a) read with section 271(1)(a)(i) pleading that he had filed the returns in good faith without any notice having been issued to him under section 139(2) or section 147 read with section 148, that he had co-operated with the Department fully, that he had complied with the conditions laid down in section 271(4A) and that the penalty which was imposable for the late filling of returns should be waived. The Commissioner rejected the application on the ground that the assessee had been assessed to tax for a number of years prior to the relevant assessment year and by submitting the returns under section 139(1) after the due date, the assessee could not be considered to have made by any disclosure in terms of section 271(4A), that the provision was applicable only to a case where the income could have escaped assessment but for the disclosure made by the assessee and that the filing of the returns was not an act of disclosure, much less a voluntary disclosure. On a writ petition filed by the assessee challenging the order of the Commissioner, it was held by a single judge of the Punjab and Haryana High Court that the Commissioner had taken into consideration irrelevant matters, viz., that the assessee was assessed to tax for a number of years prior to the relevant assessment year and by submitting the returns under section 139(1) after the due date, he could not be considered to have made any disclosure in terms of section 271(4A). In the result, the order of the Commissioner was quashed with a direction that he should reconsidered the matter afresh after taking notice of the relevant considerations as provided under section 271(4A) of the Act.
27. It may be noted that, in the aforesaid case, the Punjab and Haryana High Court also held that a full and true disclosure by the assessee of his income could be made at any time before the occurrence of the events specified in clauses (a), (b) and (c) of section 273A of the Act and that it was not a requirement for filling the return initially. In fact, the expression "full and true disclosure" is not incorporated in sub-section (4) of section 273A of the Act.
28. In Radhey Shyam Chandrika Prasad v. CIT , a Division Bench of the Allahabad High Court held as follows (headnote) :
"A perusal of section 273A(1) of the Income-tax Act, 1961, shows that the Commissioner is enabled to exercise his discretion to reduce or waive a penalty imposed or imposable under section 271(1)(a) for late filling of the return, if he following conditions exist :
(i) The assessee has voluntarily made a disclosure of his income before any notice under section 139(2) of the Act had been served upon him;
(ii) The disclosure should have been a full and true disclosure of the assessee's income made in good faith, and
(iii) The assessee had co-operated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangement for the payment of any tax in interest payable in consequence of an order passed in respect of the relevant assessment year.
29. Likewise, in the case of penalty imposed or imposable under section 273(1) for not paying the advance tax, not only the aforementioned conditions are to be satisfied but the assessee has also to pay the tax on the income so disclosed. However, where notice under section 139(2) of the Act has not been issued, the assessee should have voluntarily and in good faith made a disclosure of his true and full and full income prior to the issue of the notice under section 148 of the Act.
30. The first condition, namely, that the assessee should have voluntarily made a full and true disclosure of his income before the issue of a notice under section 139(2) or section 148 of the Act, as the case may be, does not necessarily imply, that in all cases, disclosure of true and full income should have been made at the time of filling of the initial return of that once a return showing income which may not be true and full income by him before the issue of notice under section 139(2) or section 148, can be taken into account for considering as to whether or not a penalty can be waived under section 273A of the Act. So long as the assessee has in good faith made a true and full disclosure of his income either before the issue of notice under section 139(2) or section 148 of the Act, even if such disclosure has been made at the time of assessment, the first condition would be satisfied, and if all other conditions mentioned in the section co-exist, the Commissioner will have jurisdiction to deal with the matter in his discretion."
31. It is true that the above observations were made while interpret ing the scope of 273(1) of the Act. But the principle laid down therein equally apply to section 273A(4) of the Act. It, therefore, follows that disclosure of true income need not be made in the initial return, but can be made in the revised return and on that ground, it cannot be said that the assessee has not co-operated in the enquiry relating to the assessment.
32. In Mahalakshmi Rice Mills v. CIT , the assessee therein made a disclosure by spreading his concealed income of Rs. 40,000 for the assessment years 1973-74 and 1974-75, under the provision of the Voluntary Disclosure of Income and Wealth Act, 1976, but the disclosure was rejected on the ground that it was filed beyond time. Thereafter, the assessee filed revised returns for the assessment years 1973-74, 1974-75 and 1975-76, spreading the same income over three years. The assessee filed an application before the Commissiner under section 273A for reduction or waiver of the penalty. The Commissioner rejected the application on the ground that the assessee took shifting stands by disclosing in the waiver petition, the income as spread over three assessment years, viz., 1973-74 1974-75 and 1975-76, instead of over two years, viz., 1973-74 and 1974-75, under the voluntary disclosure.
33. On a writ petition filed by the assessee to quash the order of the Commissioner, a single judge of the Karnataka High Court held that once the disclosure made under the 1976 Act was rejected as barred by time, the Commissioner was not justified in making use of the material therein to deny the co-operation extended to the Income-tax officer in completing the assessment after the revised returns were filed, that there was no evidence to show that the assessee did not co-operate with the Income-tax officer in completing the assessment because the assessee did not resort to litigation and obstruction or evasive tactics in concluding the assessment. It was further held that the expression "co-operation" in any enquiry relating the the assessment under section 273A should be held to mean that the assessee did not resort to litigation, obstruction or evasive tactics in concluding the assessment. In the result, the order of the Commissioner was quashed and he was directed to pass fresh orders on the application of the assessee under section 273A for the relevant assessment years.
34. In Jyoti Steels v. CIT , relied upon by standing counsel for the Income-tax Department, a sum of Rs. 50,000 was assessed to tax as income from unexplained deposits in the assessment of the assessee for the assessment year 1980-81. The Income-tax officer, while completing the assessment of the assessee, also initiated penalty proceedings under section 271(1)(c) and 273(2)(a) of the Act. The assessee filed an appeal against the addition but withdrew the same subsequently. Thereafter, the assessee filed a petition under section 273A before the Commissioner for reduction or waiver of the penalties imposed under section 271(1)(c) and 273(2)(a). The Commissioner allowed the petition on part by directing the Income-tax officer to impose minimum penalties on the assessee. The assessee filed a writ petition and contended that the Commissioner ought to have waived the penalties in their entirely as its case was covered by sub-section (4) of section 273A. According to the assessee, the withdrawal of the appeal was promoted by circular No. 451, dated February 17, 1986 (See [1986] 158 ITR (St.) 135), of the Central Board of Direct Taxes, which stated that where an addition was contested in appeal and the assessee withdrew that appeal and made a declaration and agreed to pay tax thereon before the Commissioner, in such a case,a lenient view would be taken though such a declaration could not be taken as entirely voluntarly. The assessee also contended that,in such cases,the taxpayers had been assured that there would be immunity for them from imposition if penalty and prosecution. A Division Bench of the High Court in Allahabad held (headnote) :
"(i) That there was no evidence on record to show that any genuine hardship was caused to the assessee or that the assessee has co-operated in any enquiry relating to its assessment. The assessee merely relied upon the circular of the Central Board of Direct Taxes and withdrew its appeal.
(ii) That reading the expressions 'lenient' and 'not entirely voluntary' used in the clearification to question No. 28 in Circular No. 451 together, the intention was that only a liberal view in such cases should be taken, that is to say that stick legality, might be mitigated by soft approach. What should be lenient view would vary from case to case and the Commissioner might have to bear in mind several factors such as the severity of the default, the loss occasioned to the Revenue and a host of other attending circumstances.
(iii) That when the appeal was withdrawn by the taxpayer and he made a declaration before the Commissioner, the gesture on the part of the taxpayer might be treated as exonerating circumstance calling for a liberal view in the matter of imposition of penalty. It was possible that in the assessee's case another Commissioner might have taken a more liberal view or might have directed the imposition of lesser penalties or might have completely waived the penalties. This, however, did not justify any interference with the order of the Commissioner."
35. It may be noted that the proposition laid down by their Lordships are unexceptionable. But, as held by us, the first respondent brushed aside the various relevant and germane submissions put forward by the petitioner assessee in support of its plea that non-exercise of the power under section 273A(4) of the Act would result in genuine hardship to the assessee. What is more, the first respondent also imported irrelevant considerations while deciding the question of compliance with the two conditions precedent for exercise of the power under section 273A(4) of the Act.
36. In Shiv Shanker Sitaram v. ITAT , also relied upon by standing counsel for the Income-tax Department, the assessee filed a writ petition for setting aside the order of the Commissioner reducing or waiving penalty by 50% under section 273A(4) of the Act. It was, however, held by a Division Bench of the Allahabad High Court that the discretion conferred under section 273A(4) had been exercised in accordance with law and that the total reduction or waiver of penalty was not wrongly rejected by extraneous considerations.
37. In Carborundum Universal Ltd. v. CBDT relied upon by standing counsel for the Income-tax Department, the Income-tax Officer raised a demand of interest under section 220(2) of the Act on the assessee therein, on the basis of the tax demand as finally raised for the assessee therein, on the basis of the tax demand as finally raised for the assessment years 1979-80 and 1982-83. The assessee preferred an appeal to the Central Board under section 220(2A) for waiver of the demand for interest. After considering the report of the Commissioner, the Board declined to waive the demand for interest. The assessee, thereupon, filed petitions for special leave to appeal to the Supreme Court against the orders of the Board. The assessee did not claim that the Commissioner's report had not been considered. On those facts, the Supreme Court dismissed the petitions holding that the power of the Board under section 220(2A) to waive interest was discretionary, that the assessee had an opportunity to represent its case in writing, that the Board had taken into consideration the report of the Commissioner and that it was not the case of the assessee that the Commissioner's recommendations were different.
38. We fail to notice any relevance of the decision cited to the instant case. Furthers what was interpreted by the Supreme Court was the scope of section 220(2A) of the Income-tax Act.
39. In P. D. Varghese and E. J. Davis v. CIT relied upon by learned standing counsel for the Income-tax Department, it was held by a single judge of the Kerala High Court that (at page 188) :
"... Section 273A of the Act has a specific statutory content emphasising that it is a matter of discretion for the Commissioner of Income-tax. Just like any other discretion, this one, statutorily stated to be such a discretion, has to be Judicially exercised. Very many aspects have to be naturally looked into while the function is discharged. If two views are possible and one view has been taken by the Commissioner, this court will not be justified in interfering with the exercise of that power. Even if another view could have been taken by this court, that would hardly be a good ground for interfering with the discretion already exercised; the various relevant facts have to be taken note of, considered and decided upon.
40. In the course of the judgment, the learned judge also observed as follows (at p.189) :
"The nature of the income is the crucial matter. Whether the Commissioner feels that the nature of the income ultimately assessed is such that there is concealment which could be posited under section 271(1)(c) is the question. The reference to the facts and data in the order of the Commissioner would clearly indicate that he did have in mind those aspects when he passed the order that there was no full and true disclosure of income. It cannot be assumed that the Commissioner of Income-tax is not familiar with the handling of similar matters. I would have accepted a pointed, specific and forceful plea if the arguments based on the Explanation had been highlighted before the Commissioner and yet he had omitted to discuss it in the order. I have searched the order, more than once, to find out whether there is any grievance made as regards the non-consideration of his grievances. I have no hesitation in holding that the ingredients of the section including the components of the Explanation were really in the mind of the Commissioner when he passed the order."
41. This case is also of no assistance to the Income-tax Department as the grievance ventilated on behalf of the petitioner-firm is that the various relevant facts for exercise of the power under section 273A(3) of the Act were not taken note of, considered and decided by the first respondent. What is more, the first respondent imported several irrelevant considerations while recording his findings on the question of compliance with the two conditions precedent for exercise of the power under section 273A(4) of the Act.
42. In Associated Trader v. ITO relied upon by learned standing counsel for the Income-tax Department, it was merely held that (headnote) :
"The exercise of the powers of the Commissioner, a high functionary under the Income-tax Department, cannot be ordinarily interfered with unless there be a jurisdictional deficiency or other vitiating circumstances. If various factors are properly adverted to and cogently considered and rational reasons are available for the exercise of the discretion, ordinarily the court will not interfere."
43. We, therefore, hold that the discretionary power conferred under section 273A(4) of the Act was not judiciously exercised by the first respondent in accordance with law. We, accordingly, quash the impugned order passed by the first respondent. A direction shall, however, issue to the first respondent to dispose of the application of the petitioner-firm filed under section 273A(4) of the Act, afresh, in accordance with law and in the light of the observations made herein, within two months from the date of receipt of this order. Until then the interim order of stay of collection of the penalties aggregating to Rs. 6,90,949 levied on the petitioner under sections 273(a), 271(1)(c) and 140A of the Act for the assessment years 1977-78 to 1981-82 granted earlier on May 7, 1985, in W. P.M. P. No. 6240 of 1985 pending disposal of this writ petition, shall continue to be in force. The writ petition is thus allowed. No costs.