Calcutta High Court
Guru Nanak Estates And Anr. vs Commissioner Of Income-Tax And Ors. on 31 May, 1993
Equivalent citations: [1994]208ITR118(CAL)
Author: Ruma Pal
Bench: Ruma Pal
JUDGMENT Ruma Pal, J.
1. On December 23, 1981, the income-tax authorities carried out a search and seizure against Messrs. Veekay Properties Pvt. Ltd. (referred to as "the company") and its two directors. The petitioner No. 1 (referred to as "the firm") had its office in the same place as the company and the directors of the company were also partners of the firm. In the course of conducting the search at the company's office and residence of one of its directors, certain books of account and other documents relating to the firm were seized. However, no further action was taken by the income-tax authorities against the firm in connection with such seizures.
2. More than five years later, the firm submitted a settlement petition to the Commissioner in respect of the assessment years 1979-80 to 1983-84 disclosing its gross receipts by sale of space in a building constructed by the firm and offering to pay tax on the net profit at eight per cent. The petitioner also prayed for leave to pay the tax in six equal monthly instalments or in such other manner as may be settled. The firm also filed an application before the Commissioner for waiver of interest and penalty for the assessment years in question.
3. According to the petitioner, the settlement petition had been filed after discussions were held between the partners of the firm and the Commissioner. It is also said that the partners of the firm were assured by the Commissioner that if a true disclosure were made and the petitioners fully co-operated with the Department and also made satisfactory arrangements for payment of tax for the assessment years in question, interest and penalty would be waived and no prosecution would be launched. It is the petitioner's case that the settlement petition was filed pursuant to such assurance.
4. The Commissioner accepted the firm's settlement petition but suggested that it should offer ten per cent. of the gross receipts for taxation. It is stated by the petitioners that the Commissioner again assured the petitioners that interest and penalty would be waived and no prosecution would be launched.
5. By letter dated March 19, 1985, the Commissioner wrote to the firm stating that necessary instructions had been issued to the Income-tax Officer, Central Circle-IX, Calcutta, who should be contacted in the matter. The petitioners were also requested to co-operate with the Income-tax Officer in the matter of completion of the assessment for the years in question. The assessment for the years in. question were duly completed by the Income-tax Officer by separate assessment orders dated March 22, 1985. Penalty proceedings were also initiated in respect of each of the assessment years in question under Sections 271(1)(a), 271(1)(c) and 273 of the Income-tax Act, 1961 (referred to as "the Act"). Tax and interest were also required to be paid under sections 139(8) and 215 of the Act. The petitioners have stated that they fully co-operated with the Income-tax Officer in completing the assessments. Notices of payment were issued by the Income-tax Officer who issued separate challans for the tax and interest.
6. On March 27, 1985, the firm paid the entire tax liability as assessed by the Income-tax Officer. On March 30, 1985, the firm again wrote to the Commissioner telling him that the firm had paid the entire tax liability and repeated the request for waiver of penalty and interest and non-initiation of prosecution. The firm also wrote to the Income-tax Officer to stay the realisation of the interest and the penalty until the disposal of the firm's application before the Commissioner for waiver. The Commissioner thereafter made a reference to the Central Board of Direct Taxes (referred to as "the Board") seeking its approval under Sub-section (2) of Section 273A of the Income-tax Act, 1961, for waiver of penalties on the petitioner-firm in respect of the assessment years 1979-80, 1980-81, 1981-82, 1982-83 and 1983-84.
7. The Board refused to accord its approval to the proposed waiver. The petitioners came to know about this although no order of the Board's decision was communicated to the firm. On April 4, 1986, the petitioner filed an application before the Board to review its decision not to approve the proposal for waiver of penalty. On September 11, 1986, the Board informed the Commissioner of Income-tax that it did not consider it necessary to review its decision or to give any hearing to the firm.
8. Anticipating that the Commissioner of Income-tax would pass an order refusing to waive penalty and interest in view of the decision of the Board, the petitioner filed this writ application challenging the refusal of the Board to grant waiver of penalty. An interim order was passed on March 3, 1987, allowing penalty proceedings and other proceedings in respect of the assessment years in question to continue but injuncting the respondents from passing any final order until the orders of the court.
9. On April 30, 1987, the interim order was varied by allowing the respondent authorities to pass final orders but restraining them from communicating or acting on the same.
10. The respondents have raised several preliminary issues, which, according to the respondents, warrant the dismissal of the writ petition in limine. The first point raised is that the copy of the petition which was served did not contain the verification.
11. The submission is untenable. The original writ petition has been duly verified. The action of not supplying a completed copy of the petition containing the verification clause shows a lack of efficiency on the part of the advocate for the petitioners, but this could not make a writ petition itself not maintainable. No prejudice has been caused to the respondents. This is clear from the fact that although the writ petition has been pending for over six years, the respondents have never asked for the verification portion of the petition. On the other hand, the respondents have filed their affidavits in the proceedings without complaint.
12. The second point raised by the respondents is that the copies of the orders challenged had not been annexed and that, therefore, the writ petition was not maintainable. They relied upon the decision of M. N. Roy J. in Bhudhar Meta v. J. L & Officer, . The subject-matter of challenge is the decision of the Board. No copy of the order was served on the petitioner. The Department itself has been unable to produce any copy of the order. To insist upon the presence of the order as a pre-condition to the moving of the writ application would be to place an impossible burden on the petitioner. Besides, the decision relied upon by the respondents does not say that a writ application would never be maintainable if the copies of the orders challenged are not annexed. What the court has said is that a writ should not ordinarily issue when the order impugned is not annexed. It is to be noted that the learned judge in Bhudhar Meta's case, , made the rule absolute, although no copy of the order had been annexed to the writ petition.
13. The next submission of the respondents is that the writ petition was premature as no final order had been passed by the Commissioner under Section 273A. That is not the subject-matter of challenge. What is the subject-matter of challenge is the order passed by the Board refusing approval and there is no dispute that this had already been done. It would not be open to the Commissioner to override the decision of the Board. Therefore, the prejudicial action had already taken place.
14. It is then stated that the petitioner had not made any demand for justice under Rule 20 of the rules framed by this court relating to matters under article 226. It is well established that a demand for justice is not a mere formality. The substance of the matter will have to be gone into. The petitioners had made an application to the Board for reviewing its decision. That application had been rejected. Any further demand for justice from the Board would have been pointless. The application for review was sufficient compliance with Rule 20.
15. The next point raised by the respondents is that there was an alternative remedy available to the petitioner and that they could have preferred an appeal from the orders imposing penalty and interest passed by the Income-tax Officer. Reliance on the decision of the Supreme Court in Union of India v. Cottage Arts Emporium, ATR 1992 SC 2218 ; [1991] SCW 492 is inapposite. In that case, there was a search and seizure. The petitioners had sought for and obtained return of the articles seized by virtue of an interim order passed during the pendency of the writ application. The interim order was challenged before the Supreme Court. In the meanwhile, on the basis of the seizures made, final assessment orders were passed. In that view of the matter, the Supreme Court held that the writ application had become infructuous and that the remedy lay in preferring appeals from the orders of assessment. In the case before me the petitioners have not challenged the orders imposing penalty or interest. Having admitted their liability to pay both, they have sought for waiver. The subject-matter of challenge is the decision of the Board in refusing to grant approval to the waiver of penalty. There is no appeal provided under the statute in respect of such a decision.
16. The next preliminary objection of the respondents is that this court cannot interfere with the order of the Board by reason of the provisions of Section 273A(5) which provides that every order under that section shall be final and shall not be called in question by any court or any authority. The submission is unacceptable. The language of Sub-section (5) appears to relate to the order passed by the Commissioner and not the decision of the Board. Assuming that the word "order" in Sub-section (5) refers to the decision of the Board, the finality will only attach to an order made under that section. An order which is not in terms of the section would not be made "under" the section at all and that this is the scope of the court's enquiry in these proceedings, namely, whether the action of the Board was in accordance with the provisions of Section 273A or beyond it. The preliminary objections of the respondents having failed, the merits of the case are considered.
17. It is the admitted case that the Commissioner has not passed any final order under Section 273A. The Income-tax Officer, however, has assessed the penalty in respect of the years in question as follows :
Section 273 Section 271(1)(a) Section 271(1)(c) Rs.
Rs.
Rs.
1979-80 4,500 20,000 60,000 1980-81 5,500 32,000 75,000 1981-82 600 Nil 7,500 1982-83 200 2,500 2,500 1983-84 600 2,500 7,500
18. Section 273A, as it stood at the material time, provided as follows:
"273A. Power to reduce or waive penalty, etc., in certain cases.--(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 ;
(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 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 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.
19. Explanation.--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 Rs. 1 lakh, 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 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 Commissioner may, on an application made in this behalf by ah 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 eause 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.
(5) Every order made under this section shall be final and shall not be called into question by any court or any other authority."
20. Therefore, the pre-conditions for waiver of penalty under Section 271(1)(i) and penalty and interest under Sections 273 and 139(8), 215, 217 are :
(a) The disclosure should be made prior to the issue of a notice under Section 139(2) of the Act.
(b) The disclosure must be voluntary.
(c) The disclosure must be in good faith.
(d) The disclosure must be a full disclosure.
(e) The disclosure must be a true one.
(f) The assessee must have co-operated in any enquiry relating to the assessment.
(g) The assessee must have either paid or made satisfactory arrangements for the payment of tax or interest payable in consequence of an order passed under the. Act.
21. The pre-conditions for waiver of penalty imposed or imposable under Section 271(1)(iii) are :
(a) There must be a disclosure prior to the detection by the Income-tax Officer.
(b) The disclosure must be voluntary.
(c) The disclosure must be in good faith.
(d) The disclosure must be a full disclosure.
(e) It must be a true disclosure.
(f) The assessee must have co-operated in any enquiry relating to the assessment of income.
(g) The assessee must have paid or made satisfactory arrangements for the payment of income-tax or interest payable in consequence of an order.
22. Even assuming these pre-conditions existed, the Commissioner could not waive penalty imposed or imposable under Section 271(1)(i) or 273 where the aggregate of the penalty imposed exceeded a sum of Rs. 1 lakh and in the case of penalty under Section 271(1)(c) where the aggregate amount of income exceeded a sum of Rs. 5 lakhs without the previous approval of the Board.
23. As far as the assessment years 1982-83 and 1983-84 are concerned the firm had been served with notice under Section 139(2). As such it was not entitled to ask for waiver of penalty under Sections 271(1)(i) and 273 or waiver of interest under sections 139(8), 215 or 217. But the firm could ask for waiver of penalty imposed or imposable under Section 271(1)(iii). Admittedly, no notice either under Section 139(2) or 148 had been served in respect of the other three assessment years, viz., 1979-80, 1980-81 or 1981-82.
24. The reference by the Commissioner to the Board for approval of the imposition of penalty under Sections 273 and 271(1)(i) was not warranted since the aggregate amount of penalty did not exceed Rs. 1 lakh as provided under Section 273A(2)(a). The total penalty payable under these two sections according to the computation of the Income-tax Officer is Rs. 68,000. There was also no question of referring the question of waiver of interest for the Board's approval.
25. It is, therefore, the Commissioner's satisfaction alone which is relevant in this case for the purpose of waiver of penalty under Sections 273 and 271(1)(i) and the waiver of interest under Sections 139(8) and 215.
26. The scope of the Board's approval would only be limited to the imposition of penalty under Section 271(1)(ii). I have already delineated the several pre-conditions required to be fulfilled before the question of waiver either of penalty or interest under the various sections could be considered.
27. The court is handicapped in considering which of the pre-conditions, according to the Board, had not been fulfilled by the firm. No copy of the Board's decision has been annexed to its affidavit. On April 27, 1993, the court passed an order directing the respondents to produce the following documents :
1. The recommendation of the Commissioner for the Board's approval relating to the waiver of penalty.
2. The order of the Board rejecting the Commissioner's recommendation for waiving the penalty.
3. The order of the Board rejecting the petitioner's application for review.
28. The documents were required to be produced by May 4, 1993.
29. On May 4, 1993, the matter could not be heard by this court. It was taken up for hearing on May 10, 1993, and was heard on that date as well as on the next day. However, the documents directed to be produced were not produced by the respondents. The respondents handed over a letter written by Mrs. Pratima Das, Income-tax Officer, Ward-3(2), Calcutta, to the learned advocate for the respondents stating that the requisite papers were "not readily available". The court then questioned the Income-tax Officer who stated that she had made every effort to trace out the documents but could not produce them.
30. The court cannot surmise as to the reasons which appealed to the Board in refusing to approve the Commissioner's proposal to waive the penalty. In the affidavit-in-opposition filed on behalf of the Board, it has been stated :
"I submit that the petitioner has not fulfilled the condition of waiver or reduction of penalties under Section 273A including the condition of payment of tax on the amount disclosed in terms of the said section."
31. This does not take the matter any further. In another part of the Board's affidavit, it has been said :
"The Central Board of Direct Taxes took the decision after a careful consideration of the facts and circumstances of the case with reference to the conditions mentioned in" Section 273A(1) of the Income-tax Act, 1961. I state that Messrs. Guru Nanak Estate made an application dated April 4, 1986, to the Central Board of Direct Taxes requesting it to review the said decision. I state that the petitioner has not fulfilled the conditions laid down in Section 273A(1) of the Income-tax Act, 1961, nor was the said disclosure voluntary or in good faith as alleged."
32. These are not reasons but a paraphrasing of Section 273A. At the most the statement in the affidavit would amount to the conclusion but not the basis for the conclusion (see Union of India v. M. L. Capoor, ).
33. On the merits, the respondents say that the application for waiver filed by the petitioners was itself not maintainable, as such an application would lie only after the penalty and interest had been imposed. Reliance has been placed on the two decisions, namely, Mool Chand Mahesh Chand v. CIT and Cheldas Khushaldas Patel v. CIT . This submission is misconceived and is contrary to the wording of Section 273A. Section 273A(1) relates to the reduction or waiver of penalty imposed or imposable and interest paid or payable.
34. Neither of the decisions cited by the respondents holds to the contrary. It is not the respondents' case that no penalty was imposable or that no interest was payable in respect of the assessment years in question by the firm. The section, therefore, does not require that an application for waiver can be filed only after the actual imposition of penalty and interest.
35. The respondents have contended that the onus was on the firm to prove that it had complied with all the pre-conditions for grant of waiver of penalty and interest under Section 273A. It is contended that the petitioner had failed to discharge this onus. The respondents have relied upon Smt. Khentnissa Allibhai v. CIT [1978] 113 ITR 443 (Guj) and Jyoti Steels v. CIT .
36. Reliance on the decision of Khentnissa Allibhai's case [1978] 113 ITR 443 (Guj) by the respondents is misplaced. In that case, the assessee had applied for waiver of penalty and at the same time preferred an appeal against the order of penalty. The Commissioner had rejected the application for waiver on the ground that the assessee had preferred an appeal. The Gujarat High Court held that the Commissioner had proceeded incorrectly and that merely because an assessee had challenged the order of penalty it did not mean that the assessee could not show that he was entitled, to relief under Section 273A.
37. In the decision of Jyoti Steel's case [1987] 166 ITR 558, the Allahabad High Court held that the discretion of the Commissioner in either waiving or merely reducing the penalty or interest under Section 273A would not be interfered with unless it suffers from a manifest error of law.
38. In this case, the Commissioner had said in his affidavit that the assessee had in fact co-operated with the Income-tax Officer for completion of the assessment and that payment of tax was not made a precondition for considering the firm's petition under Section 273A(1) of the Act. In fact, the petitioner had paid the entire assessed dues within three days of the assessment orders passed under the Act in terms of Section 273A(1) of the Income-tax Act.
39. Furthermore, the Commissioner having himself referred the matter to the Board for waiver of penalty must be taken to have been satisfied prior to the making of the reference that the pre-conditions for waiving penalty under the various sections had in fact been fulfilled by the assessee.
40. The respondents' contention that the Board's approval was to be obtained irrespective of whether the Commissioner wanted to pass an order for waiver or not is not borne out by the language of Section 273(2)(b). The approval is required to be obtained before an order is passed. If the Commissioner decides not to pass any order either waiving or reducing the penalty there would be no occasion for obtaining the approval of the Board at all. To insist upon the Board's approval irrespective of the Commissioner's decision to waive or not to waive would be to reduce the Commissioner to a mere cipher only for the purpose of forwarding the application by an assessee for reduction or waiver of the penalty.
41. There are three steps in the proceedings before the Commissioner. The first is the stage of the Commissioner's satisfaction that the precondition for reduction or waiver of penalty are present. The second is the reference to the Board for its approval for the proposed action of the Commissioner provided the amounts exceed the limits specified. And the third is the actual order of the Commissioner. Unless the Commissioner were so satisfied and unless he were minded to waive the penalty he would not have applied to the Board for approval at all.
42. Assuming that the Board can improve upon its case in its affidavit, the petitioners' categorical averment in the writ petition that all the preconditions for grant of waiver of penalty and interest had been fulfilled by the firm, has not been specifically denied by the Board. The firm had, therefore, discharged the onus that the pre-conditions for waiver had been fulfilled, at least to the Commissioner's satisfaction. The Board, on the other hand, has not disclosed its reasons for disagreeing with the Commissioner's stand.
43. At the hearing, although no one has said so on affidavit, the respondents have argued that the undisclosed income of the firm had been detected when the search and seizure took place at the company's office and the residence of the directors.
44. According to the respondents, they have also said that the firm had not made the disclosure voluntarily prior to the detection and that the detection had taken place when the search and seizure was made in 1981. The disclosure had been made in 1985.
45. It is further stated that a disclosure in order to come within the phrase (prior to detection), would have to be made within 15 days of the search and seizure. The respondents have relied upon a circular issued by the Department in this context. In Mool Chand's case , it has been said (at page 9) :
"The word 'detection' has not been defined in the Act. It does not, therefore, have a rigid meaning. When a word is not defined in an Act itself, it is permissible to refer to the dictionary meanings to find out the general sense in which that word is understood. In this connection, the context of the subject also becomes necessary. In Black's Dictionary, the word 'detection' has several meanings. One of them is investigation while the other is to follow up step by step by patient inquiry or observation. It would, therefore, mean that even a case where the Income-tax Officer starts investigation by laying open what was concealed or hidden or what continued to elude observation, would also be covered in a case of detection within the meaning of that word. In the instant case, it is only when the Income-tax Officer detected the concealment of the particulars that he made an inquiry with respect to the matters mentioned above. Accordingly, it is not possible to say that the returns for the years 1963-64 to 1968-69 had been filed by the petitioner prior to the detection of the concealment of the particulars of the income."
46. In the case before me several years after the search and seizure had passed. No steps whatsoever were taken against the firm by the income-tax authorities prior to the disclosure. The firm was not even called upon to give any explanation nor has any record been produced to show that any enquiry had been initiated against the firm on the basis of the documents and other articles seized during the search. The search and seizure was not in respect of the assessee-firm but was directed against the company and its directors.
47. The circular is nothing more than a paraphrase of the Explanation which forms part of Section 273A. Both the circular and the Explanation proceed on the basis that even when there is in fact a detection, if disclosure of the assessee's income within a period of 15 days would, by legal fiction make the disclosure a voluntary one made in good faith prior to the detection. This does not mean that a disclosure which was in fact made prior to detection, would by virtue of such legal fiction become a disclosure after detection. The explanation in any case was introduced in 1984. The search and seizure in this case was made in 1981. Therefore, the legal fiction was not available at the material time.
48. The respondents have also said that the petitioner did not pay the tax and interest before the disclosure. The Commissioner in his affidavit has said that he did not insist upon actual payment of tax or interest prior to the assessments and that this was not a factor which weighed with him in recommending the firm's case for waiver. I have already stated that in this case, the Commissioner was satisfied that all the pre-conditions were met and, therefore, the matter was referred to the Board for its approval. This is also clear from paragraph 6 of the affidavit of the Board.
49. The respondents have also said that the petitioners had not co-operated with the Income-tax Department. This submission again is contradicted by the affidavit of the Commissioner in which he categorically affirmed that the petitioner had co-operated with the Department.
50. Also the non-co-operation alleged is that the petitioners had filed this writ application. This submission is misconceived, The co-operation required under Section 273A is in the matter of the assessment. It must precede the assessment order. The facts relating to the co-operation must be established before the Commissioner can even consider the waiver of the proposed penalty or interest. Any subsequent action on the part of the assessee cannot be material. Finally this ground has not been stated in the affidavit of the Board as being the reason for its refusing to approve the Commissioner's proposal for waiver.
51. The next issue is was there any need for the Board to give any hearing to the firm before taking a decision. The respondents have referred to a Full Bench decision of the Kerala High Court in CIT v. P.M. Paily Pillai [1972] 86 ITR 516, That decision appears to be wholly inapposite to the questions at issue in this case. That case dealt with the question whether a document transferring property to the minor son of a Christian was a transfer for adequate consideration within the meaning of Section 64(iv) of the Income-tax Act, 1961.
52. The respondents have also again referred to the decision in Mool Chand Mahesh Chand's case in this context. In that case, the court held that for proceedings under Section 273A, it was not necessary to allow oral hearing although (at page 6) :
"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, a hearing means oral hearing at which the party may be legally 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."
53. In Mool Chand's case , the Commissioner had considered the written representation of the assessee for waiver and had rejected the representation on the ground that the disclosure had not been made voluntarily. In the case before me, however, the Commissioner was satisfied that the assessee had made the disclosures voluntarily and had accepted the firm's representation. The Board decided against the petitioner. It is not evident to this court as to what materials were before the Board nor what was taken into consideration nor what reason prevailed with the Board in refusing the approval of the Commissioner's recommendation. The firm certainly did not have any opportunity of being represented either in writing or orally before the Board. It is to be noted that the Allahabad High Court held that the proceedings under Section 273A were quasi-judicial. The nature of the Commissioner's power under Section 273A has been described in Mool Chand's case , as follows (at page 8) :
"In our opinion, since the discretion conferred by the provision is coupled with the duty to be performed by the Commissioner of Income-tax, it cannot be construed as conferring absolute discretion upon the Commissioner of Income-tax to pass any order which he pleases to make. The Commissioner is required to consider the application on merits and if the conditions for the exercise of the powers are made out, he is obliged to exercise the discretion in favour of such an assessee. It is not permissible that the Commissioner of Income-tax may reject an application under Section 275A although the grounds for granting the relief have been made out. Whether he would reduce or waive the amount of penalty imposed or imposable is of course a matter of discretion but that too will have to be exercised keeping in view the facts of the case, and not arbitrarily. The power has to be exercised only in conformity with the provisions of the section and the Act."
54. In Mool Chand's case [1978] 115 ITR 1, the Allahabad High Court found that cogent and sufficient reason had been given by the Commissioner for rejecting the application for waiver.
55. In my view, the limitations placed on the exercise of power of the Commissioner under Section 273A are equally applicable to the exercise of power by the Board. That is to say an opportunity of being heard whether orally or by way of a representation must be given to the assessee by the Board and also the Board must dispose of such representation with reasons which must be cogent and sufficient and not "laconic or nebulous".
56. I am fortified in this view by the observations of the Supreme Court in dealing with the order passed on a settlement under Section 245D(1) of the Act in the decision of R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (L T. and W. T.) to the following effect (at page 172 of 176 ITR) :
"About hearing the applicant prior to the rejection of the application, this court, in the aforesaid decision of CIT v. B.N. Bhattachargee of the report, held that an applicant before the Settlement Commission was entitled to a hearing before his application for composition was rejected. This court observed that Section 245D(1) does not negate natural justice and in the absence of an express exclusion of the rule of audi alteram partem, it is fair, and indeed fundamental, that no man be prejudiced by action without opportunity to show to the contrary. Natural justice must be followed. This also is the natural corollary of the decisions of this court in M.S. Gill v. Chief Election Commissioner and Maneka Gandhi v. Union of India ."
57. The Board was taking a decision which would prejudicially affect the firm. There is nothing in Section 273A that the decision of the Board was to be taken without granting a hearing to the assessee. There is no clause expressly excluding the opportunity of being heard. It may be noted that the Commissioner gave a hearing to the firm although there is no specific provision for doing so.
58. It is then said by the respondents that the discretion exercised by the Board was not to be interfered with unless there was a jurisdictional infirmity. Several decisions were cited by the respondents in support of the proposition that the writ court does not sit in appeal over a decision of a quasi-judicial authority. There can be no doubt that this proposition is well established. It is however also equally well established that discretionary orders will be interfered with where the orders have been passed arbitrarily or in violation of the principles of law. In this case no clear grounds have been disclosed by the respondent Board for the exercise of its discretion against the firm. The court can only hold that there was no reason for the Board to have acted nor the manner it did. The action was therefore unreasonable. Furthermore, the decision having been passed in violation of the principles of natural justice cannot be sustained.
59. It was then argued by the respondents that the Commissioner, in spite of having himself proposed waiver of penalty to the Board, could take a different view on the merits.
60. In my opinion, the reference to the Board being required to be made after the Commissioner is satisfied as to the merits, it would not be open to the Commissioner to change this satisfaction unless there were some new factor which could persuade him to do so. It is nobody's case that there is such a new factor which would justify the Commissioner jettisoning the satisfaction reached by him earlier. Reliance has been placed on the decision in Shree Singhvi Bros. v. Union of India in this connection. In that case, it was held that the Commissioner's assurance that the case of the assessee would be considered sympathetically if a full disclosure was made was not a firm assurance warranting the operation of the principle of promissory estoppel. In this case, the Commissioner has in fact decided in favour of the petitioner as far as the question of penalty at least is concerned.
61. The respondents have also sought to contend that there was no question of promissory estoppel operating against the Commissioner. Certain authorities have been cited to contend that there could be no estoppel against statute. It is not necessary to consider this submission as no argument has been made by the petitioners to the effect that the Commissioner was bound by any assurance to the petitioners to waive penalty and interest.
62. For the reasons stated the decision of the Board to refuse approval must be and is set aside. This brings us to the question of the relief that the petitioners will be entitled to on this application. Having regard to the facts and circumstances of the case, I direct the Board to give an opportunity to the firm of being heard in connection with the question of imposition of penalty under Section 271(1)(iii). As far as the penalty under Sections 271(1)(i) and 273 and interest payable by the firm are concerned, the matter being solely within the domain of the Commissioner and the Commissioner himself having been satisfied that the pre-conditions to the exercise of power under Section 273A had been fulfilled, the Commissioner is directed to waive the same except with regard to 1982-83 and 1983-84.
63. Till such decision is taken by the Board and such order is passed by the Commissioner, the interim order, already granted, will continue to operate.
64. There will be no order as to costs.