Andhra HC (Pre-Telangana)
Anwar Ali vs Commissioner Of Income-Tax And Anr. on 29 November, 1989
Equivalent citations: [1992]196ITR354(AP)
Bench: B.P. Jeevan Reddy, S.S. Mohammed Quadri
JUDGMENT Syed Shah Mohammed Qadri, J.
(1) This is an application to call for the records of the Commissioner of Income-tax, A.P. II, Hyderabad, the first respondent herein, in Hqrs. II/85-A (155 to 158) of 1987, dated September 21, 1988, and for an appropriate writ or direction in the nature of a writ of mandamus directing the first respondent to waive fully the penalty and interest levied and levied and for the assessment years 1983-84 to 1986-87 and for any further direction in the interest of justice.
The assessee is engaged in the business of tanning in the name and style of "Aziz Trading Company". He is also a partner in the partnership firms, Messrs Show Land, Warangal, and Messrs Shoe Corner, Hanmakonda. He submitted income-tax returns for the assessment years 1983-84 to 1985-86 on June 17, 1987, and on June 10, 1987, for the assessment year 1986-87. He submits that, as he was suffering from "Hypertension diabetes Meccitus" for the last four years, returns for the above said assessment years could not be filed in time. The Income-tax Officer, the second respondent, levied interest under section 139(8) and section 217 of the Income-tax Act, 1961, by his order dated November 20, 1987. On January 23, 1988, the petitioner filed a representation before the first respondent under section 273A of the Income-tax Act, praying for waiver of interest under section 139(8) and section 217 of the Income-tax Act by the second respondent and for waiver of penalty leviable under section 271(1)(a) and section 273(1) of the said Act. It is stated that the returns were filed by the petitioner voluntarily and in good faith before any notice under section 139 or 148 of the Income-tax Act was issued and that the made a full and true disclosure of his income and fully co-operated with the Department and paid the entire tax on the income returned and assessed by the second respondent. The first respondent waived 50 per cent. of the penalty and interest for the assessment years 1983-84 to 1986-87 by his order dated September 21, 1988. This order is assailed in the writ petition. It is submitted that the petitioner has complied with all the requirements of section 273A of the act and is entitled to relief of waiver of penalty and interest. It is contended that as the pre-conditions for the exercise of discretion by the first respondent, a quasi-judicial authority, are satisfied, the exercise of discretion has to be judicious and objective, not arbitrary or capricious. It is stated that the first respondent misdirected himself in granting partial relief when the petitioner satisfied all the conditions mentioned in section 273A of the Act. Therefore, the impugned order is arbitrary and amounts to failure to exercise the judicial discretion. On these facts and circumstances, the writ petitioner prays that the writ prayed for may be issued.
The first respondent filed a counter-affidavit denying the allegation that the Commissioner of Income-tax failed to exercise properly the judicial discretion vested in him. It is stated that, after going through the records, he exercised the jurisdiction under section 273A of the Income-tax Act keeping in view the nature of powers and waived 50 per cent. of penalty and interest for the assessment years in question. Without exercising the discretion, the petitioner could not have got the relief by way of reduction of interest and penalty by 50 per cent. It is stated that, for reduction or waiver of interest, satisfaction of the conditions mentioned in section 273A is prerequisite. After the conditions are satisfied, it is for the Commissioner to order for reduction or waiver of interest/penalty and the petitioner is not entitled to waiver of fully interest and penalty on the ground that the conditions are satisfied. It is stated that the Commissioner has exercised the jurisdiction under section 273A in the peculiar circumstances of the case, severity of the fault and loss occasioned to revenue and ordered reduction of interest/penalty as was appropriate in the circumstances of the case. For these reasons, it is prayed that the writ petition be dismissed.
Sri Manmohan, learned counsel for the petitioner-assessee, submits that once the conditions mentioned in section 273A are satisfied, the petitioner is entitled to the waiver of interest/penalty unless some good grounds are shown by the first respondent for not doing so and that the impugned order does not give any reason for granting only limited relief of 50 per cent. reduction of interest/penalty. For these reasons submits learned counsel, the impugned order is liable to be quashed and the petitioner is entitled to the writ prayed for, Sri Suryanarayana Murthy, learned standing counsel for the Revenue, on the other hand, contends that it is only when the conditions mentioned in section 273A are satisfied that the first respondent, Commissioner of Income-tax, get jurisdiction to grant relief which is discretionary and that the petitioner cannot claim the same as a matter of right; the very fact that 50 per cent. penalty/interest is waived by the impugned order shows that the Commissioner applied his mind and exercised his jurisdiction and that, in an order of this nature, the Commissioner is not bound to give reasons.
In view the submissions of learned counsel for the parties, two questions arise :
1. What is the scope of section 273A of the Income-tax Act, 1961 ?
2. Is the Commissioner bound to give reasons in an order passed under section 273A; if so, whether the impugned order is bad in law ?
It would be apt to read section 273A of the Income-tax Act, 1961, which is in the following terms :
"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 impossible on a person under clause (i) of sub-section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub-section (1) of section 139; or
(ii) reduce or waive the amount of penalty imposed or imposable on a person under clause (iii) of sub-section (1) of section 271; or
(iii) reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 or the penalty imposed or imposable under section 273, if he is satisfied that such person -
(a) in the case referred to in clause (i), has, prior to the issue of a notice to him under sub-section (2) of section 139, voluntarily and in good faith made fully 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 fully and true disclosure of such particulars;
(c) in the case 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 tad on the income so disclosed, and also has, in all the cases referred to in clauses (a), (b) and (c), co-operated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year.
Explanation. - 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 fifty thousand rupees, or
(b) if in a case falling under clause (c) of sub-section (1) of section 271, the amount of income in respect of which the penalty is imposed or imposable for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate amount of such income for those years, exceeds a sum of five hundred thousand rupees, no order reducing or waiving the penalty under sub-section (1) shall be made by the 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 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 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.
(5) Every order made under this section shall be final and shall not be called into question by any court or any other authority."
The provisions of this section are given overriding effect over the other provisions of the Act which is evident from the opening clause "notwithstanding anything contained in this Act". The Commissioner of Income-tax is vested with a discretion which he may exercise either suo motu or otherwise, to reduce or waive the amount of penalty imposed or imposable on a person or interest paid or payable in cases mentioned in clauses (i) to (iii) of sub-section (1) of that section if he is satisfied that -
(1) such a person has, (a) prior to the issue of a notice to him under sub-section (2) of section 139 voluntarily and good faith made full and true disclosure of his income, or
(b) 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, has voluntarily and in good faith made full and true disclosure of such particulars, or
(c) prior to the issue of a notice under sub-section (2) of section 139 or where no such notice has been issued and the period for such notice has expired prior to the issue of notice to him under section 148 has voluntarily and in good faith made full and true disclosure of his income and paid the tax on the income so disclosed, and that (2) such a person (a) has co-operated in any inquiry relating to the assessment of his income, and
(b) 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.
Certain limitations are imposed in sub-section (2) of section 273A but they are not relevant for our purpose here. Sub-section (3) provides that where the 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. Sub-section (4) gives an additional power which is without prejudice to the powers conferred on him by any other provisions of the Act to reduce or waive the amount of penalty payable by the assessee under this Act or stay or compound any proceeding for the recovery of any such amount. But this power can be exercised only on an application made by the assessee and after recording reasons for so doing. Before exercising the power under sub-section (4), he has to satisfy that to do otherwise would cause genuine hardship to the assessee having regard to the circumstances of the case and that the assessee has co-operated in any enquiry relating to the assessment or any proceeding for the recovery of any amount due from him.
It is now well-settled that the power conferred under section 273A is a quasi-judicial power as the discretion is coupled with the duty to act on the fulfillment of conditions precedent. It is only when the conditions mentioned in sub-section (1) and (4) are satisfied that the Commissioner can exercise his discretion; the ambit of discretion is very wide and varies from refusing to grant any relief by way of reduction or waiver of penalty or interest completely.
We may with advantage note here the principles governing the exercise of discretionary powers as summarized by De Smith on page 285 of Judicial Review of Administrative Action (Fourth Edition). They are as follows (at page 271) :
"The authority in which a discretion is vested can be compelled to exercise that discretion, but not to exercise it in any particular manner. In general, a discretion must be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it, it must not act under the dictation of another body or disable itself from exercising a discretion in each individual case. In the purported exercise of its discretion, it must not do what it has been forbidden to do, nor must it do what it has not been authorized to do. It must act in good faith, must have regard to all relevant considerations and must not be swayed by irrelevant considerations, must not seek to promote purposes alien to the letter or to the spirit of the legislation that gives it power to act, and must not act arbitrarily or capriciously. Nor where a judgment must be made that certain facts exist can a discretion be validly exercised on the basis of an erroneous assumption about those facts."
Now, we shall refer to the cases cited by learned counsel for the petitioner In Kundan Lal Behari Lal v. CWT , which arose under the Wealth-tax Act, 1957, the question was whether, under section 18(2A) of the Wealth-tax Act the order of the Commissioner declining to exercise his discretion on the ground that notice was issued under section 17 of that Act, was valid. A Division Bench of the Allahabad High Court held that the assessee was entitled to the benefit of the section as the notice issued under section 17 of that Act, though issued, was not served on the assessee.
In Shakuntla Mehra v. CWT [1976] 102 ITR 301 (Delhi), which also arose under the Wealth-tax Act, the learned single judge of the Delhi High Court held that if the conditions mentioned in section 18(2A) are fulfilled, the Commissioner was bound to waive or reduce penalty.
Madhukar Manilal Modi v. CWT , also arose under the Wealth-tax Act. The question here was as to the exercise of jurisdiction by the Commissioner when the requirements of section 18(2A) of the Wealth-tax Act were satisfied. A Division Bench of the Gujarat High Court held that, where all the conditions laid down in the section are satisfied, the authority cannot refuse to exercise his discretion. In this case, the Commissioner declined to exercise the jurisdiction on the ground that the assessee filed the return for the relevant assessment year only after he was asked during the assessment proceedings for the previous year and, therefore, the return was not filed voluntarily. It was held that the filing of the return was voluntary and that as the conditions imposed by the section were satisfied, there was no option to the Commissioner to refuse to exercise the discretion.
In Seetha Mahalakshmi Rice and Groundnut Oil Mill Contractors Co. v. CIT [1981] 127 ITR 579, a Division Bench of our High Court considered the scope of section 273A of the Income-tax Act. Our High Court observed that the Commissioner must exercise his discretion judiciously, fairly, reasonably and objectively and not arbitrarily or capriciously and his satisfaction can be tested by the courts under article 226 of the Constitution. In this case, the assessee filed a voluntary return showing the income after a delay of one year. The Income-tax Officer determined the income and levied penalty under section 271(1) (a). The assessee's appeals to the Assistant Commissioner and the Tribunal were dismissed. Then he filed an application before the Commissioner for waiver of penalty under section 273A. That was dismissed on the ground that the assessee was not a new assessee and was aware of his obligation to file the return. That order having been challenged in the High Court under article 226 of the Constitution, it was held that though the assessee was an old assessee, he was entitled to the benefit of section 273A. The case of Gujarat High Court in Madhukar Manilal Modi's case [1978] 113 ITR 318 was relied upon by the Division Bench to hold that on the conditions being satisfied, the Commissioner was bound to exercise his discretion under section 273A.
Here, we may advert to the contention regarding the duty of the Commissioner to pass a speaking order under section 273A. An order which carries reasons on its face is called a "speaking order". In England, at common law, a Tribunal, whether administrative, quasi-judicial or even judicial, was not bound to set reasons for its decision. This requirement was introduced by enacting the Tribunals and Inquiries Act, 1958. In India, the position is that a statutory Administrative Tribunal is bound to give reasons not only when the statute requires it to do so but also when its decisions are liable to affect the public or the rights of individuals. Durga Das Basu, in his treatise on "Administrative Law" (Second Edition), page 168, states the duty of the authority exercising quasi-judicial function to give reasons in the following words :
"If the function is quasi-judicial, it is well-settled that reasons must be given in order to make the order valid."
In our opinion, this principle equally applies when the functions are judicial.
A comparison of sub-section (1) and sub-section (4) of section 273A would show that the duty cast to record reasons is mentioned in sub-section (4) but there is no such duty cast in respect of an order passed under sub-section (1). But inasmuch as the function of the Commissioner exercising discretionary power under sub-section (1) is quasi-judicial, such a duty has to be implied having regard to the nature of the order that he is required to pass under sub-section (1).
In Sardar Kartar Singh v. CWT , the exercise of power under sections 18(1)(a) and 18(2A) of the Wealth-tax Act came up for consideration before the Gauhati High Court. A learned single judge of the Gauhati High Court held that, though section 18(2A) does not require a recording of reasons by the Commissioner for waiving the amount of penalty imposed or impossible under law, the thinking of the authority has to find a place in the order as it provides a check on the arbitrary use of the power. Therefore, the Commissioner has to pass a reasoned order. In that case, the assessee had filed his wealth-tax return late. The conditions imposed in the said sections were satisfied. The Commissioner restricted the penalty to 25 per cent. of the normal penalty impossible under section 18(1) (a) but did not give any reason for so doing. The learned judge set aside the orders of the Commissioner as no reasons were given and remitted the matter for fresh disposal after applying the mind.
In Mohammed Ali v. CWT , a Division Bench of the same High Court followed the above decision. That case also arose under the Wealth-tax Act. The question there also related to waiver of penalty under section 18(2A) of the Wealth-tax Act. In that case, the Commissioner found that, voluntarily and in good faith, the assessee made fair disclosure of his wealth without any notice under section 14(2) of the said Act and that he had extended all co-operation in completing the assessment. Under section 18(2A), the Commissioner reduced the penalty to 15 per cent. of the minimum impossible under the Act. That order was challenged. The Division Bench quashed the order on the ground of not giving reasons for not waiving penalty in full and the Commissioner was directed to decide the matter afresh.
In Shiv Shanker Sitaram v. ITAT [1987] 68 ITR 275 (All), the case arose under section 273A(4) of the Income-tax Act. The Commissioner reduced the penalty only by 50 per cent. under section 273A(4). The Division Bench of the Allahabad High Court held (at page 276) :
"We could have interfered if the discretion had not been exercised in accordance with law. We could not be convinced that the total reduction or waiver was wrongly rejected on extraneous considerations and we are unable to quash the same."
Laxman v. CIT [1988] 174 ITR 465 (Bom.). This case arose under section 273A of the Income-tax Act. The assessee filed his return after the due date and made an application for on the ground that the returns were not filed voluntarily. What happened was that the Inspector of Income-tax visited the building of the assessee in the course of survey operations. Then the return was filed as a consequence of fear of detection and follow up action. A Division Bench of the Bombay High Court held that even assuming that the Inspector had visited the premises and made inquiries about the assessee's source of funds, it would not lead to the conclusion that the said visit and inquiry amounted to compulsion on the assessee to file the return. Therefore, the filing of the return was held to be voluntary and the Commissioner was directed to exercise his discretion under section 273A of the Act.
Learned counsel also relied on a decision of the Calcutta High Court in CIT v. Hindusthan Sanitary Ware and Industries Ltd. . In that case, the Income-tax Officer passed the order under section 216 without recording reasons. This case is relied upon to show that a non-speaking order under section 216 is invalid and liable to be quashed. It was held thus (page 28) :
"The authority who makes an order in exercise of a quasi-judicial function must record his reasons in support of the order it makes. The requirement of a speaking order cannot be dispensed with even when the authority has been vested with discretionary power."
From the above discussion, the following principles emerge :
(i) the discretion conferred on the Commissioner under section 273A is a quasi-judicial power and that has to be exercised judiciously, reasonable but not capriciously or arbitrarily,
(ii) the conditions mentioned in sub-sections (1) and (4) of section 273A are the sine qua non for the exercise of discretionary power under that section, ;
(iii) the extent of discretionary jurisdiction under section 273A varies from reducing the penalty/interest to waiver of penalty/interest completely. Though no circumstances or criteria can be laid down in which the penalty/interest may be reduced or waived, the Commissioner has to exercise his jurisdiction having regard to all the relevant circumstances of the case,
(iv) the order under section 273A has to be a speaking order and the Commissioner is bound to give reasons for limiting the relief to reduction of penalty/interest or for waiving a percentage of penalty/interest as against the claim of the assessee to the waiver of penalty/interest completely.
In the instant case, the Commissioner passed the following order :
"Order under section 273A of the Income-tax Act, 1961 : The assessee by his petition dated January 29, 1988, has sought for waiver of interest charged under section 139(8)/217 and penalties leviable under section 271(1) (a)/273 for the assessment years 1983-84 to 1986-87.
On examination of the records and after perusal of the reports of the lower authorities, 50 per cent. of penalty and interest waived for all the years."
No doubt, as contended by learned standing counsel for the Revenue, the Commissioner has applied his mind which is reflected in the reduction of penalty to 50 per cent., yet the order suffers from the vice of absence of reasons. From the impugned order it can be inferred that thought the conditions precedent for the exercise of the jurisdiction have been satisfied, the Commissioner has not given any given any reason as to why the relief is limited to waiving 50 per cent. of penalty and interest. For these reasons, we are of the view that the impugned order has to be quashed and we accordingly do so. The Commissioner is directed to consider the matter afresh and pass appropriate orders in the light of the observation made above.
The writ petition is, accordingly, allowed, by in the circumstances, without costs.