Punjab-Haryana High Court
R.P. Handa vs Income-Tax Officer And Ors. on 24 April, 1992
Equivalent citations: [1992]198ITR54(P&H)
JUDGMENT G.C. Garg, J.
1. This order will dispose of Civil Writ Petitions Nos. 10468, 12796, 12797, 12802 and 13399 of 1990, the facts involved being similar in all the cases. Reference to the facts shall be made from Civil Writ Petition No. 10468 of 1990.
2. The matter here concerns the reduction or waiver of interest and penalty under Section 273A for the assessment years 1979-80 to 1985-86 imposed or imposable under Section 271(1)(c)(iii) of the Income-tax Act, 1961 (for short called "the Act").
3. The facts giving rise to this petition under Articles 226/227 of the Constitution of India may be stated thus :
The petitioner filed a return of his income for the assessment year 1984-85 but, before the same could be finalised, a search and seizure operation under Section 132 of the Act was conducted at the residential and factory premises of the assessee from January 23, 1985, to January 25, 1985. A large number of documents/books of account were seized. Inspection of the documents seized was allowed in October, 1985.
4. Explanation 2 to Section 273A(1) of the Act inserted with effect from October 1, 1984, remained in force only for a short duration till May 24, 1985. It was during this period that the search and seizure operation was conducted. This Explanation provides that, where documents are seized under Section 132 of the Act and the person concerned makes a full and true disclosure of his income within 15 days of such seizure such disclosure shall, for purposes of Sub-clause (b) of Clause (iii) of Sub-section (1) of Section 273A of the Act, be deemed to have been made, prior to the detection by the Income-tax Officer of the concealment, voluntarily and in good faith. The petitioner, in order to take advantage of the Explanation, filed a petition dated February 6, 1985, annexure P-1, to the Commissioner, allegedly making a full and true disclosure of his assets stating that he would agree to such reasonable assessment as may emerge after scrutiny of the seized records. After inspection of records, revised returns were filed on March 14, 1986, and March 17, 1986. Assessments were, thereafter, completed for all the years in March and April, 1986. Tax of about Rs. 33 lakhs in all the cases was paid even before or immediately on finalisation of the assessment. Report for waiver/reduction of penalty in the prescribed form was made by the Income-tax Officer, Inspecting Assistant Commissioner and the Chief Commissioner to the Central Board of Direct Taxes as the amount of imposable penalty exceeded Rs. five lakhs, vide annexures P-3, P-4 and P-5. The Board, on its own part, declined to accord approval in exercise of its power under Section 273A of the Act. The order of the Board was conveyed, vide letter dated February 13, 1987, annexure P-8. Approval was declined as the disclosure made was found to be neither full nor true.
5. A request to the Board for reconsideration of the matter was made by the assessee through his counsel, vide annexure I-6, for affording an opportunity to explain the circumstances. The Board, on its part, sought specific and comprehensive comments from the Chief Commissioner on the representation of the assessee for reconsideration of the matter. The Chief Commissioner who earlier made recommendation had been changed and, therefore, the successor made a detailed and comprehensive report, running into 14 pages, annexure P-7, stating, inter alia, that the disclosure cannot be said to be full and true, but added that the case comes within the ambit of Explanation 2 to Section 273A of the Act and ultimately recommended that penalty under Section 271(1)(c) of the Act be reduced by 70 per cent. On further clarification being sought on the observations of the Chairman, Central Board of Direct Taxes, the then Chief Commissioner wrote back, vide letter, annexure P-9, that it was not a case where a full and true disclosure had been made. No recommendation was made this time about penalty being either waived or reduced as was done by the earlier Chief Commissioners. The Board thereafter rejected the review petition of the assessee on the ground that the disclosure made by the assessee was not full and true. The order was conveyed, vide letter annexure P-11.
6. The petitioner, as noticed above, has impugned the orders, annexures P-8 and P-11, in this petition, whereby refusal to grant approval was conveyed.
7. In the written statement filed on behalf of the respondents, the stand taken is that the disclosure was not full and true and, for this, reliance has been placed on the revised returns filed in February/March, 1986, after inspection of the seized account books/documents. The chart indicating the original returned income, the revised returned income and the finally assessed income reproduced in the written statement is as under :
Year Amount of income returned in original return Amount of income returned in revised return Amount of income finally assessed Rs.
Rs.
Rs, 1979-80 20,070 1,49,909 1,69,620 1980-81 50,000 1,48,894 2,00,910 1981-82 50,040 1,94,787 3,61,890 1982-83 71,805 3,42,552 3,94,920 1983-84 10,425 5,97,855 9,16,510 1984-85 62,170 7,26,732 9,19,790 1985-86 2,46,109
-
6,63,570
8. In view of the above position, it is the definite stand of the respondents that the assessee cannot take the plea that whatever he disclosed in the petition was based on his memory only and the assessee is not entitled to the benefit. The approval of the Board was necessary as the penalty imposed/imposable exceeded rupees five lakhs and that the assessment proceedings clearly show that the disclosure made in the revised returns is neither full nor true and the Board rightly declined to grant approval. The recommendations made by the authorities were only in the nature of opinions and did not give a vested right to the assessee for waiver and the Board in spite of recommendations could decline the approval under Section 273A of the Act.
9. Learned counsel for the petitioner, by reference specifically to annexure P-1, submitted that the disclosure made was full and true and the approval has been declined illegally. According to learned counsel, power under Section 273A has got to be exercised in favour of the assessee if the conditions enacted in that provision are shown to have been satisfied. The authorities to be satisfied about the conditions are the Income-tax Officer and the Commissioner. The Board could only decline approval if satisfaction of the authorities was shown to be perverse.
10. It will be apposite to notice the relevant provisions of the Act at this stage :
"271. (1) If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person--. . .
(b) has failed to comply with the notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143 or fails to comply with a direction issued under Sub-section (2A) of Section 142, or
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty--...
(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.
273A. (1) Notwithstanding anything contained in this Act, the Commissioner may, in his discretion, whether on his own motion or otherwise,--. . .
(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 . .'.
if he is satisfied that such person--. . .
(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 ; . . .
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 2.--Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing belonging to a person are seized under Section 132 and within 15 days of such seizure, the person makes a full and true disclosure of his income to the Commissioner, such person shall, for the purposes of Clause (b) of this Sub-section, be deemed to have made, 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 a disclosure of such particulars.
(2) Notwithstanding anything contained in Sub-section (1)--...
(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."
11. The relevant portion of the application dated February 6, 1985, annexure P-1, for waiver moved by the assessee may also be noticed which reads as under :
"4. .... In case it is found after discussion that some element of income could be added or reduced, as the case may be, the same may kindly be given effect to in this application keeping in view the bona fides of the petitioner. . . .
6. That the petitioner rendered full co-operation during the course of search and seizure to the officials concerned for full three days and also undertook to co-operate in any enquiry relating to the assessment of income-tax and as far as .... No further tax is being deposited along with the abovesaid petition because we have already made the satisfactory arrangements for tax as laid down in Clause (c) of Section 273A and as such, it is requested that the tax may please be recovered from the abovesaid fixed deposit receipts which are under lien with your kind honour.
7.... Similarly, in cases in which assessments have already been framed, this disclosure may be treated to have included income shown in revised returns or in any other manner as ordered by your honour.
8. That the petitioner is making a true and fair disclosure and wishes to earn peace of mind, can be gauged from the fact that many assets like certain fixed deposit receipts in different banks, investments in immovable property, deposits with certain financial companies and some other investments have been disclosed suo motu and for which the Department according to the belief of the assessee does not have any knowledge whatsoever.
9. It is again submitted that this petition is subject to final determination of income after thorough inspection and decision by your honour in each assessment year. . . .
We are willing to amend this petition and substitute any item if your honour so desires."
12. The petitioner herein is seeking reduction/waiver of penalty under Section 273A of the Act as full and true disclosure had been made within fifteen days of the search and seizure under Section 132 of the Act in terms of Explanation 2.
13. The provision in Section 273A of the Act has conferred power on the Chief Commissioner/Commissioner of Income-tax to reduce or waive penalty in situations noticed therein. Similar are the provisions of Section 18B of the Wealth-tax Act, 1957. The two provisions are pari materia. A Division Bench of this court in Smt. Parhash Devi v. CWT [1983] 141 ITR 122 (P & H), happened to consider the provisions of Section 18B of the Wealth-tax Act and noticed the conditions precedent detailed below for the exercise of discretion by the Commissioner to reduce/waive penalty in certain situations :
(i) that the returns were filed by the assessee prior to the issue of a notice under Section 14(2) ;
(ii) that these were filed voluntarily and in good faith ;
(iii) the assessee had made a full and true disclosure of his net wealth ;
(iv) had co-operated in the enquiry relating to the assessment of his net wealth ; and
(v) had paid or made satisfactory arrangements for the payment of the tax.
14. It was also observed that the Commissioner is to remain uninfluenced by extraneous factors while considering whether the assessee satisfies the abovesaid conditions.
15. A reading of Section 273A of the Act also provides for the above conditions.
16. One of the five conditions is that the assessee has made a full and true disclosure of his income. In the present case, the assessee admittedly fulfils the conditions at items Nos. (i), (ii), (iv) and (v) noticed above. The only condition that remains to be seen is whether a full and true disclosure has been made. Explanation 2 to Section 273A(1) remained on the statute book only with effect from October 1, 1984, to May 24, 1985. The present case relates to the interpretation of Explanation 2 as the raid in this case was conducted from January 23, 1985, to January 25, 1985.
17. Explanation 2 to Section 273A(1) of the Income-tax Act provides that where any books of account, other documents, money, bullion, jewellery, etc., are seized under Section 132 and, within fifteen days of such seizure, a person makes a full and true disclosure of his income to the Commissioner, such person shall, for the purposes of Clause (b) of this Sub-section, be deemed to have made, 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 disclosure of such particulars. Thus, a condition precedent for invoking the provisions of Section 273A(1) of the Income-tax Act and taking advantage of Explanation 2 to this section is that the assessee must make a full and true disclosure of his income.
18. In this case, after the conclusion of the search on January 25, 1985, the petitioner filed a petition under Section 273A(1) of the Act, on February 6, 1985, within the statutory period, seeking the benefit of Explanation 2 to Section 273A(1) of the Act.
19. The petitioner, in his petition, annexure P-1, relevant portion already reproduced, stated that, in case it is found that some element of income could be added or reduced, as the case may be, the same may kindly be given effect to in this application having regard to the bona fides of the petitioners. The intention of the assessee was obvious that though he had not been allowed inspection of the seized records, in order to avail of the benefit of Explanation 2, he filed a disclosure petition on the basis of his memory within the statutory period of search and seizure and undertook to accept the assessed income as the returned income even if some additions were ultimately made while framing the assessment.
20. In order to prove his bona fides and to stick to the promise made, the assessee extended full co-operation and even liquidated the tax demands immediately. It would be apposite to notice the words of the Income-tax Officer, which read as under :
"6. It would be pertinent to point out that the assessee has extended full co-operation. The assessment proceedings required the personal presence of the proprietor for days together. The assessee never faultered and was also present at times for full day. The seized material and books of account could not have been interpreted without his active co-operation. He extended full help in matters of external enquiries. His attitude was positive and co-operative. A number of discrepancies were observed on the basis of independent enquiries. The assessee made an attempt to explain these discrepancies and for what he could not adduce sufficient evidence, he agreed to surrender the same. He did not try to conduct his explanations, or to fabricate evidence, or to adopt too legalistic an approach or to put obstacles and hindrances in the matters of conduct of enquiries. The extent of his co-operation is evident from the fact that demand notices creating a demand of Rs. 3,56,938 were served on the assessee on March 25, 1986. Since the financial year was coming to a close, to maximise the collection, he was requested to deposit the demand by March 31, 1986. The assessee fully co-operated and deposited on the same date, i.e., March 25, 1986."
21. The view expressed by the Income-tax Officer was endorsed by the Inspecting Assistant Commissioner as also by the Chief Commissioner and ultimately recommended waiver of full penalty though, at the time of review, the incumbent Chief Commissioner recommended waiver by 70 per cent. It also needs special mention that the assessee, in view of the above facts and to demonstrate his bona fides and to keep up his promise, did not challenge the penalty/assessment orders by filing appeals, etc.
22. Before noticing the judgments relied upon by learned counsel for the parties, it will be apt to notice the contention of learned counsel for the Revenue. The contention is that the assessee had not made a full and true disclosure of his income as the income originally returned and shown in the subsequently revised returns was not accepted by the authorities, the income assessed finally being much higher. Pointed attention was drawn to the chart of income returned and finally assessed. The revised returns, though filed after a month of the inspection of documents seized, yet there was a vast difference between the income as returned in the revised returns and the income as finally assessed, the assessee had thus not made a full and true disclosure of his income so as to entitle him to the benefit of Section 273A(1) or Explanation 2 to Section 273A(1) of the Act. The Income-tax Officer and the Chief Commissioner nowhere recorded that the disclosure made was full and true. The condition of full and true disclosure having not been satisfied, the assessee is not entitled to any relief and the Board was justified in declining the approval.
23. Learned counsel for the petitioner made reference to the following cases :
(i) Harjas Rai v. CIT [1982] 138 ITR 77 (P & H) ;
(ii) Major Naranjan Singh v. CWT [1982] 138 ITR 88 (P & H) ;
(iii) Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705 (SC) ;
(iv) Navnitlal K. Zaveri v. CIT [1980] 125 ITR 385 (Guj) ; and
(v) Laxman v. CIT [1988] 174 ITR 465 (Bom).
24. In Harjas Rai v. CIT [1982] 138 ITR 77 (P & H), followed in Major Naranjan Singh v. CWT [1982] 138 ITR 88, the provisions of Section 273A for reduction/waiver of penalty were considered by this court in the context of delayed voluntary returns in the following words (at page 90) :
"The Legislature wanted to encourage voluntary disclosure of income. For this purpose, they provided an inducement in the form of reduction or waiver of penalty. This provision has to be liberally construed."
25. In Laxman v. CIT [1988] 174 ITR 465 (Bom), the provisions of Section 273A(1) of the Act were considered in a case of late filing of returns and for not filing the estimate of advance tax. On an application by the assessee for waiver of penalty, it was observed (at page 474) :
"On behalf of the respondent, it was contended that the power under Section 273A of the Act is purely discretionary in character and, under the circumstances, no interference in writ jurisdiction is called for. We find it difficult to accept this contention. Once the conditions required for exercise of discretion in any judicial or quasi-judicial proceedings are satisfied, exercise of discretion cannot be either arbitrary or capricious and has to be judicious and objective. When the power is given to a public authority for being used for the benefit of a class of persons and the conditions precedent for the exercise are well defined, there is a duty to exercise such power and on failure to perform that duty, courts are not only empowered but are duty bound to interfere."
26. Learned counsel referred to Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705 (SC) to show that from the assessee's agreeing to additions to his income, it did not necessarily follow that the amount agreed to be added was his concealed income and there may be a hundred and one reasons for such admissions, but it has no application to the facts of this case.
27. In Navnitlal's case [1980] 125 ITR 385 (Guj), a full and true disclosure has been considered in the context of Explanation 1 to Section 273A. It is to be judged in the facts and circumstances of each case as to whether the assessee has made a full and true disclosure of his income.
28. A perusal of Explanation 2 brings out clearly two essential requirements in order to avail of the benefit thereunder, namely :
(i) the assessee must make a full and true disclosure of his income ; and
(ii) such disclosure should be made within fifteen days.
29. It has also been so held in Satish Chandra Agarwal v. CIT [1987] 168 ITR 481 (All) and Shree Kishan v. CIT [1988] 173 ITR 541 (All), relied upon by learned counsel for the respondents. There is no dispute about the period of fifteen days in the present case and if it is found that the disclosure is full and true, the above judgments relied upon by learned counsel for the Revenue have no application, otherwise, these apply with full force. The matter whether the disclosure is full and true shall be discussed a little later. Reference to Hari Sharan Sarraf v. CIT [1991] 188 ITR 60 (All), by learned counsel for the Revenue in no way helps him. It only shows that Explanation 2 has no application to penalties or interest imposed under any provision other than Section 271(1)(c) of the Act. This is not the dispute here. The facts of P.D. Varghese and E.J. Davis v. CIT [1989] 180 ITR 187 (Ker), are distinguishable. In the reported case a finding had been recorded to the effect that the assessee had not cooperated with the Revenue. On this finding, the High Court declined to interfere with the discretion exercised by the Commissioner under Section 273A of the Act.
30. In the backdrop of the aforesaid factual and legal position, it is to be seen whether, in the facts of the present case, the assessee had made a full and true disclosure of his income or not. If he did, he is entitled to relief and, if he did not, the petition deserves to be dismissed, the essential conditions to Explanation 2 of Section 273A(1) not having been satisfied.
31. The disclosure made in the petition under Section 273A within fifteen days of the search and seizure, especially having regard to the facts and circumstances of this case, cannot be said not to be full and true. The approach of the Revenue in coming to a different conclusion is not only erroneous but fallacious. The Revenue for its view relied heavily on the fact that the income returned in the revised returns, filed after inspection of accounts, was not full and true as the income of the assessee was assessed at a much higher figure. This approach is wrong. The revised returns filed after about a year of the search and seizure, even if found not to be true, could not be made the basis for the view that the disclosure was not full and true. If the disclosure made in the revised returns had been accepted as such, the assessee would have been entitled to relief of waiver/reduction of penalty under the general law and the provision of Explanation 2 would not apply. Apart from this, the returns filed beyond a period of fifteen days, as provided by Explanation 2, could not be made the basis for declining the approval. The period of fifteen days envisaged by Explanation 2 cannot be extended. The filing of the revised returns subsequent to the expiry of 15 days could not detract from the validity of the disclosure made within 15 days. The assessee, of course, if he had filed the revised returns within the statutory period of 15 days of the search and seizure, the position might have been different, the revised returns having the effect of superseding the original disclosure. An extraneous consideration thus weighed with the Board in declining the approval. The finding that the disclosure is not full and true is vitiated being based on extraneous and irrelevant evidence. In the context of the above discussion, learned counsel for the respondent can draw no assistance from Om Prakash Bhatia v. ITO [19901 183 ITR 336 and P.D. Varghese and E.J. Davis v. CIT [1989] 180 ITR 187 (Ker) for the view that the High Court should not interfere with the finding recorded by the authorities.
32. In the context of the averments made, as noticed above in the petition under Section 273A, the observations and recommendations made by the Income-tax Officer, especially in paragraph 6 reproduced in the earlier part of this judgment, are more significant. The Inspecting Assistant Commissioner having regard to these facts observed in her report as under :
"The intention of the assessee after the search was to make a complete disclosure of his income. As such, as and when the Income-tax Officer detected any discrepancy or inaccuracy, the assessee immediately agreed to surrender the same."
33. The Chief Commissioner, while requesting the Board to grant approval to waive penalty, specially noticed that the assessee was entitled to the benefit thereof. In the opening part of the letter, he noticed that the assessee was not allowed any access to the seized books of account and that the assessee had claimed that any further amount which is found by the Income-tax Officer will also be surrendered by him for assessment. From this, the Chief Commissioner meant nothing else but that the assessee made a full and true disclosure of his income. The stand of the Revenue in the written statement that the assessee was never refused inspection of the documents seized is also proved to be wrong. The recommendations made by the authorities as noticed above have not been set aside by the Board or found to be perverse. All the authorities on their part recommended that the case was covered by Explanation 2 to Section 273A. After the order of the Board, annexure P-8, the successor Chief Commissioner also recommended waiver of 70 per cent. Whether the disclosure made in the petition, annexure P-1, was full and true, has to be viewed in this backdrop and also the fact that the assessee did not challenge the orders of assessment by way of appeal and the tax assessed was deposited. It is apparent that the orders of assessment were not challenged with a view to stick to the promise made in the petition under Section 273A and to demonstrate that the disclosure made was full and true. The assessee in this case has demonstrated that the disclosure was full and true and the intention was clear in that behalf. The words "full and true disclosure" have not been defined in the Act. In the context of this case and having regard to the contents of the petition under Section 273A, at whatever figure the assessee has been assessed will be the figure the assessee disclosed as his full and true disclosure.
34. Apart from the above, the provision of penalty has to be liberally construed. The intention of the Legislature was also to give some benefit to assessees making a clean breast of everything within the statutory period. Such a provision has to be liberally construed and, in case of doubt, in favour of the assessee. Moreover, this is a case of penalty which is penal in nature and not of interest which is compensatory. This is more apt in the context that an assessee is entitled to this benefit only once in his lifetime. It is thus an occasion provided by the Legislature to tax evaders to reform themselves by making a full and true disclosure.
35. As a result of the above discussion, the conclusion is inescapable that the assessee had made a full and true disclosure of his income and the present is a case which is covered by Explanation 2 to Section 273A of the Act. The orders, annexures P-8 and P-11, declining approval on the ground that the disclosure was not full and true are consequently quashed and the case is remitted to the authority/authorities for passing appropriate orders afresh keeping in view the observations made and the conclusions arrived at.
36. The orders, annexure P-6 in the connected cases, are also set aside on the parity of the above reasoning. The Chief Commissioner shall pass fresh orders in these cases in accordance with law and in the light of the above discussion.
37. The writ petitions are consequently allowed in the terms indicated above. The parties are left to bear their own costs.