Bombay High Court
Rohitkumar And Co. And Others vs F.J. Bahadur, Cit And Others on 6 September, 1990
Equivalent citations: [1991]190ITR93(BOM)
JUDGMENT T.D. Sugla, J.
1. By this petition under article 226 of the Constitution of India, the petitioner, a partnership firm, has challenged the legality and validity of the order dated August 4, 1987, passed by the Commissioner of Income-tax under section 273A of the Income-tax Act, 1961.
2. On April 30, 1981, when one Shri K. C. Mehta was returning from Delhi with cash of Rs. 22,87,000, the amount was seized from him under section 132 of the Income-tax Act, 1961. In his statement recorded at the airport itself, he stated that he had received the said amount from four parties at Delhi for delivering the same to a firm, Jemnadas Madhavji and Co., in Bombay for which he was working. On inquiry at Delhi, the departmental authorities, it appears, found that the alleged four parties at Delhi were either non-existing or had denied having given any money to the said Shri K. C. Mehta. On May 4, 1981, the petitioner-company wrote to the Deputy Director of Inspection (Intelligence) that the amount of Rs. 22,87,000 seized from Shri K. C. Mehta belonged to it, that the amount should not be returned to anybody else including Shri K. C. Mehta and that the petitioner proposed to come forward with a settlement petition offering same day, Shri K. C. Mehta also wrote to the Deputy Director of Inspection (Intelligence) confirming that the said amount did not belong to him or Jamnadas Madhavji and Co., as was stated by him originally but belonged to the petitioner. He also stated that all the partners in the petitioner firm were his close relatives. On May 9, 1981 the petitioner filed a settlement petition before the Commissioner offering the said amount of Rs. 22,87,000 as its income for the assessment year 1981-82 and requested the Commissioner to waive interest and/or penalty livable/impossible under the Act as the petitioner was making a full and true disclosure of its income voluntarily and in good faith. In view of the said statements of Shri K. C. Mehta and the petitioner, the Deputy Director of Inspection (Intelligence) passed an order on June 22, 1981, releasing the said amount in favour of the said Shri Mehta and simultaneously seizing the same in the hands of the petitioner.
3. On June 22, 1981, the petitioner filed its return for the assessment year 1981-82 disclosing income of Rs. 29,784 from business and of Rs. 22,87,000 as income from other sources. On September 15, 1981, an order under section 132(5) was passed treating the said amount and something more as the income of the petitioner for the assessment year 1982-83, on July 22, 1982, the petitioner filed its return of income for the assessment year 1982-83 disclosing income of Rs. 30,801. On realisation that the amount of Rs. 22,87,000 was to be assessed as income for the assessment year 1982-83 and not for the assessment year 1981-82, the petitioner revised its return of income for both the years by including the said sum of Rs. 22,87,000 as income in the return for the assessment year 1982-83 and excluding the same from the return for the assessment year 1981-82. An application under section 273A of the Income-tax Act, 1962, was filed requesting for waiver and/or reduction of penalty and interest chargeable/leviable under the Act.
4. Assessment for the year, i.e., 1982-83, was completed on July 30, 1983, computing the total income at Rs. 23,17,801. Interest was charged under sections 139(8), 215 and 217 of the Act. Penalties under section 217(1)(c) and 273(c) were also imposed. However, The Commissioner rejected the petitioner's application under section 273A by an order dated July 29, 1984, without hearing the petitioner.
5. The petitioner, thereupon, filed a Writ Petition No. 2907 of 1983 in this court. The Petition came up for admission on January 20, 1984, when the order of the Commissioner dated July 29, 1983, was set aside at the stage of admission itself and the Commissioner was directed to dispose of the application under section 273A afresh after hearing the petitioner.
6. The Commissioner has again held that it is not a fit case for waiver or reduction of interest and/or penalty under section 273A as the disclosure made by the petitioner was not voluntary. He has observed that the sum of Rs. 22,87,000 belonging to the assessee was seized from the person carrying the cash under the instruction of the assessee on April 30, 1981. An attempt was made in the first instance to give some explanation but the explanation was proved to be false. It was only after it become clear to the assessee that the seized amount was likely to be subjected to both tax and penalty and that tax and penalty was likely to be more than the amount seized, that the offer to be assessed in respect thereof was made. Faced with such a situation, the assessee made an offer to make the best out of a bad bargain in the hope that the seized amount will bear taxed at the rate applicable to a registered firm and that the penalty and interest under the various sections of the Income-tax Act may be saved. Disclosure made under the constraint of a read and imminent prospect of the loss of the entire seized amount, he opined, cannot be considered to be voluntary or in good faith.
7. Section 273A of the income-tax Act reads as under :
"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 impossible 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 impassable under section 273, 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;
(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 rapid 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 :-.....
A Division Bench of our High Court in the case of Laxman v. CIT (1988) 174 ITR 465 held that it is not quite correct to say that the power under section 273A is purely discretionary and, therefore, no interference is called for in writ jurisdiction. It was observed (at p.474) :
"...Once the conditions required for exercise of discretion in any judicial or quasi-judicial proceeding 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, in the instant case, refusal to exercise discretion is for no other reason than misconception of the scope of the power and hence a writ of mandamus can be issued directing the Commissioner to entertain the application and to proceed to exercise the discretion with the limit specified by law".
8. It is, therefore, necessary to ascertain the conditions necessary for invoking the Commissioner's exercise of discretion. In the present case, the waiver or reduction is sought for interest charged under section 215 and penalties imposed under section 271(1)(c) and under section 273. The conditions necessary are referred to in clauses (b) and (c) of that section. Under both the clauses, the common factor is the making of full and true disclosure of income voluntarily and in good faith. The uncommon factor is that while under clause (b), such a disclosure had to be before the detection of the concealment of income by the Income-tax Officer, under clause (c) it has to be before the issue of notice under section 139(2) or, where no such notice has been issued and the period of the issue of such notice has expired, prior to the issue of notice under section 148. The dispute in the present case is about the satisfaction of the common factor under the two clauses and that is what has been found wanting by the Commissioner. The dispute, thus, boils down to the meaning of the expression "voluntarily and in good faith made full and true disclosure of income." If the Commissioner understood the meaning of that expression correctly and appreciated the facts in the light of such understanding, this court will be reluctant to substitute its own judgment in writ jurisdiction, even if it finds that the appreciation of facts by the Commissioner is perhaps not quite correct.
9. It is pertinent to mention that the Allahabad High Court in the case of Hakam Singh v. CIT took the view that a return filed under a constraint of exposure to adverse action by the Department is not "voluntary" within the meaning of section 273A. In that case, the returns were filed after the business premises of the assessee were searched and account books seized. It was held that the Commissioner was justified in rejecting the application of the assesse under section 273A. This is also the view taken by the same High Court in an earlier decisions in the case of Mool Chand Mahesh Chand v. CIT . A contrary view seems to have been taken by the same High Court in the case of Jakhodia Brothers v. CIT (1978) 115 ITR 61. In that case, returns were filed after the Inspector of Income-tax visited the assessee's premises in survey operations and inquired about the sources of funds utilized by the assessee in the construction of a property. But this was during the course of proceedings for a subsequent year, it was held that the visit of the Inspector and the enquiry by itself did not amount to a compulsion or a constraint on the petitioner to file return due to fear of detection and inevitable follow-up action. In the course of the judgment, the court observed (p.67) :
"...For invoking the power of reduction or waiver of interest under clause (c) read with clause (iii) of section 273A(1), what is required to be shown is that the assessee has, 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. The Commissioner did not give any finding that the disclosure application was filed by the petitioner-firm on April 23, 1973, due to any compulsion or under any order passed by any competent authority. The order of the Commissioner shows that the said application was filed by the petitioner on his own without being influenced or asked by anyone. In these circumstances, it is not correct to say that the disclosure made was not voluntary. Had the Commissioner found that the disclosure was made because of any detection made by the Income-tax Officer the matter would have been different. But on the findings given it is not possible to say that the disclosure made was not voluntary.... The good faith which is required to be established for invoking the aforesaid provision is that in making the disclosure the petitioner must have acted honestly. In other words, he should not have been guilty of having acted dishonestly in making the disclosure. The fact that before making the disclosure his conduct had been dishonest or that he did not act in good faith is irrelevant for the purposes of applying these provisions, the disclosure is made by an assessee under this section for the purposes of getting the benefits provided therein. The fact that, in the past, the assessee did not make a full disclosure of his income and concealed the same is immaterial. We are, therefore, of the opinion that the ground on which the Commissioner of Income-tax rejected the application filed by the petitioner for the reduction of interest is not tenable in law".
10. The Karnataka High Court, in the cases of S. R. Jadav Desai v. WTO (1980) 121 ITR 531 and B. Anjanappa v. CWT (1981) 124 ITR 433, the Gujarat High Court in the case of Madhukar Manilal Modi v. CWT (1978) 113 ITR 318 and the Punjab and Haryana High Court in the case of Hira Singh v. CWT (1982) 134 ITR 438, took the view that the word 'voluntary' meant in contradiction to compulsion and the words "good faith" meant with due care and caution. If return was filed except in response to a notice requiring the assessee to file a return, it will be a case of a return filed voluntarily. It will be a case of filing the return in good faith, if what is filed is with due care and caution, that is substantially correct to the best of the information and belief of the assessee. Since most of these cases and some more cases also have been considered by the aforesaid Division Bench of our High Court in Laxman v. CIT (1988) 174 ITR 465, it is really not necessary to refer to the individual cased in detail as observed by the Division Bench of our court in 174 ITR 465 (at p.472) :
"The term 'good faith' is not defined under the Act but is defined under section 2(22) of the General Clause Act. Either under the General Clause Act or in ordinary parlance, an act done in good faith means an act done honestly even if it is tainted with negligence or mistake. All that is required is that disclosure of income must be full and true according to the honest belief of the assessee... 'voluntary' means 'without compulsion'. What was the compulsion in the instant case ? The so-called visit of the Inspector to the house in the course of general survey operations. In the first place, there is no material whatsoever to come to the conclusion that any Inspector visited the petitioner's premises and made inquiries about the source of funds with which the building was being constructed.... Assuming that some Inspector did visit the premises of the petitioner and made inquiries about the source of funds, it is difficult to come to the conclusion that such visit and the inquiry by itself amounted to compulsion or constraint on the petitioner to file the returns due to fear of detection and inevitable follow-up action..."
11. In the present case, the amount of Rs. 22,87,000 was seized from one Shri K. C. Mehta on April 30, 1981. Six days thereafter, the petitioner brought to the notice of the Deputy Director of Inspection (Intelligence) as well as the Commissioner that that amount belonged to it and should be treated as its income for the assessment year 1981-82, the previous year for the relevant assessment year had not ended. There is, therefore, no question of concealment in the hands of the assessee far less a case of detection and the returns filed cannot but be held to be voluntary and in good faith.
12. Accordingly, the impugned order is quashed. Rule is made absolute in terms of prayer clause (a). The Commissioner is directed to dispose of the application under section 273A afresh in the light of the observations made hereinabove.
13. At the time of the admission, interim relief was not granted, the matter was taken in appeal. The appellate court granted interim relief in terms of prayer clause (d) of the petition on the condition of the petitioners' making a deposit of Rs. 6,50,000 with the Department and furnishing a bank guarantee for the balance amount of Rs. 6,50,000 of a nationalised bank to the satisfaction of the prothonotary and Senior Master till the disposal of this petition. In view of the fact that the petition is allowed in terms of prayer clause (a) and the amount of Rs. 22,87,000 seized from the petitioners is still in the possession of the Department, it is only reasonable that the bank guarantee should be discharged and the guarantee returned to the petitioners. The Department is also directed to return the amount of Rs. 6,50,000 deposited with it under the orders of this court in accordance with law with interest. If any.
14. No order as to costs.