Madhya Pradesh High Court
Jaikishan Gopikishan And Sons And Ors. vs Commissioner Of Income-Tax And Ors. on 22 February, 1989
Equivalent citations: [1989]178ITR481(MP)
JUDGMENT S.K. Dubey, J.
1. This is a petition under Articles 226/227 of the Constitution of India for quashing of the orders, annexures T and U, and for quashing the proceedings of penalty, interest and launching of prosecution, and for issuance of a writ in the nature of mandamus for a direction to respondent No. 1 to reconsider the petition for granting relief under the "Voluntary Disclosure Scheme", after affording an opportunity of hearing to the petitioners and for such other reliefs as may be deemed proper.
2. The material facts leading to this petition are :
That petitioner No. 1 is a registered partnership firm; petitioners Nos. 2 to 6 are its partners in their capacity as managers of their respective joint family firms. Petitioner No. 1 carries on business at Sanawad and derives income from its cotton pressing and ginning factory. Petitioner No. 1 filed its return for the assessment year 1983-84 showing losses in its cloth business. The Income-tax Officer, respondent No. 4, after satisfying himself, passed the assessment order, wherein the losses were accepted. In the next assessment year, i.e., 1984-85, the petitioner No. 1, in addition to the losses in the cloth business, also showed the losses in the business of chillies and garlic trading which was carried on by it in the said assessment year. On an enquiry by the Income-tax Officer, the losses were found to be bogus ; hence, the Income-tax Officer issued a notice (annexure "B") under Section 143(3) of the Income-tax Act, 1961 (for short "the Act"), in respect of the assessment year 1984-85, to show cause why the losses shown in the business of cloth, chillies and garlic be not disallowed. Another notice (annexure "C") under Section 147/148 of the Act was also issued for reassessing the income in relation to the assessment year 1983-84 as income chargeable to tax has escaped assessment. The petitioners, taking advantage of the public circulars in relation to the "Voluntary Disclosure Scheme" issued from time to time, filed their revised returns for the assessment years 1983-84 and 1984-85 and voluntarily disclosed higher incomes and also paid full tax thereon before March 31, 1986. The petitioners alleged that it was done by the petitioners prior to the detection of concealment by the Income-tax Officer, i.e., before reassessment of the escaped income. Petitioner No. 1 filed a petition on March 20, 1986, before the Commissioner of Income-tax, Bhopal, for grant of the relief on the payment of tax on the disclosed income and prayed that proceedings on the notice under Sections 147 and 148 of the Act for penalty, etc., be quashed. The Income-tax Officer, after reassessment, disallowed the claim as the declaration of income in the return filed in response to the notice under Section 148 of the Act has been made after the detection of the bogus nature of the loss claimed by the assessee. A penalty notice under Section 271(1)(c) of the Act for deliberate concealment of the income and not paying the tax and notices under Section 273(2)(a) of the Act for riot paying advance tax payable were also issued to the petitioners. A notice (annexure "O") in relation to the assessment years 1983-84 and 1984-85 was issued to petitioner No. 1 to show cause why prosecution be not launched against the partners of the firm under Section 276C (1) and (2) of the Act.
3. The petitioners, against the orders of reassessment for the assessment years 1983-84 and 1984-85, preferred appeals before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) dismissed the appeals for the assessment years 1983-84 and 1984-85 holding that for granting relief under the Amnesty Scheme and dropping of penalty, waiving of interest, etc., the Commissioner of Income-tax, Bhopal, is the proper authority to decide the question of granting relief if the return was considered to be one under the Amnesty Scheme. The Commissioner of Income-tax (Appeals) further observed that it is not for him to decide whether the return was filed under the Amnesty Scheme or not. In the order, it was also observed that the Amnesty Scheme does not find place in the Act itself, but it is only a scheme framed by the Government and instructions issued to the income-tax authorities for following the same. The authorities competent to decide such a question are the "administrative authorities". During the pendency of the appeals, the petitioners again approached respondent No. 3, the Central Board of Direct Taxes, for grant of the relief under the scheme. The Central Board of Direct Taxes instructed petitioner No. 1 to contact the Commissioner of Income-tax in that regard, vide annexure T. The Commissioner of Income-tax, vide order dated May 17, 1988, without affording an opportunity of hearing and without giving a reasoned or a speaking order, dismissed the petition stating that after careful consideration of the petition, the Board has decided that the petitioner's case for assessment years 1983-84 and 1984-85 is not covered under the Amnesty Scheme.
4. In this petition, Shri G.M. Chaphekar, learned counsel for the petitioners, contended before this court that the petitioners have filed their revised returns under the "Voluntary Disclosure Scheme" claiming benefit under the Amnesty Scheme, disclosed higher incomes and paid thereon the full tax before March 31, 1986, and before the passing of any order by the Income-tax Officer. Thus, the income-tax authorities were bound to give the benefits of the Amnesty Scheme as the Central Board of Direct Taxes has issued various circulars in this respect. The order (annexure 'K') dated 14 February, 1986 ([1986] 158 ITR (St.) 162), has been issued in exercise of the powers conferred under Section 119(2)(a) of the Act in respect of any assessment year up to and including the assessment year 1985-86. This order was binding on the income-tax authorities and the authorities were bound to pass the assessment order in accordance with the instructions contained in this order ; but the Income-tax Officer disallowed the relief and initiated action. Against the order of reassessment, the Commissioner of Income-tax (Appeals) also did not consider the claim on merits but observed that it is not for him to decide whether the return was filed under the Amnesty Scheme or not and that it is up to the authorities on the administrative side to decide such a question. But the Income-tax Officer considered the applicability of the Scheme on the merits of the case and rejected the same and, therefore, the Commissioner of Income-tax (Appeals) also was bound to decide the question of benefit under the Amnesty Scheme. On the other hand, the Central Board of Direct Taxes and the Commissioner of Income-tax, Bhopal, on the administrative side, rejected the claim without affording an opportunity of hearing to the petitioners. The order so passed is a cryptic order and not a speaking order, which has been passed in violation of the principles of natural justice, as because of rejection of the petition by the Commissioner of Income-tax, the petitioners will have to pay penalty and interest and will have to face prosecution and the petitioners' right to have the penalty, interest, etc., waived under Section 273A of the Act has been denied.
5. Shri R.C. Mukati, learned counsel for the respondents, contended that against the order passed in appeals by the Commissioner of Income-tax (Appeals), the petitioners ought to have preferred an appeal before the Tribunal, even though the Appellate Assistant Commissioner observed that it has not jurisdiction to consider the question of allowing the benefits under the Amnesty Scheme. As the petitioners have failed to file appeals, the petitioners now cannot be allowed to challenge the same in the petition. Shri Mukati further contended that before the passing of an order by the Commissioner of Income-tax, on the administrative side, it was not necessary to grant an opportunity of hearing and to pass a reasoned order because the impugned order was passed on the administrative side, and is an administrative order. Hence, the question of waiving any penalty, interest or any other liability does not arise.
6. In the present case, it is not in dispute that the facility under the Amnesty Scheme was prevalent and the Central Board of Direct Taxes issued various public circulars from time to time in relation to the "Voluntary Disclosure Scheme", which was in force by virtue of the provisions of the Finance Act, 1985. Some of them are public circulars, No. 423 (annexure "D"), No. 432 (annexure "E"), No. 439 (annexure "F"), No. 440 (annexure "G"), No. 441 (annexure "H"), No. 451 (annexure "J") and order dated February 14, 1986 (annexure "K") ([1986] 158 ITR (St.) 162). The Central Board of Direct Taxes has also issued a resume of the answers given to the specific questions raised by the members of the Bar Association, Income-tax, on January 2, 1986--([1986] 157 ITR (St.) 53), which is annexed as annexure "I". It is also not disputed that the subordinate authorities and the income-tax authorities are bound by the instructions, circulars and orders issued by the Central Board of Direct Taxes, which are issued in exercise of their powers conferred under Section 119 of the Act. Public Circular No. 451 (annexure "J"), dated February 17, 1986--([1986] 158 ITR (St.) 135) gives a clarification regarding the press note and circulars issued by the Ministry of Finance regarding declaration of higher income/wealth. This circular clearly gives a guideline to answer No. 1 that in cases of completed assessments, the taxpayer should approach the concerned Commissioner of Income-tax with the full disclosure of the amounts of income and/or wealth concealed in various years and should also file returns for the relevant years, with evidence of payment of full tax before March 31, 1986, on such income. Thereafter, such return is to be regularised by issue of a formal notice under Section 148 of the Act. In cases where the assessment is pending, the taxpayer can file a revised return before the Income-tax Officer along with the evidence of payment of tax. This circular applies to old assessees also ; the circular also deals with pending appeals. After complying with the conditions for filing revised returns and of the payment of tax before March 31, 1986, in cases of pending and completed assessments, the concerned authorities have to decide the case of such assessees. The order dated February 14, 1986--([1986] 152 ITR (St.) 162) (annexure "K") which has been issued in exercise of the powers conferred by Section 119(2)(a) of the Act makes it further clear that the Income-tax Officers and the Inspecting Assistant Commissioners of Income-tax shall not initiate any proceedings for imposing any penalty on a person for an offence under Section 271(1) (a) and (c) or Section 273 of the Act in respect of any assessment year up to and including the assessment year 1985-86 if he is satisfied that such person has, prior to the detection by the Income-tax Officer or by the Inspecting Assistant Commissioner of Income-tax, as the case may be, of the concealment of particulars of income or of the inaccuracy of the particulars furnished in respect of such income, voluntarily and in good faith, between November 15, 1985, and March 31, 1986, made a full and true disclosure of such income and has paid tax on such disclosed income before March 31, 1986, and has co-operated in any enquiry relating to the assessment of his income.
7. It is well-settled that the circulars or the orders have the force of law and are binding on all the authorities of the Department (see the cases of the apex court in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC) and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC)). The binding nature of the circulars has been considered by the various High Courts in a series of decisions. In a recent decision, the Division Bench of the Kerala High Court in CIT v. Punalur Paper Mills Ltd. [1988] 170 ITR 37, after placing reliance on the decisions of the apex court and various High Courts, has held that the circulars so issued have the force of law and are binding on all officers of the Department. The benevolent circulars are in the nature of administrative relief and will go to the assistance of the assessee. They "supplant" the law and not "supplement" the law. The circulars can deviate from the provisions of the Act. It is not open to the Department to contend, even in cases where the circular goes beyond the terms of the section, that the circular has no legal effect or should not be given effect to. Circulars cannot impose any burden on the taxpayer. But, by the issue of the circular, the rigour of the law can be relaxed by giving administrative relief. Even if the circulars are relied on for the first time before the High Court during the course of hearing, the assessee will be entitled to the benefit of the circulars. The court is bound to take note of the circular. It is too late in the day for the Revenue to contend that the circular issued by the Central Board of Direct Taxes is only an administrative direction or that it will not bind the department or that it shall not be given effect to since it goes beyond the terms of the section. As stated above, the circulars "supplant" the law and not "supplement" the law, and we respectfully agree with the view taken by the Kerala High Court.
8. Therefore, we are of the opinion that the various circulars issued by the Central Board of Direct Taxes in exercise of its powers under Section 119 of the Act have the force of law and are binding on the subordinate authorities. We are also of the opinion that guidelines are issued from time to time to deal with the cases of such assessees, who claim immunity and consideration of their cases leniently and sympathetically, and the authorities are bound to deal with the cases, according to the instructions issued from time to time. Hence, in our opinion, the Commissioner of Income-tax (Appeals) was not right in not considering the merits of the case of the petitioners, which were considered by the Income-tax Officer, who, after considering the same, disallowed the benefit under the "Voluntary Disclosure Scheme". The Commissioner has not passed the orders on merits. Moreover, in the instant case, the assessment relating to the assessment year 1984-85 was not complete before the full disclosure of the concealed income by the petitioners. The petitioners, in view of the public circulars and orders, filed revised returns and paid the tax before March 31, 1986.
9. The petitioners also made a petition before the Central Board of Direct Taxes claiming the benefit of the Amnesty Scheme in the assessment years 1983-84 and 1984-85. The Board directed the petitioners to contact the Commissioner of Income-tax on the administrative side. The petitioners contacted the Commissioner of Income-tax and further made petitions. The Commissioner of Income-tax, without affording an opportunity of hearing, passed the order, which reads as under :
"Dear Sirs, Please refer to your letter addressed to the Chairman, Central Board of Direct Taxes, New Delhi, and the Board's letter F. No. 225/1797 87-ITA, dated May 5, 1988, on the above subject.
After careful consideration of your petition, the Board has decided that your case for the assessment years 1983-84 and 1984-85 is not covered under the Amnesty Scheme."
10. From the above order, it is apparent that it does not contain any reasons. While deciding the petition made before the Commissioner of Income-tax for exercising the discretionary powers under Section 273A of the Act, the Commissioner was acting under the statute. Every statutory authority has to act in accordance with the statute and has to pass the discretionary order judicially after affording an opportunity of hearing. The order must be a speaking order and if the order is arbitrary, fanciful or cryptic, a writ of mandamus will be issued to such an authority to rehear and determine the matter afresh, according to law.
11. Even if the petition is not considered under Section 273A of the Act and is considered to be on the administrative side, in rejection of the petition resulting in various penal consequences, i.e., imposition of penalty, interest and facing of prosecution, hence, in our opinion, the Commissioner, on the administrative side, after affording an opportunity, ought to have passed a reasoned and speaking order. Administrative action should be exercised in a reasonable manner and not arbitrarily. In the light of the circulars which are binding, it cannot be contended by the Revenue that, as the Commissioner was dealing with the petition on the administrative side, the principles of natural justice would not apply or the Commissioner is entitled to pass the order without giving reasons, whereby the person against whom an order has been passed, may not know whether the order has been passed after giving due "consideration" of the petition and the effect of the circulars on such petitioners. As power has been given by the public circulars to the Commissioner of Income-tax on the administrative side to deal with the petitions and returns of the full and true disclosure of concealed income, a formal notice under Section 148 for regularising the return has to be issued in cases of concluded assessments. In such a situation, while dismissing the petition, in our opinion, the Commissioner is bound to afford an opportunity of hearing and to pass a reasoned order so that the person, against whom the order is passed, the result of which is payment of penalty, interest and launching of prosecution, is not subjected to denial of the benevolent scheme or refusal of the benefit of the Amnesty Scheme, by which the Government is bound, because, of "promissory estoppel". Hence, it is essential that the Commissioner of Income-tax at least should have given an opportunity of hearing and ought to have passed a speaking order by giving sufficiently clear and explicit reasons in support of the order made by him, as a reasoned order promotes public confidence in the administrative process. Hence, we are of the opinion that, in the facts of the case, the Commissioner of Income-tax rejected the petition of the petitioner against the principles of natural justice and passed a cryptic order, which cannot be sustained in law.
12. As a result of the aforesaid discussion, we are of the opinion that the orders passed by the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax on the administrative side, cannot be sustained in law and deserve to be quashed, and are hereby quashed.
13. Before parting with the petition, we may observe that we have not dealt with the case of the petitioner on merits, i.e., whether the petitioners are entitled to the benefit of the Amnesty Scheme on the principle of promissory estoppel and in the light of the public circulars and the orders or not, and whether the revised returns were filed by the petitioners voluntarily making a full and true disclosure of their income of the relevant years before the detection of the concealed income by the Income-tax Officer or the Inspecting Assistant Commissioner of Income-tax, as the case may be. It will be open to the Income-tax authorities, in particular, the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax on the administrative side, to deal with the case of the petitioners on merits in accordance with law.
14. In the result, the petition is allowed with the observations as made above. The Commissioner of Income-tax on the administrative side and the Commissioner of Income-tax (Appeals) are directed to deal with the petition and the appeals, respectively, in accordance with law. No order as to costs of this petition in the circumstances of the case.