1998 (9) TMI 3 - HC - Income Tax

Penalty concealment search - disclosure voluntary/involuntary - object of section 273A is to limit the reduction or waiver of penalty only to cases where the disclosure is voluntary, is in good faith, is full and complete and is made prior to the detection. The scope of the term voluntarily may vary depending on the context. Having regard to the context in which it occurs in section 273A(1)(b) and having regard to the scheme of the Act, it must be held to refer to disclosure made by the assessee wholly divorced from compulsion or provocation resulting from search and seizure. - Section 273A cannot be read as a charter for an assessee who has deliberately concealed his income to claim immunity from penalty after a search had been made in his premises and incriminating materials seized

Summary

Issues Involved:
1. Legality of the penalty imposed under sections 271(1)(c) and 273 of the Income-tax Act, 1961.
2. Validity of the assessee's disclosure under Explanation 5 to section 271(1) of the Act.
3. Interpretation of the term "detection" in section 273A(1)(b) of the Act.
4. Determination of whether the disclosure was voluntary and in good faith.
5. Discretionary power of the Commissioner of Income-tax regarding waiver of penalty.

Issue-wise Detailed Analysis:

1. Legality of the Penalty Imposed:
The penalty proceedings were initiated and levied on March 25, 1991, under sections 271(1)(c) and 273 of the Income-tax Act, 1961. The assessee filed a petition seeking waiver of the penalty, arguing that the disclosure of concealed income was made on the understanding that he would not be penalized. The Commissioner of Income-tax rejected this petition, noting that the revised return showed a substantially larger income than the original return, and the disclosure was made only after a search, indicating it was not voluntary.

2. Validity of the Assessee's Disclosure:
The assessee argued that under clause (2) of Explanation 5 to section 271(1) of the Act, the disclosure made on October 1, 1987, should render the income non-concealed. However, the court noted that the requirements of this clause were not met as no statement under oath was made during the search, and the mere expression of desire to disclose income does not amount to a statement under section 132(4) of the Act.

3. Interpretation of the Term "Detection":
The term "detection" in section 273A(1)(b) was debated, with the assessee arguing that detection is different from seizure or search and involves further scrutiny by the Assessing Officer. The court, however, interpreted "detection" to mean the point at which the wrongdoing is identified, which in this case was during the search and seizure.

4. Determination of Whether the Disclosure Was Voluntary and in Good Faith:
The court examined whether the disclosure made by the assessee was voluntary and in good faith. It was argued that the disclosure was made before the Income-tax Officer detected the concealment. However, the court found that the disclosure was prompted by the search and seizure, and thus, it could not be considered voluntary. The court referred to previous judgments, including the Supreme Court's decision in Tribhovandas Bhimji Zaveri v. Union of India, which held that disclosures made after a search cannot be deemed voluntary.

5. Discretionary Power of the Commissioner of Income-tax:
The court upheld the discretionary power of the Commissioner, noting that the Commissioner had applied his mind and provided reasons for rejecting the waiver. The court emphasized that the object of section 273A is to reward voluntary, good faith, full, and complete disclosures made prior to detection. The court concluded that the disclosure in this case did not meet these criteria and dismissed the writ petition.

Conclusion:
The writ petition was dismissed, and the penalty imposed under sections 271(1)(c) and 273 of the Income-tax Act, 1961, was upheld. The court held that the disclosure made by the assessee was not voluntary and in good faith, and the Commissioner of Income-tax was justified in rejecting the waiver.