1996 (11) TMI 16 - HC - Income Tax

Summary

Issues: Challenge to legality of order by Commissioner of Income-tax for assessment year 1971-72; Application under section 273A(4) of the Income-tax Act; Consideration of genuine hardship; Rejection of application by Commissioner; Interpretation of sections 271(4A) and 273A(4); Amendment to section 273A(4) by Direct Tax Laws (Amendment) Act, 1989.

The petitioner challenged the order dated March 19, 1985, passed by the Commissioner of Income-tax for the assessment year 1971-72, alleging that the Commissioner did not consider the legal position for the application of section 273A(4) of the Income-tax Act. The petitioner had initially filed a return of loss, which led to the imposition of a penalty. Despite the finality of the penalty order, the petitioner later applied under section 273A(4) citing genuine hardship caused by the penalty. The Commissioner rejected this application, prompting the petitioner to file the present petition under article 227 of the Constitution of India.

The petitioner contended that the Commissioner's consideration of extraneous material in rejecting the application under section 273A(4) was illegal. The petitioner argued that the Commissioner's assessment of lack of cooperation in recovery proceedings was unfounded, given the nature of the return as a loss return. Additionally, the petitioner asserted that the imposition of the penalty on a return of loss constituted genuine hardship, contrary to the Commissioner's findings. Conversely, the respondents argued that the finality of the penalty order precluded the petitioner from seeking relief under section 273A(4) and that genuine hardship needed to be substantiated by the petitioner.

The court analyzed sections 271(4A) and 273A(4) of the Income-tax Act, noting that the latter provision allowed for the reduction or waiver of penalties if genuine hardship to the assessee was established. The court highlighted the amendment to section 273A(4) by the Direct Tax Laws (Amendment) Act, 1989, affecting assessments from April 1, 1988, onwards. The court emphasized that the Commissioner's consideration of irrelevant material and failure to provide reasons for rejecting the application under section 273A(4) indicated a lack of proper assessment.

In its judgment, the court quashed the Commissioner's order dated March 19, 1985, directing a reconsideration of the matter in accordance with the law and after affording the petitioner an opportunity to be heard. The court ordered no costs and instructed the refund of any security amount deposited by the petitioner. The court's decision aimed to rectify the Commissioner's flawed assessment and ensure a fair reconsideration of the petitioner's application under section 273A(4) based on genuine hardship considerations.