1997 (1) TMI 46 - HC - Income Tax

Summary

Issues:
Petition to quash impugned order under section 273A of the Income-tax Act for the assessment year 1977-78.
Consideration of waiver of penalty and interest under sections 271(1)(i), 271(1)(iii), and 139(8) of the Act.
Refusal of waiver based on addition of Rs. 5,000 for unexplained investment in assessment.
Interpretation of "full and true" disclosure and "good faith" in filing returns.
Applicability of previous court judgments on similar provisions.

Analysis:
The petitioner sought to quash the order dated December 15, 1984, passed by the Chief Commissioner of Income-tax, Lucknow, under section 273A of the Income-tax Act for the assessment year 1977-78. The petitioner filed the return with a delay of 14 months and applied for waiver of penalty and interest under sections 271(1)(i), 271(1)(iii), and 139(8) of the Act. The Commissioner rejected the waiver application citing an addition of Rs. 5,000 for unexplained investment in the assessment. The key issue was whether waiver could be denied solely based on such an addition.

Upon scrutiny of the assessment order, it was found that the petitioner had made a deposit of Rs. 8,000 in a specific account, explaining it as savings from agricultural and business income. The assessing authority accepted only a partial explanation, leading to the addition of Rs. 5,000 as unexplained. The Commissioner reasoned that since an addition was made, the petitioner was not entitled to waiver. However, the petitioner argued that despite the addition, the return was filed voluntarily and in good faith with full and true disclosure.

Referring to a previous judgment, the court emphasized that for a disclosure to be "full and true," it must be honest, and "good faith" relates to the individual's state of mind when making the disclosure. The petitioner contended that the addition did not negate the good faith in filing the return, as there was no finding that the disclosure was not made honestly. Merely because an addition was made based on a partial rejection of the explanation did not imply lack of good faith in filing the return.

Ultimately, the court ruled in favor of the petitioner, quashing the order that refused waiver for the assessment year 1977-78. The Commissioner was directed to reconsider the waiver application in light of the observations made in the judgment, emphasizing the importance of good faith and full disclosure in determining eligibility for waiver of penalties and interest under the Income-tax Act.