1993 (9) TMI 98 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the search and seizure operation.
2. Applicability and interpretation of Explanation 2 to Section 273A of the Income-tax Act, 1961.
3. Whether the assessee made a full and true disclosure of income within the meaning of Explanation 2 to Section 273A.
4. Authority of the Commissioner to waive penalties exceeding five lakh rupees without Board approval.
5. Validity of the Board's refusal to approve the waiver of the penalty.

Issue-wise Detailed Analysis:

1. Legality of the Search and Seizure Operation:
The search and seizure operation conducted at the residence and factory premises of the petitioner from January 23 to January 25, 1985, was in connection with income-tax purposes. A large number of books of account and documents were seized by the income-tax authorities during this operation. The legality of the search and seizure was not explicitly contested in the judgment, implying its procedural correctness.

2. Applicability and Interpretation of Explanation 2 to Section 273A:
Explanation 2 to Section 273A was a short-lived provision effective from October 1, 1984, to May 24, 1985. It provided that if a person made a full and true disclosure of income within 15 days of seizure, it would be deemed as voluntary and in good faith. The court held that this provision has to be construed liberally to benefit the assessee in cases of search and seizure. The court emphasized that the Explanation was intended to cater to situations where the books of account and other documents were seized, making it difficult for the assessee to provide accurate figures without access to these documents.

3. Full and True Disclosure of Income:
The petitioner filed a petition on February 2, 1985, within the 15-day period, making a full and true disclosure of his assets. The court noted that the petitioner had stated in his petition that he was unable to inspect his books of account and documents, which were in the custody of the income-tax authorities, and thus made the disclosure based on memory and estimates. The court emphasized that the test for full and true disclosure should be the bona fides of the assessee and whether he placed all the books of account and documents before the authorities, not the accuracy of the figures disclosed. The court found that the petitioner had cooperated fully with the authorities, did not conceal any documents, and paid the entire tax promptly.

4. Authority of the Commissioner to Waive Penalties Exceeding Five Lakh Rupees:
Section 273A(2)(b) stipulates that if the penalty amount exceeds five lakh rupees, the Commissioner requires the previous approval of the Board to reduce or waive the penalty. In the present case, the penalty amount in Writ Petition No. 10468 of 1990 exceeded five lakh rupees, necessitating Board approval, which was ultimately not granted.

5. Validity of the Board's Refusal to Approve the Waiver of the Penalty:
The Board declined to approve the waiver, stating that the disclosure made by the assessee was neither true nor full, as the assessed income exceeded the disclosed income by a substantial margin. The court, however, disagreed with the Board's reasoning, stating that the petitioner had made a bona fide effort to disclose his income to the best of his ability without access to his books of account. The court held that the petitioner's conduct demonstrated full cooperation and bona fide disclosure, thus entitling him to the benefit of Explanation 2 to Section 273A.

Conclusion:
The court upheld the decision of the learned single judge, finding that the petitioner had made a full and true disclosure of his income in good faith within the meaning of Explanation 2 to Section 273A. Consequently, the court dismissed the appeals, affirming that the petitioner was entitled to the waiver of the penalty.