1990 (9) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Legality and validity of the order dated August 4, 1987, passed by the Commissioner of Income-tax under section 273A of the Income-tax Act, 1961.
2. Determination of whether the disclosure of income by the petitioner was voluntary and in good faith.
3. Conditions necessary for invoking the Commissioner's discretion under section 273A.
4. Whether the Commissioner's refusal to exercise discretion was justified.

Detailed Analysis:

1. Legality and Validity of the Order Dated August 4, 1987:

The petitioner, a partnership firm, challenged the legality and validity of the order dated August 4, 1987, passed by the Commissioner of Income-tax under section 273A of the Income-tax Act, 1961. The petitioner argued that the Commissioner's order was issued without proper consideration and without hearing the petitioner, which violated the principles of natural justice.

2. Determination of Whether the Disclosure of Income by the Petitioner Was Voluntary and in Good Faith:

The Commissioner held that the disclosure made by the petitioner was not voluntary. He observed that the sum of Rs. 22,87,000 was seized from the person carrying the cash under the instruction of the assessee on April 30, 1981. Initially, an attempt was made to provide an explanation, but it was proved false. The Commissioner concluded that the offer to be assessed was made only after it became clear that the seized amount was likely to be subjected to both tax and penalty, and thus, the disclosure was not voluntary or in good faith.

3. Conditions Necessary for Invoking the Commissioner's Discretion Under Section 273A:

Section 273A of the Income-tax Act allows the Commissioner to reduce or waive penalties and interest if the person has voluntarily and in good faith made full and true disclosure of income before detection by the Income-tax Officer or before the issue of notice under section 139(2) or section 148. The common factor under both clauses (b) and (c) is the voluntary and good faith disclosure of income.

4. Whether the Commissioner's Refusal to Exercise Discretion Was Justified:

The court referenced several judgments, including Laxman v. CIT [1988] 174 ITR 465, which held that the exercise of discretion under section 273A cannot be arbitrary or capricious. The court stated that once the conditions for exercising discretion are satisfied, refusal to exercise such discretion must be based on valid reasons.

The court noted that the amount of Rs. 22,87,000 was seized on April 30, 1981, and six days later, the petitioner informed the Deputy Director of Inspection (Intelligence) and the Commissioner that the amount belonged to it and should be treated as its income for the assessment year 1981-82. The court concluded that there was no question of concealment or detection, and the returns filed were voluntary and in good faith.

Conclusion:

The court quashed the impugned order and directed the Commissioner to dispose of the application under section 273A afresh, considering the observations made. The court also ordered the discharge and return of the bank guarantee and the return of the deposited amount with interest, if any. No order as to costs was made.