1990 (4) TMI 22 - HC - Income Tax

Issues Involved:
1. Validity of the reassessment and assessment orders.
2. Legality of the penalties imposed under sections 271(1)(c), 273(a), and 140A(3) of the Income-tax Act.
3. Consideration of genuine hardship for waiver or reduction of penalties under section 273A(4) of the Income-tax Act.
4. Compliance with conditions for waiver or reduction of penalties under section 273A(4) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Reassessment and Assessment Orders:
The petitioner, a registered firm engaged in the business of purchasing and selling dry fish, was assessed for the years 1977-78, 1978-79, and 1979-80 by the Income-tax Officer (second respondent). A survey operation conducted by the Income-tax Department on September 11, 1980, led to the seizure of books of account from the residence of the petitioner's accountant. Consequently, reassessment notices were issued under section 148 of the Income-tax Act for the years 1977-78 to 1979-80, and revised returns were filed by the petitioner disclosing higher incomes. The reassessments and assessments for the years 1980-81 and 1981-82 were made, practically accepting the revised incomes except for minor disallowances.

2. Legality of the Penalties Imposed:
The second respondent initiated penalty proceedings under sections 271(1)(c), 273(a), and 140A(3) of the Income-tax Act and levied penalties aggregating to Rs. 4,90,949 for the years 1977-78, 1978-79, 1979-80, and 1981-82. Penalty proceedings for the year 1980-81 were kept pending due to an appeal regarding a technical disallowance. The penalties imposed and imposable for the five assessment years totaled approximately Rs. 6,90,949. The petitioner alleged that the enforcement of such penalties would cause genuine hardship and that the penalties were contrary to an assurance given by the then Inspecting Assistant Commissioner, Mr. Seetharamaiah.

3. Consideration of Genuine Hardship for Waiver or Reduction of Penalties:
The petitioner filed an application under section 273A(4) of the Income-tax Act for waiver or reduction of penalties, citing genuine hardship and cooperation with the Department. The petitioner argued that the penalties would cripple their business and reduce them to penury, as the firm's net per capita income was approximately Rs. 12,000 per year for each of the 19 partners, with total liabilities exceeding assets. The first respondent, however, declined to exercise discretion in favor of the petitioner, observing that the penalties equaled the firm's income for two years and that the reconstituted firm had taken over the liabilities, thus not causing genuine hardship.

4. Compliance with Conditions for Waiver or Reduction of Penalties:
The first respondent also held that the petitioner had not satisfied the condition of cooperation, as the firm filed false returns originally and only disclosed higher incomes after the survey operations. The petitioner contended that the revised returns were filed based on an assurance from the late Mr. Seetharamaiah, which was supported by evidence in a related criminal case. The court noted that the assurance, if true, was relevant to the question of genuine hardship. The court also observed that the first respondent had not considered relevant facts and had imported irrelevant considerations in deciding the question of cooperation.

Conclusion:
The court quashed the impugned order and directed the first respondent to dispose of the application for waiver or reduction of penalties afresh, in accordance with the law and the observations made, within two months. The interim stay of collection of penalties granted earlier was ordered to continue until the fresh disposal of the application. The writ petition was allowed with no costs.

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