1990 (4) TMI 41 - HC - Income Tax

Summary

Issues Involved:
1. Rejection of petition under Section 273A of the Income-tax Act, 1961.
2. Declining to reduce/waive penalties levied under Section 271(1)(c) and (iii) of the Act.
3. Determination of "good faith" in disclosure of income.
4. Exercise of discretion by the Commissioner under Section 273A.

Issue-wise Detailed Analysis:

1. Rejection of Petition under Section 273A of the Income-tax Act, 1961:

The petitioner, a partnership firm, questioned the order dated March 12, 1985, by the Commissioner of Income-tax, Visakhapatnam, which rejected its petition under Section 273A of the Income-tax Act, 1961. The petitioner sought a writ of mandamus directing the Commissioner to waive the penalties levied for concealment of income for the assessment years 1972-73 to 1976-77, arguing that it had satisfied all conditions prescribed in Section 273A.

2. Declining to Reduce/Waive Penalties Levied under Section 271(1)(c) and (iii) of the Act:

The petitioner had originally filed returns for the assessment years 1972-73 to 1976-77, which were completed by December 31, 1976, with a total income of Rs. 60,000. Subsequently, the partners felt the incomes were under-reported and filed revised returns on May 2, 1977, declaring an additional income of Rs. 2,35,000. The petitioner claimed that the Commissioner had assured them that no penalties or interest would be levied if correct income was declared. Despite this, penalties were levied for the said years, and the petitioner's application for waiver under Section 273A was rejected by the Commissioner.

3. Determination of "Good Faith" in Disclosure of Income:

The Commissioner rejected the petitioner's application on the grounds that the revised returns were not filed in "good faith." The Commissioner argued that the petitioner was aware of its real income but chose to disclose it only after the original assessments were completed, motivated by the need to explain the purchase of a house. The court, however, found that the revised returns were accepted in full without any additions, indicating that the disclosures were honest and frank. The court referred to the General Clauses Act, 1897, defining "good faith" as actions done honestly, even if negligently.

4. Exercise of Discretion by the Commissioner under Section 273A:

Section 273A confers discretion on the Commissioner to reduce or waive penalties if satisfied that the disclosure was made voluntarily and in good faith. The court observed that the Commissioner's discretion must be exercised judiciously and fairly. The court cited previous judgments, emphasizing that the satisfaction required under Section 273A must be objective and not subjective. The court found that the Commissioner had relied on irrelevant considerations and hypothetical scenarios to conclude that the disclosures were not made in good faith.

Conclusion:

The court set aside the impugned order of the Commissioner, stating that the conclusion that the petitioner did not act in good faith was without valid basis and influenced by extraneous considerations. The court directed the Commissioner to reconsider the petitioner's application under Section 273A and exercise discretion in accordance with the law and the observations made in the judgment. The writ petition was allowed with costs.