1987 (9) TMI 5 - HC - Income Tax

Summary

Issues:
- Application for waiver of penalties and penal interest under section 273A of the Income-tax Act, 1961.
- Interpretation of the term "issue of notice" under section 273A.
- Exercise of discretion by the Commissioner of Income-tax in reducing or waiving penalties.

Analysis:

The writ petition challenged the order of the Commissioner of Income-tax rejecting the petitioner's application for waiver of penalties and penal interest under section 273A of the Income-tax Act, 1961. The petitioner had submitted voluntary returns for the assessment years 1977-78, 1978-79, and 1979-80 before the assessments were made by the Income-tax Officer. The Commissioner of Income-tax based the rejection on the grounds that the returns were not voluntary and in good faith as they were filed after a notice was issued in the incorrect name of the petitioner. The petitioner argued that the notice issued in the incorrect name did not constitute a valid notice in the eye of the law and that the returns were submitted prior to the service of the correct notice. The petitioner relied on judicial interpretations equating "issue" of notice to "service" of notice, emphasizing that the returns were submitted voluntarily and in good faith before the correct notice was served.

The Commissioner of Income-tax contended that the reduction or waiver of penalties is a discretionary matter, and the exercise of discretion should not be interfered with under Article 226 of the Constitution of India. However, the court held that the discretion must be exercised judicially, considering all relevant facts. In this case, the Commissioner erred in considering the notice issued in the incorrect name as a basis for refusal to waive the penalty. The court directed the Commissioner to reconsider the application in light of section 273A of the Income-tax Act and the court's observations, emphasizing that the notice served upon the petitioner was only for one assessment year, not all three.

In conclusion, the writ petition was allowed, quashing the Commissioner's order and directing a reconsideration of the petitioner's application under section 273A of the Income-tax Act. The court highlighted the need for a judicial exercise of discretion by the Commissioner and consideration of all relevant aspects, including the correct issuance of notices for each assessment year.