2009 (9) TMI 559 - HC - Income Tax

Penalty- Search operation was carried out. During the search debentures and units valued at Rs. 82,00,000 cash of Rs. 7,25,000, ornaments and jewellaries valued at Rs. 11,34,280 and silver utensils valued at Rs. 2,70,000 were seized. Order was passed under section 132(5). Penalty and interest were levied. Commissioner passed the order by rejecting the application for waiver of penalty and interest. A writ petition was filed against the order. According to the petitioner, the disclosure was made on the clear understanding from the authorities that there would be no penal liability and penal interest if any would be waived. On the basis of such assurance by the authorities and with a view to avoid litigation and to buy peace of mind, the offer was made a much higher figure. The noting in the diary could not have been deciphered by anyone except one or two person from the J group. Held that- no documentary evidence by way of balance sheet or any other material was produced to show that the petitioners were not in position to pay the penalty. Thus rejection of application by commissioner was justified.

Issues Involved:
1. Validity of the impugned orders under sections 273A(4) and 273A(1)(i) of the Income-tax Act, 1961.
2. Whether the disclosure of income by the petitioners was voluntary.
3. Whether the petitioners faced genuine hardship warranting waiver or reduction of penalties and interest.
4. Applicability of judicial precedents and statutory provisions to the facts of the case.

Analysis:

1. Validity of the Impugned Orders:
The petitioners challenged the orders dated June 21, 1993, and October 31, 1994, under sections 273A(4) and 273A(1)(i) of the Income-tax Act, respectively. The search operations on August 22, 1986, led to the seizure of various assets and documents, including the "Boston diary." The petitioners disclosed an additional income of Rs. 2.29 crores and paid additional tax of Rs. 1.06 crores. However, penalties and interest amounting to Rs. 1.44 crores were imposed.

2. Voluntariness of Disclosure:
The petitioners argued that their disclosure was voluntary based on assurances from the authorities to avoid penal liability. They contended that the disclosure was made in good faith and before any notice was issued under section 139(2). The Commissioner, however, found that the disclosure was not voluntary as it was made after the seizure of incriminating material, including the "Boston diary." The court upheld this finding, stating that disclosure made subsequent to the seizure of incriminating material is not voluntary, aligning with precedents such as Tribhovandas Bhimji Zaveri v. Union of India and Natwarlal Joitram Raval v. CIT.

3. Genuine Hardship:
The petitioners claimed genuine hardship, stating they had directed the Unit Trust of India to sell shares to pay the tax. The Commissioner rejected this claim, finding no evidence of financial hardship. The court agreed, noting that no documentary evidence was provided to substantiate the claim of financial hardship. The petitioners failed to demonstrate that paying the penalty would cause undue hardship, as required under section 273A(4).

4. Applicability of Judicial Precedents and Statutory Provisions:
The court referred to several judgments, including Bhairav Lal Verma v. Union of India, K. M. Radha Krishna Chettiar and Company v. CIT, and B. M. Malani v. CIT, to establish the criteria for voluntary disclosure and genuine hardship. The court emphasized that the disclosure must be made before the detection of income concealment and that financial hardship must be substantiated with evidence. The omission of Explanation 2 to section 273A(1) further reinforced that disclosure after seizure is not deemed voluntary.

Conclusion:
The court concluded that the petitioners' disclosure was not voluntary as it was made after the seizure of incriminating material. The claim of genuine hardship was also not substantiated with evidence. Therefore, the impugned orders under sections 273A(4) and 273A(1)(i) were upheld, and the rule was discharged with no order as to costs.

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