ORDER REJECTING APPLICATION FOR WAIVER OF PENALTY WITHOUT PROPER REASON IS NOT JUSTIFIED

[Mr. M. GOVINDARAJAN]

                        Sec. 273A of the Income Tax Act, 1961 deals with the power to reduce or waive penalty in certain cases.   Sec. 273A(1) provides that the Commissioner may, in his discretion, whether on his own motion or otherwise reduce or waive penalty imposed or imposable on a person under Sec. 271(1)(iii) if he is satisfied that such person-

·  has, prior to the detection by the Assessing Officer, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income voluntarily and in good faith, made full and true disclosure of such particulars; and also

·  has co-operated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of tax or interest payable in consequence of an order passed under this Act in respect of relevant assessment year.

 A person shall be deemed to have made full and true disclosure of his income or the particulars relating thereto in any case where the excess of income assessed over the income returned is of such nature as not to attract the provisions of Sec. 271(1)(C).  

                        In 'Mrs. P.V. Athanimath V. CWT [1983 -TMI - 28133 - KARNATAKA High Court] the Karnataka High Court quashed the order passed by the Commissioner of Income Tax rejecting the application for reduction or waiver of penalty on the ground that he had failed to exercise judicial discretion vested in him by taking into account relevant consideration.  In 'K.M. Radha Krishna Chettiar and Co V. Commissioner of Income Tax' [1998 -TMI - 15103 - MADRAS High Court] the Madras High Court held that the Commissioner of Income Tax had not applied his mind and not recorded any findings as to the compliance or otherwise of the conditions imposed under Sec. 273A of the Act and he had not assigned any reason whatsoever for refusing the relief sought for by the petitioner under Sec. 273A while exercising his discretion and held that the order passed by the Commissioner was not valid and liable to be quashed.

                        In 'Shrinath Ceramics V. Commissioner of Income Tax' - [2009 -TMI - 78556 - Madhya Pradesh High Court] the writ petition has been filed by the petitioner challenging the order passed by the Commissioner of Income Tax- II, Indore, rejecting the application of the petitioner for waiver of the penalty under Sec. 273A of the Income Tax Act, 1961.   The facts of the case run as follows:

                        The petitioner is a registered partnership firm carrying on the business of trading in sanitary goods.   A survey was conducted in the premises of the petitioner under Sec. 133A of the Act by the Department on 06.10.1994.  The petitioner, pursuant to the survey filed revised returns of income for the assessment years 1992-93, 1993-94 and 1994-95.  After that the petitioner filed the return for the year 1995-96 declaring an income of Rs.3,96,130.   The Assessing Officer made an addition of Rs.1,40,960/- under unaccounted income from sales outside the books in the assessment order dated 31.03.1998 and initiated penalty proceedings under Sec. 271(1)(c) of the Act for concealment of income and thereafter imposed penalty of Rs.56,360/- on 25.09.1998. 

                        The petitioner filed an application under Sec. 273A of the Act before the Commissioner of Income tax for waiver of penalty.  The Commissioner of Income Tax, by the impugned order dated 17.09.2002 rejected the application holding that the returns of income of the petitioner have been upwardly revised by the assessee only after survey and special audit and therefore the revised return filed by the petitioner cannot be said to be voluntary and in good faith and since the requirement of Sec. 273A of the Act for waiver of penalty have not been met the applicable was liable to be rejected.

                        The petitioner, therefore, approached the High Court by means writ petition.  The petitioner submitted before the High Court, the following:

·  for the assessment year 1995-96, the petitioner has not filed any revised return;  for the assessment years 1992-93, 1993-94 and 1994-95 the petitioner had filed revised returns on the survey of the business premises;

·  the Commissioner of Income tax has erroneously held that the petitioner had revised its return for the assessment year 1995-96 only after the survey of special audit report and hence the return was not voluntary and in good faith and did not satisfy the requirements under Sec. 273A of the Act;

·  the Commissioner of Income Tax has recorded the submissions of the Assessing Officer in his report dated 18.12.1998 for the assessment year 1995-96 and from the said report  it is clear that the Assessing Officer has taken a view that the return has been filed voluntarily and the disclosure has been made by the petitioner in good faith and the disclosure was full and true;

·  the Commissioner of Income Tax had not taken these relevant facts into consideration and proceeded on an erroneous assumption that the petitioner had filed a revised return for the assessment year 1995-96 on the basis of the survey and special audit which took place on 06.10.1994;

·  considering the aforesaid this is a fit case in which the High Court can exercised its discretion to quash the impugned order and remand the matter to Commissioner of Income Tax for fresh consideration in accordance with the provisions of Sec. 273A of the Act.

The Department submitted the following:

·  an alternative remedy of an appeal was available to the petitioner against the order of penalty under Sec. 246(1) of the Act;

·  a reading of the application of the petitioner would go to show that the petitioner had taken a stand in the application that pursuant to the survey under Sec. 133A of the Act conducted at his business premises the returns were voluntarily revised in good faith making full and true disclosure of income and it is perhaps for this reason the Commissioner of Income Tax had come to the conclusion in the impugned order that returns of income have been upwardly revised by the assessee only after the survey and special audit, and the filing of revised return cannot be said to be voluntary and in good faith and hence, requirement laid down in Sec. 273A of the Act for waiver of the penalty have not been met.

The High Court considered the submissions.   It did not accept the submissions of the Department that the Court should not entertain the petitioner under Article 226/227 of the Constitution of India because a remedy of appeal was available to the petitioner.  The High Court observed that it is true that the petitioner had remedy of appeal under  Section 246(1)(l) of the Act but he also had a remedy of an application under Section 273A of the Act under which the Commissioner has a discretion whether on his own motion or otherwise to reduce or waive the amount of penalty imposed on a person under clause (iii) of sub section (1) of Section 273A of the Act, if he was satisfied that prior to the detection by the Assessing Officer, of the concealment of particulars of income or of the inaccuracy particulars furnished in respect of such income, the assessee voluntarily and in good faith, made full and true disclosure of such particulars.   The application under Sec.273A of the Act was also ordinary statutory remedy but the Commissioner rejected the application of the petitioner on the ground that the petitioner had revised the return only after the survey and special audit and hence the revision of the return could not be said to be voluntary or in good faith.   The High Court further held that since the petitioner had not filed any revised return for the assessment year 1995-96 in respect of which the application under Sec. 273A of the Act was filed, the rejection of the application on the ground that the petitioner had revised the returns only after the survey and special audit and had thus not disclosed his income voluntarily and in good faith was not legally justified.  The High Court further observed that it is true that in certain paragraphs of the application filed by the petitioner under Sec. 273A of the Act the petitioner had stated that it had revised its returns after the survey under Sec. 133A of the Act conducted in the business premises of the petitioner but revision of return by the petitioner was for the assessment years 1992-93, 1993-94 and 1994-95 and not for the assessment year 1995-96.   The order passed by the Commissioner, therefore, suffers from non application of mind and a grave error.