9911796707
TMI Blog1989 (7) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------------------------------------------------- Asst. year Income assessed Income admitted in revised return -------------------------------------------------------------------------------------------------------------------------------------------------- 1972-73 9,000 40,000 1973-74 11,000 50,000 1974-75 12,000 60,000 1975-76 12,000 70,000 1976-77 16,000 75,000 -------------------------------------------------------------------------------------------------------------------------------------------------- It was also submitted that the partners were also filing revised returns accordingly. 4. The main controversy in this appeal is whether the Commissioner whom the assessee and their auditor had met had agreed to waive or exempt them from the levy of penalties. A clear request for this purpose is there in the letter of 1-5-1977. The last paragraph of that letter reads as follows :--- "The partners request the learned Commissioner of Income-tax to complete the assessments on the basis of the revised returns and waive the penalties leviable under various sections of the Income-tax Act both in the firm's and partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver of penalties. So the assessee seem to have reminded the Commissioner on in a while about the pending matters. On 30-11-1977, the Income-tax Officer having jurisdiction to assess the assessee has written a letter asking the assessee to produce the books for the asst. years 1971-72 onwards and copies of agreement entered into for purchase of property, extent of agricultural income of the partners and the source for deposits made in the name of two persons. Nothing has happened thereafter and the assessee reminded the Commissioner by his letter dated 28-3-78,8-6-78,24-9-78, 1-11-78 and 1-1-79. However, the Income-tax Officer following his information gathered after the letter to the assessee dated 30-11-77 had reported to his immediate superior on 4-1-78. In this letter, he had stated that the assessee had entered into agreement to purchase a house property for a sum of Rs. 3,25,000. This agreement was entered into on 12-2-77. This transaction necessitated the assessee to show resources for the consideration. That is how, they showed an extra income for the 5 years which totalled to Rs. 2,95,000. 7. In the meanwhile, the Commissioner had also looked into the question of the waiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, i.e., the assessments made on an agreed basis and the additional income shown was only to purchase peace. The Appellate Asstt. Commissioner also found nothing to show that there was an agreement regarding penalties. It would appear that after the Income-tax Officer has passed the order levying the penalties and before the Appellate Asstt. Commissioner took up the appeals, the Commissioner had taken up the question of waiver of penalty. The assessee had, after the assessments were over put in a fresh petition on 15-2-84, requesting the Commissioner for waiver of penalty. The Commissioner found that it was not a fit case for waiver of penalties under s. 271(1)(c). The AAC referred to this order of the Commissioner and pointed out that this order, itself shows there was no agreement between the assessee and the department on this point. He, therefore, upheld the order of penalties. 10. The AAC however was of opinion that the quantum of penalty levied by the Income-tax Officer- requires review. He found that the original returns were filed at a time when the law regarding quantification of penalties was based on the income concealed. It was not based on the tax on such concealed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akar is unable to produce any such evidence. Therefore, he has to fall back upon the surrounding circumstances and the conduct of the parties to show that there was an assurance that no penalty proceedings would be taken in this case. We have to evaluate these evidences to finding out whether the Commissioner had given any such assurance. If the Commissioner had committed himself to such an assurance, that is, of excusing the assessee from the justifiable penalty---in that case then it will not be open f or the department to levy penalty. 13. This would take us to a scrutiny of the circumstances and other surrounding evidences. The very first piece of evidence is the forwarding letter written by the Income-tax Officer, Head Quarters, on 2-5-77 by which he had forwarded the returns to the Income-tax Officer, Rajahmundry, who had jurisdiction over the assessee. We have extracted this letter in para 5 of this order. In this letter, after setting out the facts that the assessee appeared before the Commissioner that day and filed these returns he set out the submissions of the assessee before the Commissioner. It is stated that these returns were filed voluntarily and in good faith ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there any ongoing investigation into the affairs of the assessee ? Plainly there was none. Maybe had the assessee kept quite and had not filed the returns, when he effected the purchase of the property, he would be called upon to explain the sources and if did not have any ostensible source he would be in a difficult position. But that is a matter of the future. We are not concerned with that. Neither is the Commissioner in the forwarding note of 2-5-77 concerned with it. He was only enquiring if there were any contemporaneous investigations. There were none and therefore the fact that it was a voluntary disclosure of the assessee stood proved. 14. The next mandate of the Commissioner as per the letter of 2-5-77 was to take immediate action on the revised returns. For some reason or other, this had been delayed considerably and the assessments were completed 5 years later. It is this delay in the finalising of the assessments which were against the specific order of the Commissioner that has caused the problem for the assessee. Had these revised returns been acted upon immediately, there would have been no difficulty at all probably. The Commissioner, if he had given such a prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this, the Commissioner could not take final decision till a report is received from the Income-tax Officer having jurisdiction thereon. 18. We will now look into the second piece of evidence which also supports the view that there was such an understanding. The second piece of evidence is the series of correspondence which had already been referred earlier between the assessee and the Commissioner. The assessee had gone on reminding the Commissioner about the submissions of the revised returns and the fact that they were still pending. In all these reminders, there is an understanding that the acceptance of the returns would put to an end to all further proceedings. None of these letters had been replied. If there was any reservation in the mind of the department regarding the claims of the assessee, they could have said so to one of the replies of the assessee. However, there is no such letter from the department. 19. The third piece of evidence is in the shape of an office note. As stated earlier that the Income-tax Officer had taken up this issue some time in middle of 1977, but, the actual assessments were completed much later. It would appear that the question of waiving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances in which the returns were filed and the contemporaneous note of the Commissioner's office dated 2-5-77 and further the note of the another Commissioner on the same issue on 21-4-79. These two points clearly show a different picture than what is given in the order of the Commissioner dated 12-3-85. The earlier proceedings are very relevant in arriving at a finding whether the assessee had been given a promise that no penalty would be levied. Since the Commissioner's order does not refer to these earlier proceedings, to that extent we are unable to rely upon the orders as evidence in favour of the department. 21. On an overall consideration of all the facts, we are satisfied that there was an agreement, although an oral agreement that the assessee would not be subjected to penalties if their submissions made on 1-5-77 were found to be true. The penalties levied are therefore against these assurances. Under these circumstances, we are of opinion that the penalties should be cancelled. 22. Sri Ratnakar had made certain submissions regarding the quantification of penalties. Since we are of opinion that the levy of penalty itself has to be cancelled, we do not refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be subjected to penalties as the submissions made by them on the 1st May 1977 were found to be true. On the contrary, I am strongly of the view that there was no such agreement and in fact there could be none in the facts and circumstances of the case, inter alia, for the following reasons. 4. There is no dispute to the absence of an order/assurance from the Commissioner to the waiver of the penalties. However, before proceeding further, it appears necessary to go through the background which led to the disclosure of the concealed income by the assessee firm. Relevant facts in this regard are these: The assessee entered into an agreement on 12-2-77 to purchase a house for a sum of Rs. 3,25,000. Not being fully equipped resources-wise to accomplish this deal, they needed to show up a paper augmentation impelling them to offer the extra income for 5 years in the vicinity of Rs. 3 lakhs which forms approximately 91% of the total sale consideration of Rs. 3,25,000. The income assessed and the income admitted in the revised return, even at the cost of repetition, is tabulated below : ------------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee informed the Income-tax Officer that they had requested the Commissioner for waiver of penalty. The Income-tax Officer eventually imposed penalties. The first appellate authority confirmed these penalties in the absence of any agreements as to their waiver. In the meantime, the Commissioner took up the waiver issue on which a fresh petition dated 15-2-1984 was also filed by the assessee. He rightly held that it was not a fit case for waiver which finding is referred to in the order impugned before us. 11. As is evident, there being no direct evidence to the agreement or an assurance to waive the penalties, the case rests upon the attendant circumstances for drawing an inference as to whether such agreement or assurance existed or not. While these circumstances detailed below favourably exist as per the combined order to show the existence of an oral agreement, I respectfully differ with this view. 12. The first of them is that these returns were filed on compromise that no penalty would be levied. In this connection, lot of stress was laid by the learned counsel for the assessee that the returns were filed 'voluntarily' and in 'good faith'. This submission is not fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were filed by the assessee-firm under the constraint of exposure to an adverse section by the Income-tax department as the deal for purchasing the house was well in progress, the agreement having been entered as early as on 12-2-77. I am therefore, unable to agree with my learned brother's finding that the fact that it was a voluntary disclosure by the assessee stood proved. In my opinion, there was no element of voluntariness in the filing of these returns which was done by the assessee with an ulterior motive, being pushed to the wall and on being prompted by a sense of fear of a coercive action by the income-tax authorities. On 'good faith' claimed by the assessee, before examining the same, it appears relevant to refer here to another submission made by the learned counsel, namely, that the assessee disclosed the income with a view to purchase peace, totally discarded in the combined order with which, I fully concur. Rightly held therein there was no war going on between the assessee and the department occasioning or provoking the assessee to declare a fat income for all these five years, the assessments for which had been completed without any demur. It was sticking a sleep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree to such a waiver at the outset, without thoroughly examining the relevant facts qua his powers, unlike as claimed by the appellant according to whom the Commissioner on the bare filing of a petition on 1-5-1977 readily agreed for the compounding as if he was waiting for the appellant to make an approach simpliciter followed by an action gullible, as it appears manifest, in making a promise/understanding not to levy any penalty. To me it is rather unusual to visualise as the same would be a freak and careless exercise of a statutory power, not vested in the Commissioner and we shall hardly be justified in berating him by drawing any inference on that score in the absence of any real and strongly cogent material. 15. Now dealing with the correspondence on record, one sided as it is, they are only letters addressed by the assessee to the Commissioner, as is evident from pages 1 to 12 of the assessee's paper book. They need a discussion in a little detailed measure: The first of these letters is dated 1st May 1977 along with which revised returns were filed. The second is dated 28-3-1978 addressed to the Commissioner wherein he was reminded that while forwarding the returns to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerally bestowed to such communications which only gather dust and burden records. Even in such a situation, to draw an adverse inference to bring it in aid of proving an agreement/assurance, which is vehemently denied by the Revenue, would be too much of a judicial risk. 16. Third is the office note already adverted to by me in para 7 of this order. For reasons already assigned, it cannot be taken to be a shot in the assessee's arm. 17. Lastly, the conduct of the assessee in crediting the individual accounts of the partners shortly after the filing of the returns. I have a respectful disagreement with my learned brother as this act of the assessee cannot be taken to be fraught, with risk inasmuch as, having declared the income, the same had to be apportioned in among the partners. What was the escape for them? It was only consequential. 18. In view of the above, the proposition as to the existence of an agreement that no penalty should be imposed does not commend itself to me. 19. Such an agreement did neither exist factually nor could it be made lawfully on 1-5-1977 as pleaded in the facts and circumstances of the case as the same would amount to an arrogant violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the first instance: (a) Whether, in the facts and circumstances of the case, filing of the returns by the appellant firm on 1-5-1977 could be said to be voluntary and in good faith ? (b) Whether, in the facts and circumstances of the case, could it be inferred that there was an oral agreement/understanding between the assessee and the Commissioner that no penalties would be levied or they shah be waived? (c) If the answer to question No. 1 is in the negative, does not this factor alone strongly discount the ab initio absence of any agreement or assurance not to impose penalties as claimed by the assessee. 2. I have heard the learned counsel for the assessee Shri Ratnakar and the teamed Departmental Representative Shri Radha Krishnamurthy at great length and I have come to the conclusion that penalties in this case are leviable. Let me now advert to the facts of the case. 3. The assessee is a registered firm, carrying on business in the manufacture and sale of sweet-meats at Rajahmundry. Returns of income for the assessment years 1972-73 to 1976-77 were filed and assessments were completed under section 143(3) of the Income-tax Act. On 2-5-1977, the assessee filed revis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied minimum penalty of Rs. 12,420 for the assessment year 1972-73 by his order dated 20-3-1984. For the same reasons, a penalty of Rs. 19,560 was imposed for the assessment year 1973-74. Likewise a penalty of Rs. 26,460, Rs. 30,510 and Rs. 32,900 were imposed respectively for the assessment years 1974-75, 1975-76 and 1976-77. 4. Aggrieved by the imposition of these penalties u/s 271(1)(c) of the Income-tax Act, the appeals were filed before the AAC, Vishakhapatnam. It was submitted before the Appellate Asstt. Commissioner that the returns were filed before the Commissioner of Income-tax after discussing with him the case from all its aspects and on agreed basis, with a view to purchase peace and, therefore, no penalty should be imposed. It was further urged that the income disclosed in the second set of returns having been accepted by the ITO, there was no case of any concealment of income. It was also pleaded that when the CIT and the assessee had agreed upon that the returns were filed with a view to purchase peace and an assurance was given by the Department that no penalty would be imposed, it would be going back upon the promise if penalties were imposed and confirmed. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly calculated. Finding that the penalties should be imposed with reference to the law as it stood on the date of the filing of the original returns, he revised upwards the penalties imposed which worked out to Rs. 32,290, Rs. 49,452, Rs. 54,439 and Rs. 66,433 respectively for these four assessment years. 5. Against this commissioned order of the AAC, a further appeal was filed before the Tribunal contending that the AAC was not justified in rejecting the assessee's contention that the returns were filed, subject to the agreement between the department and the assessee, by way of a settlement for non-imposition of penalty, that the returns filed disclosed the income as suggested by the CIT and it was, therefore, not open to the Department to go back from their understanding and levy penalties and that in any case, the AAC was not justified in enhancing the penalty in the manner he did. When this matter came up for hearing, the learned Accountant Member came to the conclusion that there was an agreement, although oral agreement, between the CIT and the assessee that the assessee would not be subjected to penalties and that the penalties imposed were against those assurances, Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asst. year Income assessed Income admitted in revised return -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. 1972-73 9,000 40,000 1973-74 11,000 50,000 1974-75 12,000 60,000 1975-76 12,000 70,000 1976-77 16,600 75,000 -------------------------------------------------------------------------------------------------------------------------------------------------- The partners too pay the taxes and file the returns immediately. The cash available with the partners out of the suppressed profits are also being credited to their individual accounts in the firm's books. The petitioners request the learned Commissioner to complete the assessments on the basis of the revised returns and waive the penalties leviable under the various sections of the IT Act, both in the firms and partner's cases." This letter in most unequivocal terms disclosed an admission on the part of the partners, that they had not filed the original returns disclosing true income, that the income earned by them was far higher than the income disclosed in the original returns and as the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the above asst. years were finalised by the Department, on estimated basis fixing the incomes between Rs. 9,000 to 16,000 per each year. He also made a claim that the revised returns are now filed voluntarily and in good faith making full and true disclosure of the assessee's income prior to the detection of the concealment of particulars of income by the Department. It was also explained, that the Department has not earlier taken any sort of action of made any move by way of inquiry etc. to vitiate the voluntary nature of the present disclosure. The ITO is requested to consider the submissions of the assessee, and if found correct, to act immediately upon the revised returns of income submitted and send a report to the Commissioner regarding the facts of the case, action taken and assessee's eligibility for waiver of penalties etc. Yours faithfully, Encl: 5 returns and copy Sd/- V. Murahati Rao of letter. ITO (H.Qrs. I) for CIT, A.P.1, Copy to : The IAC, Vizag. Hyderabad." 7. As nothing was heard regarding the assessment from the concerned ITO the assessee had reminded the Commissioner about the pending matters. On 30-11-1977, the ITO having jurisdiction to ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase the property for Rs. 3,25,000 as per agreement dated 12-2-1977, the assessee would not have come forward to file the realised returns at all An argument was addressed before the Bench on behalf of the assessee that the returns were filed admitting additional income only as a gesture to buy peace from the Department and that it did not represent the assessee's income. The learned Accountant Member rejected this contention outright by observing that the original assessments had been completed and there was no investigation going on in the assessee's case regarding the business activities, that there was no war going on between the assessee and the department at that time so that the assessee could be said to buy peace, by these gestures and eventually concluded that the facts in this case clearly showed that there was concealment of income. He observed: "If this is not concealment, we would like to know what would be the concealment. We have no doubt at all that there is concealment involved in these appeals." Thereafter he addressed himself to the question as to whether there could be any agreement either written or oral, not to levy penalties. About the written agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of this petition as the proceedings for levy of penalty were getting time barred. He, therefore, levied penalties. From this piece of evidence, the learned Accountant Member drew the inference that there must have been some understanding between the Commissioner and the assessee and that it was clear that the Commissioner of Income-tax was willing to waive penalty provided there was no ongoing investigation and ITO had managed to thwart the waiver proceedings by simply delaying the sending of the report and instead levied the penalty making it a fit case. What I understand from the learned Accountant Member's order, which was highlighted before me by the learned counsel for the assessee is that the ITO had manipulated the proceedings in such a way by, delaying the sending of the report to the Commissioner and by issuing penalty notices straightaway and levying penalties that the CIT would have no other option except deny any oral agreement or reject the waiver petition. This I think is little difficult to accept. Even if the ITO had engineered such a machination by preempting the acts of the Commissioner by imposing penalties, it is still open to the CIT to cancel the penalties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the penalties. The assessee no doubt made a request for the waiver of penalties in the letter of 1-5-1977 and the CIT was only enquiring into and at that point of time could not have given any assurance or undertaking or even a promise except stating that he would look into the matter, he might have felt sympathy for the assessee and only with a view to get at the bottom of the facts, he wanted a report from the ITO and calling for a report from the ITO about the eligibility for the waiver of the penalties, could not, therefore, be construed as an oral assurance given by the Commissioner to waive the penalties. At best it could be an assurance for a sympathetic consideration. The returns filed on 1-5-1977 were no doubt voluntary but could they be said to be in good faith. As pointed out by the learned D. R., they could not be in good faith because the assessee had a purpose to serve, namely to explain the source for the intended purchase of the house. The matter was so urgent for the assessees that even before the assessments were completed and even before an assurance was given by the CIT, they have straightaway credited the amount in the accounts of the partners in the books of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s v. Municipality of Bhivandi and Nizampur AIR 1969 Bom. 127. The words "good faith" for the purpose of Wealth-tax Act was taken to mean an act done with due care and caution-Shankara Apaya Swami v. WTO 1976 Tax LR 248 (Kar.). But "good faith" in Criminal Law is different from "good faith" in Civil Law. If an act is done with due care and attention, it cannot be said to be done in "good faith" as far as Criminal Law is concerned. In the case of Jakhodia Bros. v. CIT [1978] 115 ITR 61, the Allahabad High Court pointed out that "good faith" which is required to be established for invoking the provisions of the Income-tax Act, 1961, is that in making the disclosure, the petitioner must have acted honestly. In other words, he should not have been guilty of having acted dishonestly in making the disclosure. Having regard to the meaning of the words "good faith", can it be said that the assessee in this case has filed the returns in good faith on 1-5-1977. I think, it is only because the assessee had a motive and purpose to serve namely to bring the concealed income into books by avoiding the penal provisions as well as prosecution proceedings. I do not think that a return filed in those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the sale deed for registration had to obtain a tax clearance certificate from the Income-tax Officer. Also under section 269P of the IT Act, 196t the registering officer has necessarily to forward a statement of the transaction in the prescribed form setting out certain particulars which include the names of the transferee and the purchase consideration. Therefore, the assessee came forward by filing the so-called revised returns spreading the investment over- the assessment years under consideration after the assessments had already been completed on the basis of the returns filed by the assesses." These facts would show that neither the returns filed on 1-5-1977 could be said to be voluntary nor in good faith. It is also very pertinent to note that even though several letters written by the assessee to the CIT to complete the nowhere a mention was made about an agreement or an assurance claimed to have been given b y the CIT for waiving the penalties. Had such an assurance been given by the CIT as claimed by the assessee, at least in one of those letters a mention could have been made. Excepting the covering letter filed on 1-5-1977, along with the revised returns, in no ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the waiver of penalty and if the CIT had acted objectively, he could have come to the conclusion that the assessee even though with a view to bring into books certain concealed income had done it voluntarily and in good faith making true disclosure of his income and, therefore, waive the penalties but that is not the issue before me. The issue before me is whether on the facts and in the circumstances of the case, filing of the returns by the appellant firm on 1-5-1977 could be said to be voluntary and in good faith. In my view, neither the filing of the returns on 1-5-1977 earn be said to be voluntary nor in good faith. 11. For the reasons I endeavoured to come to as above, I am unable to agree that there could be even an oral agreement or understanding between the assessee and the CIT that no penalties would be levied or they should be waived. Except for the power granted to the CIT u/s 273A to waive penalties, there is no other section which empowers the CIT to waive the penalties and even this power conferred upon him has to be exercised on the fulfilment of the essential requirements of law Before ascertaining whether these requirements of law were satisfied or not, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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