9911796707
TMI Blog1990 (4) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1961, hereinafter referred to as "the Act". During the said operations, some books of account of the petitioner-firm left in the custody of the accountant of the firm were seized from his residential house and taken possession of by the Income-tax Department with the consent of the petitioner-assessee. The second respondent, thereupon, reopened the assessments of the petitioner-firm for the assessment years 1977-78 to 1979-80, by means of notices issued under section 148 of the Act for the purpose of bringing to tax some more income on the basis of the accounts found in the house of the accountant of the petitioner-firm and taken possession of. In response to the said notices, the petitioner-firm submitted returns for those assessment years, disclosing, on the basis of the books of account recovered, incomes higher than the incomes that were disclosed in the original returns. The total incomes disclosed in the returns submitted in response to the notices under section 148 of the Act were Rs. 2,43,916 for the assessment year 1977-78, Rs. 4,01,045 for the assessment year 1978-79 and Rs. 3,52,170 for the assessment year 1979-80. By the time the survey operations were conducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration would come to Rs. 6,90,949 approximately. It is alleged that payment of such a colossal amount of nearly Rs. 7,00,000 by way of penalties in addition to the payment of huge amounts by way of tax and penal interest is far beyond the resources of the firm and its partners, and that enforcement of the penalty orders would cripple their business and reduce them to penury. An application was, therefore, filed on behalf of the firm before the first respondent under section 273A(4) of the Act praying for waiver or reduction of the penalties on the two grounds set out in the said statutory provision, i.e., on the ground that enforcement of the penalties would cause genuine hardship to the assessee, having regard to the circumstances of the case and on the ground that the petitioner-firm and its partners had co-operated with the Department in the enquiry relating to the assessment and all other proceedings for the recovery of the amounts due from the firm. The petitioner-firm had submitted detailed statements before the first respondent explaining how enforcement of the liabilities or penalties aggregating to nearly Rs. 7,00,000 would cause hardship to the petitioner-firm and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vey and search operations, and that the assessee had no choice except to file returns in response to the notices under section 148 of the Act disclosing incomes on the basis of the genuine books of account recovered for the assessment years 1977-78 to 1979-80 and likewise to file a revised return for the assessment year 1980-81 and the return for the assessment year 1981-82 on the basis of those books of account. As regards the first condition prescribed under section 273A(4) of the Act, the first respondent observed that the non-waiver or non-reduction of the penalties would not cause genuine hardship to the assessee, for the reason that the aggregate of the penalties would work to an amount equal to its income for two years only, the income earned by the assessee being Rs. 4,00,000 every year. The first respondent further held that as per the terms of the partnership deeds dated October 16, 1978 and October 18, 1978, the outgoing or retired partners had no obligation for payment of taxes, penalties, etc., as the firm reconstituted thereunder had taken over those liabilities and that payment of penalties by the firm would not, therefore, cause any genuine hardship. It may be note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner-firm. It was stated before us by learned counsel for the petitioner and not disputed by learned standing counsel for the Income-tax Department, that the Tribunal set aside the assessment of the petitioner-firm for the assessment year 1980-81 and remitted the matter to the second respondent for fresh disposal in the light of the directions given by it. It was also brought to our notice that, against the orders passed by the second respondent levying penalty for the assessment years 1977-78, 1978-79, 1979-80 and 1981-82, the petitioner-firm preferred appeals before the Commissioner of Income-tax (Appeals), that when the same were dismissed, the assessee preferred second appeals before the Income tax Appellate Tribunal and that the same are pending. It is the case of the petitioner that the then Inspecting Assistant Commissioner, Sri M. Seetharamaiah, held out an assurance to the petitioner that if the firm offered for assessment the entire income as disclosed by the duplicate books of account recovered, sympathetic consideration in the matter of levy of penalties and interest would be shown and that the assurance motivated the assessee to file revised returns for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative and D. W.-1, Zainul Abideen, a senior chartered accountant from Madras who had recently retired from active practice. I see no reason as to why senior chartered accountant belonging to a respectable profession hailing from Madras, a place far remote from Vijayawada should come all the way to Hyderabad to swear falsely in favour of A-1 and A-2. I have no hesitation to accept the evidence of D. W.-2 that there was some sort of assurance from M. Seetharamaiah as a result of which the returns were filed in pursuance of the notices." We, however, hasten to add that the finding recorded by the learned special judge is not binding upon the first respondent, though we are inclined to accept the submission made on behalf of the petitioner-firm that no evidence in support of the plea of assurance was adduced before the first respondent, in the fond hope that the assurance held out to the petitioner-firm by the then Inspecting Assistant Commissioner, the late M. Seetharamaiah, would have formed part of the record. It is not denied that, except the duplicate sets of accounts seized during the survey operations, there was nothing else to show any concealment of income by the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the period for the issue of such notice has expired, prior to the issue of notice to him under section 148, voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed, and also has, in all the cases referred to in clauses (a), (b) and (c), co-operated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year. Explanation. -For the purpose of this sub-section, a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract the provisions of clause (c) of sub-section (1) of section 271.... (4) Without prejudice to the powers conferred on him by any other provision of this Act, the Commissioner may, on an application made in this behalf by an assessee, and after recording his reasons for so doing, reduce or waive the amount of any penalty payable by the assessee under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ardly any scope to save anything from the income derived from the business of the firm. Details of the assets and liabilities of the firm were also furnished to indicate that the petitioner-firm was not possessed of any liquid assets and that while the assets of the partners of the firm did not exceed Rs. 1,50,000 in value, their liabilities including the debit balances in their capital accounts in the books of the firm as on September 30, 1983, the penalties imposed or the firm, the individual tax liabilities of the partners and the interest payable on the arrears of taxes, would aggregate to Rs. 8,26,696. It was urged by learned counsel for the petitioner-firm, with considerable force, that the first respondent simply brushed aside the above submissions made before him in support of its plea that non-exercise of the power under section 273A(4) of the Act would result in genuine hardship to the assessee. It was also urged by learned counsel for the petitioner-firm that the other reason assigned by the first respondent that the outgoing or retired partners had no obligation for payment of taxes, penalties, etc., as the firm reconstituted thereunder had taken over those liabilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession of the Department consequent upon the survey and search operations. Therefore, it cannot be said that the assessee had co-operated in any enquiry relating to the assessments under consideration." The second condition precedent for exercise of the power conferred under sub-section (4) of section 273A of the Act is that the assessee had co-operated in any enquiry relating to the assessment or any proceeding for recovery of the amount due from him. Significantly, the first respondent did not observe that the petitioner-assessee had not co-operated in any proceeding for recovery of any amount due from him. Admittedly, the petitioner-firm challenged the disallowance of Rs. 85,622 made on a technical ground in its assessment for the assessment year 1980-81 relating to the reserve credited by the firm to its profit and loss account, in appeal and that the appeal was allowed by the Income-tax Appellate Tribunal setting aside the assessment for the year 1980-81 and remitting the matter to the second respondent for fresh disposal in the light of the directions given by it. In the impugned order, the first respondent did not state that the assessee had not co-operated in any enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner completely misdirected himself in law in reading into section 18(2A) the condition, that the assessee had not voluntarily filed returns for the two assessment years in question since he did so only after he was asked to do so during the course of the assessment proceedings for the assessment year 1971-72. Though section 18(2A)(a) uses the word 'voluntarily', the said word has to be read with the expression 'made full disclosure of his net wealth'. The condition which the Legislature has imposed is that in cases where an assessee has, prior to the issue of notice to him under section 14(2), filed a return but has not done so within the time limited by law, he must satisfy the Commissioner that he has made full disclosure of his net wealth voluntarily and in good faith. The word 'voluntarily', therefore, has not to be read in the context of the filing of the return. Secondly, by the mere fact that a return has been filed under the advice, suggestion or even at the behest (otherwise than by a notice under section 14(2)) of the Wealth-tax Officer, it does not cease to be a voluntary return. Thirdly, there is nothing in section 18(2A) which restricts the relief to ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered to have made any disclosure in terms of section 271(4A), that the provision was applicable only to a case where the income could have escaped assessment but for the disclosure made by the assessee and that the filing of the returns was not an act of disclosure, much less a voluntary disclosure. On a writ petition filed by the assessee challenging the order of the Commissioner, it was held by a single judge of the Punjab and Haryana High Court that the Commissioner had taken into consideration irrelevant matters, viz., that the assessee was assessed to tax for a number of years prior to the relevant assessment year and by submitting the returns under section 139(1) after the due date, he could not be considered to have made any disclosure in terms of section 271(4A). In the result, the order of the Commissioner was quashed with a direction that he should reconsider the matter afresh after taking notice of the relevant considerations as provided under section 271(4A) of the Act. It may be noted that, in the aforesaid case, the Punjab and Haryana High Court also held that a full and true disclosure by the assessee of his income could be made at any time before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has in good faith made a true and full disclosure of his income either before the issue of a notice under section 139(2) or section 148 of the Act, even if such disclosure has been made at the time of assessment, the first condition would be satisfied, and if all other conditions mentioned in the section co-exist, the Commissioner will have jurisdiction to deal with the matter in his discretion." It is true that the above observations were made while interpreting the scope of section 273A(1) of the Act. But the principles laid down therein equally apply to section 273A(4) of the Act. It, therefore, follows that disclosure of true income need not be made in the initial return, but can be made in the revised return and on that ground, it cannot be said that the assessee has not co-operated in the enquiry relating to the assessment. In Mahalakshmi Rice Mills v. CIT [1981] 129 ITR 53 (Kar), the assessee therein made a disclosure by spreading his concealed income of Rs. 40,000 for the assessment years 1973-74 and 1974-75, under the provisions of the Voluntary Disclosure of Income and Wealth Act, 1976, but the disclosure was rejected on the ground that it was filed beyond time. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Officer to impose minimum penalties on the assessee. The assessee filed a writ petition and contended that the Commissioner ought to have waived the penalties in their entirety as its case was covered by sub-section (4) of section 273A. According to the assessee, the withdrawal of the appeal was prompted by Circular No. 451, dated February 17, 1986, of the Central Board of Direct Taxes, which stated that where an addition was contested in appeal and the assessee withdrew that appeal and made a declaration and agreed to pay tax thereon before the Commissioner, in such a case, a lenient view would be taken though such a declaration could not be taken as entirely voluntary. The assessee also contended that, in such cases, the taxpayers had been assured that there would be immunity for them from imposition of penalty and prosecution. A Division Bench of the High Court in Allahabad held (headnote) : "(i) That there was no evidence on record to show that any genuine hardship was caused to the assessee or that the assessee had co-operated in any enquiry relating to its assessment. The assessee merely relied upon the circular of the Central Board of Direct Taxes and withdrew its app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 220(2) of the Act on the assessee therein, on the basis of the tax demand as finally raised for the assessment years 1979-80 and 1982-83. The assessee preferred an appeal to the Central Board under section 220(2A) for waiver of the demand for interest. After considering the report of the Commissioner, the Board declined to waive the demand for interest. The assessee, thereupon, filed petitions for special leave to appeal to the Supreme Court against the orders of the Board. The assessee did not claim that the Commissioner's report had not been considered. On those facts, the Supreme Court dismissed the petitions holding that the power of the Board under section 220(2A) to waive interest was discretionary, that the assessee had an opportunity to represent its case in writing, that the Board had taken into consideration the report of the Commissioner and that it was not the case of the assessee that the Commissioner's recommendations were different. We fail to notice any relevance of the decision cited to the instant case. Further, what was interpreted by the Supreme Court was the scope of section 220(2A) of the Income-tax Act. In P. D. Varghese and E. J. Davis v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted several irrelevant considerations while recording his findings on the question of compliance with the two conditions precedent for exercise of the power under section 273A(4) of the Act. In Associated Traders v. ITO [1989] 180 ITR 406 (Ker) relied upon by learned standing counsel for the Income-tax Department, it was merely held that (headnote) : "The exercise of the powers of the Commissioner, a high functionary under the Income-tax Department, cannot be ordinarily interfered with unless there be a jurisdictional deficiency or other vitiating circumstances. If various factors are properly adverted to and cogently considered and rational reasons are available for the exercise of the discretion, ordinarily the court will not interfere." We, therefore, hold that the discretionary power conferred under section 273A(4) of the Act was not judiciously exercised by the first respondent in accordance with law. We, accordingly, quash the impugned order passed by the first respondent. A direction shall, however, issue to the first respondent to dispose of the application of the petitioner-firm filed under section 273A(4) of the Act, afresh, in accordance with law and in the light of ..... 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