Income-tax---

----Penalty---Interest---Waiver of---Scope of discretion of Commissioner-- Delay in filing returns---Cooperation extended to Department and Tax also paid on disclosed income as per directions of Department ---ITO charging interest under S.139(8), Indian Income Tax Act, 1961 and initiating penalty proceedings under S.271(1)(a) of Indian Income Tax Act, 1961-- Commissioner rejecting petition for waiver of interest and penalty merely on ground that petitioner was a habitual defaulter ---Commissioner to see only whether returns were filed voluntarily and disclosure made in good faith---No proper exercise of discretion by Commissioner---Matter remanded---Indian Income Tax Act, 1961, S.273-A---[Brij Mohan Bhargava (Dr.) v. CIT (1984) 150 ITR 300 (P&H) dissented from].

For the assessment year 1969-70, the assessee filed delayed returns but, however, claimed that the returns were filed voluntarily and in good faith making honest and full disclosure of his income without receiving any notice from the Department and that it had also deposited a certain sum towards tax on the income so disclosed voluntarily. The Income Tax Officer, however, imposed penal interest under section 139(8) of the Income Tax Act, 1961, and also initiated penalty proceedings under section 271(1)(a) for not filing the returns in time. The assessee filed a petition under section 273-A before the Commissioner of Income-tax for waiver of interest and penalty on the ground that it had complied with the conditions for grant of relief under section 273-A. The Commissioner rejected the petition on the grounds that the returns were not filed voluntarily by the assessee, and that the petitioner was a habitual defaulter. On a writ petition:

Held; that; under section 273-A all that the Commissioner had to see was whether the returns submitted by the petitioner without notice could be treated as voluntary and whether such disclosure made was in good faith. Both these aspects had escaped the notice of the Commissioner. The Commissioner had taken into consideration irrelevant matters like the petitioner being an assessee for a number of years and yet filing returns after a long delay and the petitioner being a habitual defaulter. The mere fact that the petitioner was an assessee to income-tax and advance tax had been paid by him or that the Income Tax Officer knew that the petitioner had earned taxable income would not be sufficient to hold that the returns filed and the disclosure made by him were not voluntary. If the Department's interpretation was accepted, an existing assessee could not avail of the concession provided under section 273-A. Therefore, the order of the Commissioner was liable to be set aside.

Matter remanded to the Commissioner for consideration afresh in the light of the observations contained in the judgment.

Paramjit Singh Grewal (Dr.) v. CIT (1980) 125 ITR 549 (P&H) and' Harjas Rai v. CIT (1982) 138 ITR 77 (P&H) applied:

Brij Mohan Bhargava (Dr.) v. CIT (1984) 150 ITR 300 (B&H) dissented from.

Hakam Singh v. CIT (1980) 124 ITR 228 (All.); Madhya Pradesh Agricultural Corporation v. CIT (1988) 171 ITR 576 (MP); Naik Patil (S.B.) v. CWT (1981) 130 ITR 162 (Kar.); Sreenivasulu (K.L.) v. CIT (1981) 127 ITR 834 (Kar.) and Varghese (P.D.) and E.J. Davis v. CIT (1989) 180 ITR 187 (Ker.) ref.

B.S. Gupta, Senior Advocate and Sanjay Bansul for the Assessee.

R.P. Sawhney for the Commissioner.

JUDGMENT

This judgment will dispose of Civil Writ Petitions Nos. 1364 of 1980, 1365 of 1980, 1366 of 1980, 1685 of 1980, 1686 of 1980, and 1687 of 1980, as similar questions of law and fact have been raised in these petitions. Reference to Civil Writ Petition No. 1364 of 1980 will be beneficial to understand the issues raised in all these petitions.

Messrs Tarloki Nath Avinash Chander, an existing assessee, is being assessed in the status of a Hindu undivided family since the assessment year 1964-65. The Income-tax return for the year 1970-71 relevant to the previous year being the financial year 1969-70, became due from the assessee on September 30,1970, but the same was not filed within the prescribed period. It is the case of the petitioner that the return, however, was filed voluntarily and in good faith, making therein honestly full and true disclosure of the income; without having received any notice from the Income Tax Department. Not only this, the petitioner deposited a sum of Rs.5,600 towards tax on the income so disclosed, i.e., Rs.3,000 voluntarily and the remaining sum of Rs.2,600.

The Income Tax Officer processed the assessment of the petitioner after making all necessary enquires and finalised the assessment at a figure of Rs.28.500, that is to say, almost accepted the income disclosed by the petitioner and made an addition to the extent of Rs.725 only. Simultaneously, the Income Tax Officer served a notice of demand upon the assessee-petitioner under section 156 of the Act, requiring it to pay a sum of Rs.3,861, i.e. (i) tax: Rs.351: (ii) interest under section 215/217: Rs.1,890; (iii) interest under section 139(8): Rs. 1,620, making it a total of Rs. 3,861. Since no amount was chargeable under section 215/217 of the Act as no notice under section 210 of the Act had been issued, the Income Tax Officer rectified the same, vide his order, dated March 12, 1979, and thus, cancelled the demand of Rs. 1,890. However, penal interest was levied and proceedings for imposition of penalty under section 271(1)(a) of the Act for not filing the return within time were initiated by the Income Tax Officer. The assessee filed a petition before the Commissioner under section 273-A of the Act,' praying that, since all the conditions specified therein had been satisfied by the petitioner, the amount of interest levied under section 139(8) and the amount of penalty imposable on the petitioner under section 271(1)(a) be waived and the proceedings initiated be directed to be withdrawn/dropped by way of supplementary statement. The petitioner claimed that since the conditions for grant of relief in terms of section 273-A of the Act were fully complied with, the necessary relief be granted to the petitioner.

The Commissioner, vide his order, dated March 29, 1979 ~Annexure P-5), came to the conclusion that the returns were not filed by the assessee voluntarily and, consequently, rejected his petition under section 273-A of the Act.

The petitioner feeling dissatisfied with the order of the Commissioner, Exh. P-5, filed another application, seeking rectification of the earlier order, vide Annexure P-6. It was highlighted that there is no basis for concluding that the returns submitted by the assessee were not voluntary. According to the petitioner, the returns for the various years in dispute were filed without issuance of any notice by the Department. Since the order, Annexure P-5, proceeded on the assumption that the returns have not been filed voluntarily, the same calls for rectification/revision. The Commissioner, vide his order, dated January 21, 1980 (Annexure P-7), found no merit in this contention of the petitioner either and, consequently, declined to make any rectification in the earlier order. It is these orders of the Commissioner, i.e. Annexures P-5 and P-7, which are sought to be quashed by means of this writ petition.

In the return filed by the respondents, it was highlighted that the petitioner in respect of each order of assessment had been filing the returns long after the expiry of the stipulated period. For the assessment year 1970-71, the return was filed on January 15, 1973. This way, the Commissioner rightly declined to exercise his discretion with regard to waiving of penalty/interest under section 273-A of the Act. In addition to this, it was averred that the petitioner has been a habitual defaulter. The petitioner is being assessed to income-tax since the year 1964-65, yet at no time he had been submitting the returns within the stipulated period. For instance, for the assessment year 1969-70, the return was filed on September 30, 1975, whereas the due date was September 30, 1969. Similarly, for the year 1970-71, the return was filed on January 15, 1976, for the year 1971-72 on March 15, 1976, for 1972-73 on March 3, 1977, and so on. This way, it cannot be said that the returns over the years were submitted voluntarily; in fact, the returns were made under fear and compulsion. The respondents further averred that the jurisdiction of the Commissioner under section 273-A is discretionary and is available only if two basic conditions are satisfied, namely, that the filing of the return is voluntary and it is in good faith. Since the returns were not voluntary, respondent No.l rightly exercised his discretion under section 273-A of the Act and so prayed for dismissal of the writ petition.

The crux of the dispute pertains to the determination of the ambit and scope of section 273-A of the Act which., for facility of reference, is reproduced hereunder:

"273-A. Power to reduce or waive penalty etc.. in certain cases.---(1) Notwithstanding anything contained in this Act, the Chief Commissioner or Commissioner may, in his discretion, whether on his own motion or otherwise,-- ....

(ii) reduce or waive the amount of penalty imposed or imposable on a person under clause (iii) of subsection (1) of section 271 ; or...

if he is satisfied that such person--...

(b) in the case referred to in clause (ii), 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, in the case referred to in clause (b), cooperated 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 1.----For the purposes of this subsection, 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 subsection (1) of section 271.

(2) Notwithstanding anything contained in subsection (1),--...

(b) if, in a case falling under clause (c) of subsection (1) of section 271, the amount of income in respect of which the penalty is imposed or imposable for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate amount of such income for those years, exceeds a sum of five hundred thousand rupees.

no order reducing or waiving the penalty under subsection (1) shall be made by the Chief Commissioner except with the previous approval of the Board.

(3) Where an order has been made under subsection (1) in favour of any person, whether such order relates to one or more assessment years, he shall not be entitled to any relief under this section in relation to any other assessment year at any time after the making of such order.

(4) Without prejudice to the powers conferred on him by any other provision of this Act, the Chief Commissioner or 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 this Act or stay or compound any proceeding for the recovery of any such amount, if he is satisfied that---

(i) to do otherwise would cause genuine hardship to the assessee, having regard to the circumstances of the case; and

(ii) the assessee has co-operated in any enquiry relating to the assessment or any proceeding for the recovery of any amount due from him:

Provided that, where the amount of any penalty payable under this Act, or where such application relates to more than one penalty, the aggregate amount of such penalties exceeds one hundred thousand rupees, no order reducing or waiving the amount or compounding any proceeding for its recovery under this subsection shall be made by the Chief Commissioner or Commissioner except with the previous approval of the Board.

(5) Every order made under this section shall be final and shall not be called into question by any Court or any other authority.

(6) The provisions of this section (as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989), shall apply to and in relation to any assessment for the assessment year commencing on the first day of April, 1988, or any earlier assessment year, and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year."

After referring. to the above statutory provisions, learned counsel for the petitioner argued that all the requirements of .section 273-A of the Act stand complied with, namely:

(i) that the petitioner has voluntarily and in good faith made full and true disclosure of his income and has paid tax on the income so disclosed,

(ii) all `disclosures' made by the' petitioner are prior to the Department's detecting such concealment,

(iii) besides making full disclosure, the petitioner has cooperated with the Department as well as made the payment of tax as per direction.

Having prima facie proved the prerequisites before seeking relief in terms of section 273-A of the Act, the Commissioner, in the facts and circumstances of the case, ought to have examined the matter in terms of the provisions of the Act and thereafter decided the case. Extraneous considerations and factors which are otherwise irrelevant ought not to have weighed with the Commissioner while deciding the just prayer of the petitioner under section 273-A of the Act. The Commissioner, while declining the petition, has observed in the following words:

"Thus, the Department was fully aware of the assessee's liability to tax and merely because the assessee's returns were awaited under section 139(1) and no notice under section 139(2) was issued, these returns cannot be accepted to have been filed voluntarily. It is also a matter of record that the assessee is a habitual defaulter in the matter of filing returns of income in time. For these years also, the returns have been filed beyond the time laid down and the benefit under section 273-A cannot be allowed to the assessee as these returns were not filed voluntarily."

Thus, according to counsel, two factors have weighed with the Commissioner, i.e. late filing of returns and the assessee being a habitual defaulter. According to learned counsel both these observations of the Commissioner have no bearing. The first is factually wrong as all these returns had been filed by the petitioner before receipt of any notice from the Department and to term the assessee as a habitual defaulter and thus declining the petition under section 273-A of the Act is against the ambit of the section. Learned counsel in support of his contention, relied upon the decisions rendered by this Court in Dr. Paramjit Singh Grewal v. CIT (1980) 125 ITR 549 and Harjas Rai v. CIT (1982) 138 ITR 77, decisions of the Karnataka High Court in S.B. Naik Patil v. CWT (1981) 130 ITR 162 and K.L. Sreenivasulu v. CIT (1981) 127 ITR 83.1 (Kar.) and a decision of the Madhya Pradesh High Court in Madhya Pradesh Agricultural Corporation v. CIT (1988) 171 ITR 576.

Learned counsel for the respondents, on the other hand, argued that the order passed by the Commissioner is perfectly valid, legal and just. The assessee had taxable income since 1964-65 and this way, the Department was aware of the fact that the petitioner had taxable income. Except for the verbal assertion of the petitioner that returns could not be filed within time as the petitioner had a prolonged illness, no proof in this regard has been adduced by him. Even otherwise, the mala fides of his act are crystal clear as the returns during all these years, i.e., for more than six years, were submitted by him long after the due date which itself would suggest that these returns were not filed voluntarily. In support of his contention, learned counsel has relied upon a decision of this Court in Dr. Brij Mohan Bhargava v. CIT (1984) 150 ITR 300, a decision of the Kerala High Court in P.D. Varghese and E.J. Davis v. CIT (1989) 180 ITR 187, and a decision of the Allahabad High Court in Hakam Singh v. CIT (1980) 124 ITR 228. Further arguing, learned counsel urged that the Commissioner has been given discretion under section 273-A of the Act to reduce or waive penalty or interest imposable. Even when the requisite conditions are made out for exercise of the discretion under section 273-A of the Act, it is not incumbent upon the Commissioner to exercise his discretion to give relief. Lastly, it was urged that the Commissioner, after examining the matter in all its entirety, found no ground to grant relief sought by the petitioner and, in this view of the matter, the discretion so exercised is not amenable to the writ jurisdiction of this Court.

After hearing learned counsel for the parties and perusing the various authorities cited by learned counsel in support of their respective contentions, I am of the view that the Commissioner has not examined the matter in terms of section 273-A of the Act. On the other hand, he has taken into consideration irrelevant matters like the petitioner being an assessee for a number of years, yet returns have been filed after a long time. To a similar effect is his observation that the petitioner is a habitual defaulter. The mere fact that the petitioner was an assessee to income-tax and advance tax had been paid or the Income Tax Officer knew that the petitioner had earned taxable income, will not be sufficient to hold that the returns filed and the disclosure made by the petitioner were not voluntary. In case this interpretation is accepted, an existing assessee cannot avail of the concession provided under section 273A of the Act. The judgment of this Court in Dr. Paramjit Singh Grewal's case (1980) 125 ITR 549 and Harjas Rai's case (1982) .138 ITR 77, are fully applicable to the facts of the present case. As per section 273-A of the Act, all that the Commissioner had to see was whether the returns submitted by the petitioner without notice could be termed as voluntary and whether the disclosure made is in good faith. Both aspects of the matter have escaped the notice of the Commissioner who appears to have been swayed by the late filing of the returns by the assessee. Since this aspect of the matter has escaped the notice of the Commissioner, dilating upon the authorities cited by the respondents would be of no use. Summarily put, those authorities have no bearing on the facts of this case except the judgment of my brother D.S. Tewatia J., as he then was, in Dr. Brij Mohan Bhargava v. CIT (1984) 150 ITR 300 (P&H). However, I am unable to agree with my brother that there is an element of arbitrariness in the powers of the authority even when a case is made out in terms of section 273-A. Even if it be assumed that there is an element of discretion, the same has to be exercised judicially.

Accordingly, I have no recourse but to accept the writ petition and set aside the orders of the Commissioner, Annexures P-5 and P-7, and remand the case to the Commissioner for fresh decision in accordance with law and as per the observations made in this judgment. No order as to costs.

M.B.A./156/T.F.Petition accepted.