1998 P T D 1747

[Gujarat High Court (India)]

Before S.M. Soni and S.D. Pandit, JJ

INDRAMOHAN (P.) ARORA

versus

COMMISSIONER OF INCOME-TAX/WEALTH TAX

Special Civil Application No.7724 of 1996, decided `on 20th December, 1996.

Wealth tax--

----Penalty---Reduction or waiver---Delay in filing returns---Returns filed voluntarily before issue of notice under S.14(2) or S.17---No additional wealth discovered besides what was disclosed by assessee in his returns---No fault found in statements given by assessee in his returns---Assessee extending full cooperation during assessment proceedings and fully paying assessed tax as also interest thereon---Commissioner rejecting application for waiver of penalty---Not justified---Indian Wealth Tax Act, 1957, Ss.14(2), 17 & 18-B.

The petitioner, an income-tax payer, was filing his income-tax returns since prior to 1981-82, but he was not filing his wealth tax returns till the year 1992. The petitioner contended that he was under the impression that as his wealth was invested in an industrial undertaking, he was exempted from paying wealth tax and consequently he was not filing his, wealth tax returns. The petitioner tiled his wealth tax returns for the assessment years 1981-82 to 1987-88 and also deposited the tax due from him as per his returns. The Department issued a notice under section 17 of the Wealth Tax Act, 1957, and in pursuance of the said notice, the petitioner informed the Department that the returns already filed by him should be treated as compliance with the said notice. Thereafter, the returns filed by him were assessed by the Department and they found that the returns filed by him were correct and proper and the wealth tax was also assessed. The petitioner was called upon to pay interest and penalty for late filing of returns. The petitioner paid the interest but thereafter filed an application before the Commissioner of Income Tax under section 18-B of the Wealth Tax Act, 1957, for waiver of penalty. The Commissioner rejected the application for waiver of penalty. On a petition under Article 226 challenging the order of the Commissioner:

Held, (i) that the petitioner was not served with any notice under subsection (2) of section 14 before the date he had filed his returns. The returns were filed voluntarily by the petitioner and it was a voluntary disclosure of wealth. The notice under section 17 was issued and served on the petitioner after he had voluntarily filed his returns. Though the returns were filed by the petitioner beyond the period of limitation prescribed by the Act which resulted in penalty, the delay in filing the returns could not be taken into consideration for considering his claim under section 18-B. The Commissioner had to confine himself to the provisions of section 18-B.

(ii) That the Department could not discover any additional wealth of the petitioner besides what was disclosed by the petitioner. The Department also could not find any fault with the statements given by the petitioner in the returns.

(iii) That the petitioner had not only cooperated fully during the course of the assessment proceedings but also had paid the assessed tax as also the interest levied for delay in filing the returns.

(iv) That the petitioner had voluntarily filed his returns for the past seven years. Therefore, the explanation given by the petitioner for delay in filing his returns could not be said to be unbelievable or unacceptable by any prudent man.

(v) That, therefore, the Commissioner was not justified in rejecting the application of the petitioner for waiver or reduction of penalty.

Cheldas Khushaldas Patel v. CIT (1992) 196 ITR 200 (Guj.) ref.

J.P. Shah for Applicant. .

Manish R. Bhatt for Respondent No. 1.

JUDGMENT

S.D. PANDIT, J.---Rule.

We have heard the learned advocates for both the sides at length, and, therefore, we proceed to dispose of this petition finally.

Shri Indramohan (P.) Arora has filed the present petition against the order passed by the respondent under section 18-B of the Wealth Tax Act, 1957, on September 10, 1996.

The petitioner, Indramohan (P.) Arora, is an income tax payer and he is filing his income tax return since prior to 1981-82, but he was not filing wealth tax returns till the year 1992. It is his case that as his wealth was invested in industrial undertaking, he was exempted from paying wealth tax and consequently he was not filing the wealth tax returns. It is also his claim that he was under that impression on account of advice given to him, but he subsequently learnt that the advice given to him was not correct and that he was liable to file wealth tax returns and to pay wealth tax. Therefore, on February 27, 1991, he filed wealth tax returns for the assessment years 1981-82 to 1987-88. He also deposited the tax due from him as per his return. After he filed the said returns, the Department realised that he was not filing the returns, and, therefore, the Department issued a notice under section 17 of the Wealth Tax Act, 1957, bearing the date of April 4, 1991, and the same was served on him on April 14, 1991. In pursuance of the said notice, the petitioner informed the Department that the returns already filed by him should be treated as compliance with the said notice. Thereafter, the returns filed by him were assessed by the Department and the Department found that the returns filed by him were correct and proper. The wealth tax was assessed. Thereafter, he was called upon as to why he should not be required to pay interest as well as penalty. Though the petitioner prayed for not levying penalty against him by taking the matter up to the Income Tax Tribunal, he failed in his endeavour and the Department levied penalty as well as interest. The petitioner had paid the interest, but thereafter, he flied an application under section 18-B of the Wealth Tax Act, 1957, before the Commissioner of Income-tax, Baroda, seeking waiver of the penalty. That application of his has been rejected by the Commissioner of Income tax by his order dated September 10, 1996, and hence, the petitioner has come before this Court.

Before considering the claim of the petitioner as well as submission made by standing counsel for the Department who supported theorder in question vehemently, it is necessary to quote here the provisions of section 18-B (1) of the Wealth Tax Act, 1957. The said provisions run as under:

"18-B.(1) Notwithstanding anything contained in this Act, the Commissioner may, in discretion, whether on his own motion or otherwise.-

(i) reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of subsection (1) of section 18 for failure without reasonable cause to furnish the return of net wealth which such person was required to furnish under subsection (1) of section 14; or

(ii) reduce or waive the amount of penalty imposed or imposable on a person under clause (iii) of subsection (1) of section 18,

if he is satisfied that such person,--

(a) in the case referred to in clause (i), has, prior to the issue of a notice to him under subsection (2) of section 14, voluntarily and in good faith made full and true disclosure of his net wealth and;

(b) in the case referred to in clause.(ii), has, prior to the detection by the Assessing Officer, of the concealment of particulars of assets or of the inaccuracy of particulars furnished in respect of any asset or debt in respect of which the penalty is imposable, voluntarily and in good faith, made full and true disclosure of such particulars,

and also has cooperated in any inquiry relating to the assessment of his net wealth 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 subsection, a person shall be deemed to have trade full and true disclosure of the particulars of his assets or debts in any case where the excess of net wealth assessed over the net wealth returned is of such a nature as not to attract the provisions of clause (c) of subsection (1) of section 18."

Now, if the above provisions of section 18-B are taken into consideration, then it would be quite clear that a discretion lies with the Commissioner either to reduce or to waive the amount of penalty on three grounds:

(1.) If the assessee has disclosed his net wealth by making in good faith true disclosure before the serving' of the notice under subsection' (2)-of section 14.

(2) If the assessee has not concealed any particulars of the assets or has not supplied any, incorrect particulars while filing the returns and

(3) that he has cooperated in the inquiry relating to the assessment of his net wealth and has either paid or made satisfactory arrangements for the payment of any tax or interest, payable in consequence of an order passed under the Act.

Therefore, bearing the above aspects in mind, we proceed to consider tie order in question as well as the submissions made before us. If the order of the learned Commissioner of Income-tax is read carefully, then it seems that the learned Commissioner of Income-tax was swayed by the fact that there was delay in disclosure of his wealth by the present petitioner. It also seems that he was also prejudiced in considering the claim before him on account of certain observations made by the Income Tax Tribunal while levying the penalty which were also tried to be cited before us by learned standing counsel for the Department, in considering the claim before him: If his order is carefully read, then it would be quite clear that there does not seem to be proper discussion of the material before him in order to find out as to whether the petitioner before us was entitled to make the claim before him.

It is an admitted fact that the present petitioner had filed his wealth tax returns for the years 1981-82 to 1987-88 on February 27, 1991, but at the same time, it is also an admitted fact that the petitioner was not served with any notice under subsection (2) of section 14 of the said Act of 1957 before the date he had filed his returns. Thus, it is quite clear that the returns in question were voluntarily filed by the petitioner. It was a voluntary disclosure of his wealth by the petitioner. It is also an admitted fact that the notice under section 17 of the said Act of 1957 was issued on April, 14, 1991, and the same was served on him on April 14, 1991. Therefore, that notice under section 17 is also served on him after he had voluntarily filed his return. No doubt, the returns filed by him for the years 1981-82 to 1987-88 were filed by him beyond the period of limitation prescribed under the Act for filing the said returns. His failure to file the said returns within the stipulated period has resulted into awarding penalty to him, but the said delay in filing the returns could not be taken into consideration for considering his claim under section 18-B. It must be remembered that if there was no delay there was no question of levying penalty. Unfortunately, the learned Commissioner has taken into consideration this delay in filing the returns in rejecting his claim. Therefore, that approach of his is obviously perverse. He has to confine himself to the provisions of section 18-B(1) of the Act in order to consider as to whether the petitioner was entitled to make a claim for waiver by fulfilling, the conditions laid down under the said section and he could not have taken into consideration the delay in lodging or filing the wealth tax returns. Thus, from the above discussion, it would be quite clear that the petitioner before us had fulfilled the first condition which is necessarily to be fulfilled by him for claiming either waiver or reduction in the penalty.

It is an admitted fact that the Department had not found any fault with the returns filed by the present petitioner. Whatever wealth was disclosed by the petitioner in his return was found to be his wealth liable for the payment of wealth tax. There is no case of the Department discovering any additional wealth of the petitioner besides the wealth disclosed by the petitioner in his returns. At the cost of repetition it must be said that the disclosure of his wealth is a voluntary one as he was not served either with the notice under section 14(2) or section 17 of the said Act of 1957. When the Department had not found any fault with the statements given by the petitioner in his returns and when the Department had not found or discovered any additional wealth besides the wealth mentioned by the petitioner in his returns and when the petitioner had voluntarily filed his returns, then it Would be quite obvious that there is fulfilment of the second condition required by the said Act.

It is not the claim of the Department that he was not cooperative when the assessment proceedings were going on. The petitioner had admittedly paid the tax due from him on his return. Not only that, he had paid the tax assessed by the Department, but he has also paid the interest levied against him for filing the late returns. Therefore, that conduct of his in paying the tax without' any hindrance alongwith the interest levied against him makes the fulfilment of the third condition as required by the said section.

Therefore, in view of the above discussion, it would be quite clear that the petitioner before us has fulfilled all the necessary requirements for making a claim of waiver/reduction of the penalty levied against him. The learned advocate for the Department vehemently urged before us that the order of the learned Commissioner of Income-tax clearly shows that there was delay ranging from 44 months to 116 months in filing the returns. Therefore, in the circumstances, it could not be said that the petitioner is entitled to claim the benefit of section 18-B of the said Act of 1957. But we are unable to accept that submission of his in view of the specific provisions of the section as quoted above. If- there was no delay on the part of the petitioner in filing his returns, there was no question of levying penalty against him. The petition filed by the present petitioner before the Income -tax Commissioner gets birth only after the penalty was levied on account of his filing late returns. The delay in filing the returns gives cause of action for claiming reduction or waiver of penalty. It must be also stated that because of the delay in filing returns he was saddled with the payment of interest on the wealth tax for the period of delay. He has accordingly paid the same. He is not disputing it. Therefore, the delay in filing the returns has no consideration in considering the claim for waiver or reduction of the penalty levied against the petitioner.

It seems from the order of the learned Income-tax Commissioner and it is also vehemently urged by learned counsel for the Department that the explanation given by the petitioner for late filing of the return is not correct. In our opinion, for considering the claim in question, it is not at all necessary to go into the question as to whether the petitioner was justified or had a reasonable explanation for the late filing of his returns, because if his explanation for the late filing was accepted and found to be correct, then it was not open for the Department to levy penalty. Because once the Department accepts the explanation for the delay, then the Department would not have been justified in penalising him even after accepting his delay. Now apart from this, even assuming that while considering the question of waiver or reduction penalty, the explanation for the delay in filing the returns is to be considered, we are of the opinion that the grounds given by the Department in rejecting the said explanation could not be accepted. It is the claim of the petitioner that he was advised that as his wealth was invested in industrial undertakings, he need not file the wealth tax returns and consequently though he has filed income-tax returns for these years 1981-82 to 1987-88, he had not filed the wealth tax returns. The explanation of the petitioner is rejected on the ground that the petitioner has not produced the opinion given by his tax consultant to that effect. In our opinion, a disclosure between an Advocate and his client is a privilege disclosure. As it is a privilege disclosure, no authority can compel the party to prove the same. But if the circumstances on record are taken into consideration, then it is not possible to accept the reasoning of the Department. There is no dispute of the fact that his wealth was being invested in industrial undertaking. Under the Act, in the case of industrial undertakings, there is a certain limit for exemption. Though the petitioner was filing his income-tax returns which must be disclosing his investment in the industrial undertakings, the Department itself never thought that he was also liable to file wealth tax returns and to .pay wealth tax. Had the Department thought so, then definitely a notice would have been issued by the Department either under section 14(2) or section 17 prior to his voluntary filing of returns on February 27, 1991. It must be also further mentioned here that the petitioner before us had not only filed all his returns for these seven years, but he has also filed them correctly. This conduct on his part in filing the returns voluntarily and correctly along with the abovementioned conduct of the Department in not issuing him a notice either under section 14(2) or section 17 prior to the filing of his returns makes the explanation given by him quite provable, believable and acceptable.

Therefore, in view of the above discussion, it would be quite clear that the petitioner's claim under section 18-B for reduction/waiver of penalty was quite correct and proper and the reasons given by the learned Income-tax Commissioner in his order are perverse and, therefore, we exercise our discretionary powers under Article 226 of the Constitution of India and quach and set aside the order of the learned Income-tax Commissioner.

It is urged before us by learned standing counsel, Mr. Jani, that even if this Court happens to come to the conclusion that the petitioner's case is covered by section 18-B of the Act, the Court should not waive the penalty in question and should remand the matter to the Income-tax Commissioner for considering the question as to whether the penalty is to be reduced or waived. He urged before us that such a view was taken by this Court in other similar matters previously. But from the order of the Income-tax Commissioner, we are unable to hold that the circumstances of the case are such that the levying of the penalty on the petitioner was justified. At the cost of repetition, it is necessary to mention here that the Department had already saddled the present petitioner to pay interest on account of the delay in filing the returns on the tax which was due from him and the petitioner has paid the said amount of interest and he is not disputing the said action of the Department. When the petitioner has paid all his dues alongwith the interest [hereon as claimed by the Department, we are of the opinion that the circumstances of the case are such that there is no justification for levying penalty. The petitioner had voluntarily filed his returns for seven years. The returns filed by him were the honest disclosure of all his wealth. The petitioner had fully cooperated with the Department during the assessment proceedings. The petitioner has also paid the tax alongwith the interest without any hesitation and the explanation given by him for the delay in filing the returns could not be said to be unbelievable or unacceptable by any prudent man. Therefore, in the circumstances, we are of the opinion that it is not at all necessary to remand the matter to the Income-tax Commissioner to consider the question as to whether there should be waiver or only reduction in the penalty. Though this Court might have taken the view in earlier proceedings to remand the matter to the Department, that must have been on account of the facts and circumstances of those cases, but in the last case of this Court in the case of Cheldas Khushaldas Patel v. CIT (1992) 196 ITR 200, the Division Bench of this Court had directed the Commissioner in a similar case not only waive the penalty but the interest also. We would, therefore, allow this petition and we hereby direct the Commissioner to waive the penalty imposed on the petitioner in the matter in question for the assessment years 1981-82 to 1987-88. Rule is thus, made absolute, but in the circumstances of the case, on orders as to costs.

M.B.A./1700./FCOrder accordingly.