V. SUNEETHA PRASAD VS COMMISSIONER OF INCOME-TAX, 2000 PTD-ANDHRA-PRADESH-HIGH-COURT-INDIA 978 (1997)

(a) Income-tax---

----Return---Delay in filing, returns---Interest---No proper explanation for delay in filing returns---Levy of interest was justified---Indian Income Tax Act, 1961, S.139(8)---Constitution of India Art. 226.

(b) Income-tax--

----Penalty---Delay in filing returns---Waiver of penalty---Conditions precedent---Return showing correct income filed voluntarily---Excess claim or deduction was not relevant ---Assessee entitled to waiver of penalty-- Indian Income Tax Act, 1961, Ss:271(l)(a) & 273A---Constitution of India, Art.226.

A bare reading of section 273A of the Income Tax Act, 1961, shows that cases of filing of returns prior to the issue of a notice under section 139(2) or under section 148 of the Act voluntarily and making full and true disclosure of the income in good faith fall within the ambit of clauses (a) and (c) of section 273A(l).

The assessee's income from property for the assessment year 1977-78 was Rs.848 and from other sources Rs.890. She earned Rs.53,929 from sale of land and incurred an interest of Rs.27,271 on the borrowed capital for construction of a cinema hall. It was her case that she was under the impression that there was no taxable income for the assessment year 1977-78. However, she was advised that the profit on sale of land would be considered as capital gain within the meaning of section 45. She filed a return on December 29, 1983 duly computing her total income. The Income-tax Officer completed the assessment on a total income of Rs.63,070 by working out relief under section 80T of the Act at 25 percent. while she claimed 35 percent. The Income-tax Officer levied interest under section 139(8) penalty under section 271(1)(a) for the delay in filing returns. She filed a petition for waiver or reduction of the interest and penalty which was rejected. On a writ petition against the order:

Held, (i) that there was a ,delay of 76 months in filing the return. The assessee's explanation that she was under the impression that she had no taxable income, had been rightly rejected by the income-tax authorities. The levy of interest was valid. The order rejecting the petition to reduce or waive it was justified.

(ii) that the petitioner filed a return voluntarily before any notice under section 139(2) or under section 148 of the Act was issued. As far as the particulars of income or the sale consideration of the land or interest which was sought to be shown as a business loss was concerned, the Revenue did not dispute the figure. The fact that she had claimed deduction of 35 pen cent. instead of 25 percent. under section SOT of the Act would not attract the provisions of section 271(1)(c)., Thus, it was a fit case under section 273(1)(iii)(a) of the Act to waive the penalty. The order rejecting the application for waiver was liable to be quashed.

CIT v. Padma Timber Depot (1988) 169 ITR 646 (AP) ref.

Y. Ramakar for Petitioner.

Standing Counsel for Respondents.

JUDGMENT

V. BHASKARA RAO, J.---The petitioner is seeking a writ of certiorari quashing the order in HQRS 1-94/87-88 on the file of the Commissioner of Income-tax, Visakhapatanam, dated March 11, 1988, and consequential order of (i) waiver or reduction of interest charged under section 139(8) of the Income-tax Act (for short "the Act"), and (ii) penalty levied under section 271(1)(a) of the Act for the assessment year 1977-78.

The facts in brief are that the petitioner is an assessee under GIR No. 5.1860/SKL on the file of the Income-tax . Officer, Srikakulam (subsequently transferred to the Income-tax Officer, "D" Ward, Vizianagaram), for the assessment year 1977-78. Her income from property was Rs.848 and from other sources Rs.890. She earned Rs.53,929 from sale of land and incurred an interest of Rs.27,271. on the borrowed capital for . construction of a cinema hall. It is her case that she was under the impression that there is no taxable income for the assessment year 1977-78. However, she was advised that the profit on sale of land would be considered as capital gain within the meaning of section 45 of the Act and it is chargeable to tax. As regards the interest paid by her she was advised that she may claim deductions of such amount and on that advice she filed a return on December 29, 1983, duly computing her total income. The Income-tax Officer completed the assessment on a total income of Rs.63,070 by working out relief under section 80T of the Act at 25 percent. while she claimed 35 percent. by disallowing the interest. He raised a demand for Rs.16,796 being the interest charged under section 139(8) of the Act at 12 per cent from August 1, 1977, to December 29, 1983. Then a notice under section 274 read with section 271 for levy of penalty under section 271(1)(a) of the Act for belated filing of the return was issued. She responded to the show-cause notice and submitted the explanation. On a consideration of the explanation, the income-tax Officer levied a penalty of Rs.33,592 by his order, dated September 29, 1987. She filed an appeal before the Appellate Assistant Commissioner of Income-tax, Visakhapatnam, and the same was dismissed by an order, dated December 2, 1986. Thus, she became liable to pay (i) the interest of -Rs.16,796 charged under section 139(8), and (ii) penalty of Rs.33,592 under section 271(1) of the Act. She asserted that she filed the return voluntarily without any notice either under section 139(2)-or under section 148 of the Act.

Then she filed a petition under section 273A of the Act before respondent No. 1 seeking waiver or reduction of interest as well as penalty on the ground that she filed the return voluntarily without any notice under section 139(2) or under section 148 of the Act making a true and full disclosure of her income. It .is also her case that claiming allowance under section 80T of the Act at 35 percent. while it ought to be 25 percent. would not amount to non-disclosure of true and full income. Respondent No. l by the impugned order, dated March 11, 1988, rejected her petition on three grounds, namely, (a) that she has not shown the correct income in the return, (b) that the payment of tax rightfully due from her was deliberately postponed till the completion of the assessment, and (c) that there was no co operation from her in the matter of recovery of taxes. She submits that the impugned order is based on improper exercise of discretion and it is invalid in law and contrary to the ratio in CIT v. Padma Timber Depot (1988) 169 ITR 646 (AP) Hence, the writ petition.

Respondent No. 1 resisted the petition by filing a counter. It is admitted that the petitioner filed the return for the assessment year 1977-78 declaring her property income as Rs.848 and income from other sources as Rs.890 but it is denied that she was under a bona fide belief that the profit from the sale of land was not liable for capital gains tax or that interest payment of Rs.27,271 constituted her business loss. The assessing authority after due consideration of the relevant facts held that the assessee was guilty of non-discharge of statutory obligation and accordingly levied penalty which was confirmed by the Appellate Assistant Commissioner of Income-tax. The interest at Rs.16,796 was levied for delay of 76 months in filing the return.

Turning to the petition filed under section 273A of the Act, it is asserted that the tax due to the exchequer was withheld even in `the belated return by making untenable claims of 35 percent. deduction under section 80T of the Act as against 25 percent. and also claiming .interest payment as business loss even though there may be business (?) during the period. Hence, the writ petition is liable to be dismissed.

In view of the above pleadings, the following points arise for determination:

(i) Whether the petitioner is not liable to pay interest of Rs.16,796 under section 139(8) of the Act?

(ii) Whether she is not liable to pay a penalty of Rs.33,592 under section 271(1)(a) of the Act?

Point No. l : It is not in dispute that the petitioner filed her return on December 29, 1983, for the assessment year 1977-78. Hence, there is a delay of 76 months in filing the return. The legitimate tax due to the exchequer has thus been withheld without any lawful excuse. Her plea that she was under the impression that there is no taxable income for the assessment year 1977-78 or that the consideration on sale of land amounting to Rs.53,929 is not taxable or that the interest payment of Rs.27,271 constituted a business loss, was not accepted by the Revenue and rightly so. We, therefore, find justification for charging the interest under section 139(8) of the Act at 12 percent. per annum from August 1, 1977 to December 29, 1983. Point No. 1 is answered accordingly.

Point No. 2 : It is noteworthy that the petitioner filed her return though belatedly of her own volition and without being served with a notice under section 139(2) or under section 148 of the Act. She has therefore asserted that she has voluntarily filed the return and made full and true disclosure of her income and her case falls under section 273A(1)(iii)(a) of the Act.

Sri Y. Ratnakar, learned counsel for the petitioner, strenuously contended that the above provision squarely applies to this case and the respondent ought to have exercised the discretion in favour of the petitioner and waived the entire penalty. Learned standing counsel for the Revenue, however, contended that her claim of 35 .percent. deduction under section 80T of the Act from the capital gain as against 25 percent. was not done in good faith and hence it was not a full and true disclosure of her income, and hence the petitioner is not entitled for any indulgence.

We carefully considered the rival contentions. It would be beneficial to extract section 273A of the Act.

"273A. (1) Notwithstanding anything contained in this Act, the Commissioner may, in his discretion, whether on his own motion or otherwise,--

(i) reduce or waive the amount of penalty imposed or impossible on a person under clause (i) of subsection (1) of section 271 for failure, without reasonable cause to furnish the return of total income which he was required to furnish under subsection (1) of section 139 or ....

(iii) reduce or waive the amount of interest paid or payable under subsection (8) of section 139 or section 215, or section 217 or the penalty imposed or impossible under section 273, 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 139, voluntarily and in good faith made full and true disclosure of his income; ....

(c) in the cases referred to in clause (iii) has, prior to the issue of a notice to him under subsection (2) of section 139, or where no such notice has been issued and 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." (emphasis supplied)

A bare reading of the above

provision shows that case of filing of returns prior to the issue of a notice under section 139(2) or under section 148 of the Act voluntarily and making full and true disclosure of the income in good faith fall within the ambit of clauses (a) and (c) of section 273A(1)(iii) of the Act. Undoubtedly, the petitioner herein filed a return voluntarily before any notice under section 139(2) or under section 148 of the Act was issued. As far as the particulars of income or the sale consideration of the land or interest which is sought to be shown as a business loss are concerned, the Revenue does not dispute the figures. What all is stated is that she claimed deduction of 35 percent. instead of 25 percent., under section 80T of the Act. In our considered view, the Explanation to the above provisions enjoins that where the above deduction is such as not to attract the provisions of clause (c) of subsection (1) of section 271 of the Act, the petitioner shall be deemed to have made full and true disclosure of her income. We are unable to see as to how section, 271(1)(c) of the Act is attracted in this case and hence it is a case of voluntary disclosure of full and true income made in good faith. Thus, in our view, it is a fit case under section 273A(1)(iii)(a) of the Act to waive the penalty. The impugned order regarding imposition of penalty is quashed. Point No. 2 is answered accordingly.

For all the reasons given above, this writ petition is allowed in part waiving the penalty of Rs.33,592 and confirming the interest. There will be no order as to costs.

M.B.A./3337/FC Petition allowed partly.