V. M. SIVAPRAKASAM VS COMMISSIONER OF INCOME-TAX, 2000 PTD-MADRAS-HIGH-COURT-INDIA 2305 (1997)

Income-tax---

----Penalty---Advance tax---Return---Waiver of interest and penalty-- Concealment of income---Failure to furnish returns in time---Failure to furnish estimate of advance tax---Discretion of CIT under S.273A-- Application for waiver or reduction of penalty can be filed even before imposition of penalty ---Assessee admitting failure to furnish returns in time, concealment of income and failure to furnish estimate of advance tax-- Assessee agreeing to additions and paying all consequent taxes---Reduction of interest and penalty ---Assessee could not claim that entire interest and penalty should be waived---Indian Income Tax Act, 1961, S,273A.

A reading of section 273A of the Income Tax Act, 1961, makes it clear that the Commissioner of Income-tax can invoke the provisions of section 273A of the Act where the penalty is imposed or imposable. Hence, it cannot be stated that an assessee can invoke the provisions of section 273A of the Act only where penalty was already levied.

The Commissioner of Income-tax in exercise of his- discretion can either reduce the amount of penalty or may even waive the entire penalty. It is for the Commissioner to decide on the facts of a particular case whether waiver in entirety or reduction alone is warranted:

Held, that, in the instant case, the application filed under section 273A disclosed that the appellant had not complied in full with the conditions laid down in section 273A. The appellant had himself stated that the application under section 273A was for waiver of the interest charged in the assessment and the penal proceedings initiated under the various provisions of the Act for failure to file the return within the time allowed under the Act, failure to furnish estimates of advance tax and concealment of income. The above facts disclosed that the appellant had not complied with the provisions of the Act. Therefore, he would not be entitled to full waiver of penalty and interest as claimed by him in his petition. The Commissioner of Income-tax had reduced the penalty. His order was valid.

Mohammed Ali v. CWT (1983) 141 ITR 690 (Gauhati) and Shakuntla Mehra v. CWT (1976) 102 ITR 301 (Delhi) distinguished.

Harbans Kaur (Smt.) v. CWT (1997) 224 ITR 418 (SC); Hasan Ahmad Khan v. CWT (1975) 99 ITR 414 (All.); Indra & Co. v. CIT (1980) 122 ITR 510 (Raj.); Jakhodia Brothers v. CIT (1978) 115 ITR 61 (All.) and Jaswant Rai v. CBDT (1982) 133 ITR 19 (Delhi) ref.

K. S. Balakrishnan for Appellant.

S. V. Subramanian for Respondent.

JUDGMENT

A. R. LAKSHMANAN, J.---This writ appeal is filed tinder clause (15) of the Letters Patent against the order of K. Venkataswami, J. (as he then was), in W. F. No.3333 of 1992, dared December 20, 1993 dismissing the writ petition filed by the appellant herein.

The appellant is a doctor by profession. For the assessment years 1972--73 to 1979-80, he filed returns on March 31, 1980. voluntarily. No notice under section 139(2) of the Income Tax Act 1961 (hereinafter referred to as "the Act"), was served on the, appellant prior to his filing of the returns. According to the appellant he was not maintaining regular books of account and therefore, had to estimate this professional income taking rote consideration the acquisition he had made, and on the basis of .a cash flow chart prepared on May 4, 1981, the appellant filed a petition under section 273A of the Act for waiver of interest and penalties for the assessment years 1972-73 to 1979-80 to the first respondent. In that petition the appellant has prayed that he may be granted all the reliefs arid benefits available to him under the provisions of section 273A of the Act, and, in particular the interest of Rs.10,855 charged under section 139(8) of the act and Rs.1 1.061 charged under section 217(1A) of the Act may be waived, and the various penal proceedings initiated under section 274 of the Act read in sections 271 and 273 of the Act may also be dropped. It is, therefore, seen that the appellant has submitted his petition, dated May 4, 1981, tinder section 273A of the Act for the waiver of various interests charged in the assessment and the penal proceedings initiated under the various provisions of the Act, viz., for failure to file the return within the time allowed under the Act, failure to furnish estimates of advances ax and concealment of income.

The first respondent by his order, dated November 23, 1981, has observed that the Income-tax Officer examined the case and framed the assessment orders, however, re-computing the professional income in consequence of disbelieving certain credits taken for agricultural income, law drawings, etc, in the cash flow statements. He also observed that there is huge variation between the income returned and the income finally assessed by the Income-tax Officer in each of the years and the appellant did not contest the additions on appeal. However, consider in the fact that certain agreed additions have been made and the assessee has paid all the resultant taxes, the first respondent was of the view that the case calls for a liberal treatment. Therefore, he reduced the interest charged and the penalty imposable to the extent, noted -in a tabular statement at page 3 of his order. The first respondent has partly allowed the petition filed under section 273A of the Act. Aggrieved by the said order, the appellant filed the above writ petition to quash the order passed by the first respondent, dated November 23, 1981.

It was contended by the appellant that the first respondent has made an order under an assumption under sections 271(1)(a), 271(1)(c) and 273(b) of the Act regarding the reduction of minimum penalties imposable, while, in fact, no penalty was levied on the date of the petition and the order thereon, while the Income-tax Officer concerned has imposed the penalties giving effect to the order impugned. According to him, without an order for imposing the penalties by the Income-tax Officer, and which fact of penalty did not even exist, the reduction with the consequential order by the Income tax Officer giving effect to the impugned order has, in fact become an order of assessment, for which the power under section 273A of the Act cannot be exercised.

The writ petition was dismissed by the learned Single Judge by observing as follows:---

"5. A fair reading of the sections will show that the Commissioner can invoke the provisions of section 273A of the Act where the penalty is imposed or imposable and, therefore, the contention of learned counsel for the petitioner that the Commissioner can invoke the provisions of section 274A of the Act only where penalty was already levied, cannot be accepted.

6. The decision reported in Hasan Ahmad Khan v. CWT (1975) 99 ITR 414 (All), is not directly on point and, therefore, not helpful to the petitioner.

7. The fact that the petitioner himself has moved the first respondent even before the penalties were actually levied will only show that lie was aware that the Commissioner can exercise his powers under section 273A of the Act even at that stage. In Jakhodia Brothers v. CIT (1978) 115 ITR 61 (All), it has been held that section 273A of the Act can be invoked before or after penalty is imposed. In India & Co. v CIT (1980) 122 ITR 510 (Raj.), it had been held that an application under section 273 of the Act can be made during the pendency of an appeal against the order of penalty or even after its disposal. I therefore hold that the deduction-or waiver of penalty or interest arises not only in cases where the penalty is imposed or the interest is levied or paid but is also applicable in cases where the same is imposable or payable as the application under this section is independent of other, provisions of the Act."

In the result, the learned Single Judge dismissed the writ petition. Aggrieved by the said order, the present writ appeal has been filed.

We have heard. Mr. K. S. Balakrishnan, for the appellant, and Mr. S.V. Subramaniam, learned senior standing counsel for the respondents.

Mr. K. S. Balakrishnan, learned counsel for the appellant, contended that the learned Single Judge has not noticed that the order of the first respondent was challenged not only on the grounds of jurisdiction but also on another ground, viz., the assessee having complied with all the conditions laid down under the Act for full waiver of penalties and interest, should have allowed the application in full. The argument of Mr. K. S. Balakrishnan was countered by learned senior counsel for the respondents.

However, learned counsel for the appellant has confined his argument only in regard to the jurisdiction of the first respondent imposing the penalty when the assessee has complied with all the conditions laid down under the Act. In other words; as the assessee has complied with all the conditions laid down under the Act, the first respondent ought to have allowed full waiver of penalty and interest and allowed the application filed under section 273A of the Act in full. Therefore, the question that arises for our consideration is, as to whether the appellant has complied with all the conditions laid down under the Act and whether he is entitled to full waiver of penalty and interest.

A perusal of the application filed under section 273A of the Act would only disclose that the appellant has not complied with the conditions in full. In paragraph 7 of his application it is stated that the appellant is submitting the petition under section 273A of the Act for waiver of the interest charged in the assessment and the penal proceedings initiated under me various provisions of the Act for failure to file the return within the time allowed under the Act, failure to furnish estimate of advance tax and concealment of income. The above facts would disclose beyond any doubt that the appellant has it complied with the provisions of the Act. Therefore he would not be entitled to full waiver of penalty and interest as claimed by him in his petition. The appellant might have filed the returns for all the assessment years prior to the issue of notice under section 139(2) of the Act voluntarily and might be in good faith. He might have concealed his income or furnished inaccurate particulars as seen from the assessment orders for the above years. But, the fact remains, that he has filed the petition under section 273A of the Act, since there is failure on his part to file the returns within the time allowed under the Act and failure to furnish the estimate of advance tax and concealment of income.

In paragraph 8 of his petition, the appellant has prayed that he may be allowed all the reliefs and benefits available to him under the provisions of the Act and in particular, the interest of Rs.10,855 charged under section 139(8) of the Act and Rs.13,661 charged under section 217(lA) of the Act. He also prayed for the waiver of those amounts and dropping of the various penal proceedings initiated under section 274 of the Act read with sections 271 and-273 of the Act. A mere reading of the petition itself discloses that the appellant has not complied with the provisions of the Act and, therefore, he would not be entitled to full waiver of interest charged and also the dropping of the various penal proceedings initiated against him.

Section 273A of the Act reads thus:

"273. (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 imposable of 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

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

(iii) reduce or waive the amount of interest paid or payable under subsection (8) of section 139 or section 215 or section 217 of the penalty imposed or imposable 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;

(b) in the case referred to in clause (ii), has, prior to the detection by the Income-tax 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;

(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,

and also has, in all the cases referred to in clauses (a), (b) and (c), 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.---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).---

(a) if in a case the penalty imposed or imposable under clause (i) of subsection (1) of section 271 or the minimum penalty imposable under section 273 for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate of the penalty imposed or. imposable under the said clause or of the minimum penalty imposable under the said section for those years, exceeds a sum of fifty thousand rupees, or

(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 Commissioner except with the previous approval of the Chief Commissioner or Director General, as the case may be.

(3) Where an order has been made under subsection (1) in favour of any 'person, whether 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 . . . . . " '

A reading of the above section will show that the Commissioner can invoke the provisions of section 273A of the Act where the penalty is imposed or imposable and, therefore, the contention of learned counsel for the appellant, that the first respondent can invoke the provisions of section 273 of the Act only where penalty was already levied, cannot, be accepted. As already noticed, the appellant himself has moved the first respondent even. before the penalties were actually levied, which would only disclose that he was aware that the first respondent may exercise his power under section 273A of the Act even at that stage. Under section 273A of the Act, the first respondent/Commissioner has a discretion in the matter. In exercise of that discretion, the first respondent can either reduce the amount of penalty or. he may even waive the entire penalty. It is for the first respondent to decide on the facts of 'a particular case whether the waiver in entirety or reduction alone is warranted.

Learned counsel for the appellant in support of his contention first cited the decision reported in Shakuntla Mehra v. CWT (1976) 102 ITR 301 (Delhi). That judgment was rendered by a learned single Judge of the Delhi High Court. On the fact and circumstances of that case, the learned Judge held that under section 18(2A) of the Wealth Tax Act, 1957, the discretion to waive or reduce penalty has to be exercised by the Commissioner judicially and if the conditions laid down in the section were fulfilled, the Commissioner was bound to waive or reduce penalty and that the mere failure to file returns within the time allowed did not make the assessee liable to penalty and- that there had to be a contumacious or deliberate default. In the instant case, we have already noticed that the appellant has not fulfilled that the conditions laid down in the section and even as admitted by the appellant himself, he has not complied with the various provisions of the Act and therefore, he sought the aid of the first respondent under section 273A of the Act for the waiver of the various interests charged in the assessment and the penal proceeding initiated under the provisions of the Act for the failure to file the return within the time allowed under the Act and also the failure to furnish estimates of advance tax and concealment of income. The fact remains, the appellant has not complied with the conditions laid-down in the section. Therefore, the first respondent has passed the order impugned in the writ petition judicially by reducing the penalty to the extent noted in the concluding portion of his order. The conclusion reached by the first respondent in reducing the penalty, in our opinion, cannot at all be characterised as non-observance of the provisions of the Act. Therefore, this judgment has no application to the case on hand.

The decision reported in Muhammad Ali v. CWT (1983) 141 ITR 690 (Gauhati), is by a Division Bench of the Gauhati High Court. In that case, the Commissioner of Wealth Tax has found that the assessee has submitted the returns voluntarily and made disclosure in good faith, of his net wealth without any notice under section 14(2) of the Wealth 'fax Act and had extended all co-operation in completing the assessment. The Commissioner had reduced the penalty only up to 25 per cent of the minimum imposable under the Act. The Division Bench held that the Commissioner was fully satisfied that all the conditions precedent for the exercise of the power under section 18(2A) of the Wealth Tax Act were fulfilled but the Commissioner had not given reasons for not waiving the penalty in full. Therefore, the Division Bench set aside the order of the Commissioner and the Commissioner was directed to decide the matter afresh in the light of the observations contained in the judgment. As already noticed, as a matter of fact, in the instant case, the appellant has not filed the returns in time and paid the advance tax in time and not fully furnished the estimates of advance tax, etc. Therefore, the first respondent, taking a lenient view of the matter, has reduced the penalty imposable. This judgment also has no application since the facts and circumstances are different in our case.

The decision reported in Hasan Ahmad Khan v. CWT. (1975) 99 ITR 414 (All.), again is by a Division Bench of the Allahabad High Court. While interpreting the expression "in good faith made full disclosure of his net wealth", the Division Bench held that the said expression merely means that the assessee should have honestly described all his assets and liabilities which go to constitute his net wealth along-with the estimated value and if this has been done, it would become possible for the Commissioner to consider the assessee application under section 18(2A) of the Wealth Tax Act for waiving the penalty imposable upon him. While doing so, the Bench held, that the Commissioner should apply his mind to the fact whether, the assessee had acted honestly in disclosing all the particulars required to be mentioned in the return and if the assessee so satisfies the Commissioner and further compliance with clauses (b) and (c) of the section, the Commissioner must exercise his jurisdiction under section 18(2A) of the Wealth Tax Acts. In the instant case, the appellant has not described all his assets and liabilities which go to constitute his net wealth along-with their estimated value. When that has not been done, it would become impossible for the Commissioner to consider the assessee's application for complete waiver of the penalty, etc. Therefore, this judgment also can be easily distinguished on facts.

The decision reported in Jaswant Rai v. CBDT (1982) 133 ITR 19 (Delhi), is by a Division Bench of the Delhi High Court wherein the Bench held that the question of reduction would arise only when the penalty has been imposed and that the pendency of an application for reduction or waiver of penalty under section 271(4A) of the Income-tax Act would not make any difference and would not preclude the imposition of penalty for concealment of income under section 271(1)(c). The Bench has further observed that where the assessee has concealed his income, any subsequent act of voluntary, disclosure would not affect the imposition of penalty for concealment. In the instant case, the appellant himself has moved the first respondent even before the penalties were actually levied, which will only disclose that he was aware that the first respondent can exercise his power under section. 273A of the Act even at that stage. As observed by the Division Bench, the question of reduction would arise only when the penalty has been imposed. Further, the appellant has not fully disclosed his income and satisfied the other conditions imposed by the said section. Therefore, his subsequent act of voluntary disclosure would not affect the imposition of penalty for concealment. But, in the instant case, the first respondent has taken a lenient view of the matter and has reduced the penalty on the appellant. In any view of the matter, the order of the first respondent reducing the penalty cannot at all be construed as an exercise beyond the jurisdiction of section 273A of the Act.

Arguing contra, learned senior standing counsel appearing for the Department drew our attention to a very recent judgment of the Supreme Court reported in Harbans Kaur (Smt.) v. CWT (1997) 224 ITR 418. In that case, penalty was imposed under section 18 of the Wealth Tax Act on the assessee, who are the appellants before the Supreme Court for failure to file the returns in respect of the assessment years 1970-71 to 1975-76. When the Act was amended by Parliament and section 18B incorporated by the Taxation Laws (Amendment) Act, 1975, i.e.-, (Act 41 of 1975), the assessee submitted wealth tax returns and made a request for full waiver of the penalty as envisaged in the new provision. The Commissioner of Wealth Tax found that as the assessee have complied with the conditions stipulated in section 18B of the Act, they are entitled to the benefit of the new provision. However, keeping in view the facts and circumstances of the case, the Commissioner, instead of granting waiver of the full penalty, had only reduced it to five percent. for the relevant assessment years. The assessee submitted that once a person is found to be entitled to the benefits of the new provision of section 18B of the Act, the Commissioner should have waived the entire amount of penalty payable by the person concerned. They approached the High. Court by filing writ petitions which were dismissed in limine. Hence, they filed the appeals before the Supreme Court.

It was contended before the Supreme Court on behalf of the assessees that once a person is found entitled to the benefit of section 18B, the Commissioner cannot withdraw part of the benefit by imposing a penalty of five percent. According to them, once the failure is condoned, power to waive cannot be exercised in a truncated manner as was done in this case but only in a full measure. The Supreme Court while construing the words "the Commissioner May in his discretion reduce or waive the amount of penalty in section 18B of the Act interpreted the' same by saying that the power conferred on the Commissioner is to be exercised by him in such manner as he deems just and proper, and when a discretion is conferred on an authority, the same must be exercised fairly and not arbitrarily, justly and not fancifully. The learned Judges of the Supreme Court have observed thus.

"Even if the Legislature has not used the words 'in his discretion in section 18B(1), the Commissioner could have exercised only a discretionary power in view of the employment of the word 'may'. Now, when Parliament used- both expressions 'may' and 'in his discretion' together, the position is placed beyond the pale of any doubt that the Legislature wanted an officer of the rank of the Commissioner to be reposed with the discretionary power to choose between entire waiver or reduction in any proportion.

Of course, when the Commissioner, instead of giving a complete waiver, chooses to give only a reduction, for the penalty amount he must indicate in his order that he has applied his mind in that regard. In his view, there is no warrant, for the proposition that the Commissioner, if satisfied of the compliance of conditions, has only one choice, i.e., to waive the penalty in entirety. Otherwise, it may mean that the Commissioner can in a case where conditions are not satisfied, reduce the penalty amount. When conditions are not satisfied, the Commissioner cannot do either. Only when the said conditions are satisfied that the occasion arises for the Commissioner to exercise his discretion--not before."

The Supreme Court has also rejected the proposition of counsel for the assessee, as done by the appellant in, the present case, that the Commissioner, if satisfied with, the compliance of conditions has only one choice, i.e., to waive the penalty in entirety and only when the conditions are satisfied that the occasion arises .for the Commissioner to exercise his discretion and not before. In the instant case, we are satisfied that the conditions stipulated in section 273A of the Act, which is analogous to section 18B of the Wealth Tax Act, are fully satisfied and that the Commissioner in his discretion has reduced the penalty. As already stated, the Commissioner in exercise of his discretion can either reduce the amount of penalty or may even waive the entire penalty. It is for the Commissioner to decide on the facts of the particular case whether waiver in entirety or reduction. alone is warranted on the facts and circumstances of the case, the conclusion arrived at by the Commissioner in our opinion, is correct. The Commissioner, has reduced the penalty since, according to him, the conditions stipulated in the section are not fully satisfied.

A reading of the order of the first respondent would clearly indicates that the first respondent .has indicated his reasons for resorting to the power of reduction or waiver of the penalty in preference to granting full waiver of the penalty as demanded by the appellant. We cannot say that the reasons indicated in the order of the first respondent are in any manner irrelevant or not justified. We fully endorse the view taken by the learned Single Judge in dismissing the writ petition.

For the foregoing reasons we hold that there are no merits in the writ appeal and, therefore, the same is dismissed. However, there will be no order as to costs.

M.B.A./4167/FCPetition dismissed.