Madras H.C : The petitioner has prayed for issue of a certiorarified mandamus calling for the records relating to the proceedings dt. 28th Jan., 1988 made in C. No. 2033/(77) of 1986-87 T.N.V. and to quash the same and, consequently, to forbear the respondents from levying or collecting any penalty or interest under any provisions of the IT Act, 1961 (hereinafter referred to as ‘the Act’) from the petitioner.

High Court Of Madras

K.M. Radha Krishna Chettiar & Co. vs. CIT & Anr.

Section 273A

Asst. Year 1983-84

P.D. Dinakaran, J.

Writ Petn. No. 3878 of 1988

27th March, 1998

Counsel Appeared

V. Ramachandran for K. Mani & M. Krishna Kumar, for the Petitioner : S.V. Subramaniam, for the Respondents

JUDGMENT

P.P. DINAKARAN, J.:

1. Heard.

2. The petitioner has prayed for issue of a certiorarified mandamus calling for the records relating to the proceedings dt. 28th Jan., 1988 made in C. No. 2033/(77) of 1986-87 T.N.V. and to quash the same and, consequently, to forbear the respondents from levying or collecting any penalty or interest under any provisions of the IT Act, 1961 (hereinafter referred to as ‘the Act’) from the petitioner.

3. The brief facts of the case are stated as follows : The petitioner is a partnership firm with five partners. The firm is carrying on money-lending business.

4. There was a change in the constitution of the firm w.e.f. 1st April, 1978 due to the retirement of one of the partners and consequent admission of a new partner which was reduced to a partnership deed dt. 9th May, 1978.

5. The petitioner-firm is regular in submitting its returns of income and assessed as a registered firm. The return for the year 1979-80 were filed on 8th Aug., 1979, declaring a total income of Rs. 1,29,439 and the assessment was completed on 27th Feb., 1980 on a total income of Rs. 1,31,610.

6. Thereafter, the returns for the year 1980-81 were also submitted on 29th Aug., 1980 and the assessment was completed on a total income of Rs. 1,53,590 as against the return income of Rs. 1,53,160.

7. The petitioner-firm filed a return of income for the asst. yr. 1981-82 on 18th Feb., 1982 admitting a total income of Rs. 88,260 and the assessment was completed on 16th March, 1983, accepting the returns.

8. In respect of the asst. yr. 1982-83, the return of income filed by the petitioner on 26th July, 1982 at Rs. 1,30,670 was accepted by an order of assessment dt. 16th March, 1983, and, therefore, the assessments of the petitioner were completed up to the asst. yr. 1982-83.

9. While so, the petitioner states that there was a search by the IT Department in the premises of the petitioner on

29th March, 1983 and certain records were seized by the authorities.

10. The petitioner further states that immediately after the search, but before any proceedings were initiated in pursuance of the search by the Department against the partners of the petitioner-firm, the petitioner approached the respondents for proper and necessary settlement of the petitioner’s assessment. Even though the petitioner-firm was maintaining regular accounts in respect of its transactions, the petitioner-firm considered it just and necessary to arrive at a true and complete settlement with the IT authorities as two of the partners of the firm were not keeping good health and one of the partners died in June, 1983, soon after the search, and another partner was a lady. That apart, the partners of the firm were very particular to regularise the accounts even though it would incur certain additional tax. Accordingly, the petitioner-firm approached the respondent for settlement of IT assessment for the asst. yr. 1979-80 onwards and submitted a true and complete disclosure of all the facts relevant to the assessment, voluntarily and in good faith, and the respondent also agreed to complete the assessment on the basis of the materials furnished by the petitioner. In fact, at the instance of the petitioner itself, the second respondent issued a notice under s. 148 of the Act proposing to reopen the assessment for the years 1979-80 to 1982-83 on

23rd March, 1985. Even though, the original returns for all the abovesaid years were filed by the petitioner voluntarily and the assessment for the said years were also completed on the basis of the said original returns, the petitioner, voluntarily, and in good faith, approached the respondent to issue a statutory notice under s. 148 of the Act to enable the petitioner to submit the return of income in accordance with the disclosure made by the petitioner-firm voluntarily and in good faith. The petitioner, by its letter dt. 31st Dec., 1985, brought to the notice of the respondent that the assessment for the asst. yr. 1982-83, was already completed and the assessment for the asst. yr. 1983-84 was neither made till then nor the returns were filed for want to books which were seized and, hence, they requested for the extracts of the books as on 31st Dec., 1985 to enable them to file the return for the asst. yr. 1983-84 covering all the advances. The petitioner made a further representation on 4th Jan., 1986, furnishing the particulars of income which were offered for assessment, and further agreeing to pay the additional tax requested the first respondent to waive the interest and penalty imposable under the provisions of the Act. In pursuance of the said letter dt. 4th Jan., 1986, the petitioner submitted returns of income on 20th Jan., 1986. However, the first respondent, by his assessment order, dt. 30th Jan., 1986, levied interest under s. 139(8) and s. 217 of the IT Act. Therefore, the petitioner made a representation under s. 273A of the Act to waive the interest and penalty. But the first respondent, by his order, dt. 28th Jan., 1988, made in C. No. 2033(77) of 1986-87 T.N.V., which is impugned in the above writ petition, summarily rejected the petition filed by the petitioner under s. 273A. The impugned proceedings, dt. 28th Jan., 1988 of the first respondent read as follows : “GOVERNMENT OF INDIA Office of the CIT, Tamil Nadu-V 121, Nungambakkam High Road, Madras – 600 034 Proceedings of the CIT, Tamil Nadu-V, Madras – 600 034, Shri N. Rangachary, CIT, Tamil Nadu-V, Madras-600 034 C. No. 2031 (77)/86-87/TN.V. dt. 28th Jan., 1988 Name & address of the assessee : M/s K.M. Radhakrishna Chettiar & Co. Kannigaipair Village, Trivellore. Assessment years : 1979-80 to 1983-84 G.I. No. : 380-K/I(1)/TMBM ORDER UNDER S. 273A OF THE IT ACT, 1961 By its petition under s. 273A of the IT Act, 1961, the assessee has sought for waiver of interest and penalties in respect of asst. yrs. 1979-80 to 1983-84. On a perusal of the records, it is seen that there was an action under s. 132 of the IT Act, 1961, consequent to which the assessee had filed returns of income admitting unaccounted incomes arising to it. Since the assessments for the abovesaid assessment years were all completed after action under s. 132, I see no reason to entertain the present petition filed under s. 273A of the IT Act, 1961.

In the circumstances, the petitions are rejected. Sd/(N. Rangachary) CIT, T.N.V., Madras-34″ Hence, the above writ petition. The respondents filed a detailed counter-affidavit justifying the impugned proceedings dt. 28th Jan., 1988, on the ground that the returns of income admitting the unaccounted income were filed only after the search was conducted in the petitioner’s premises under s. 132. The respondents state that a search was conducted by the IT authorities under s. 132 of the Act on 29th March, 1983 and thereafter a notice under s. 148 was issued to the petitioner on 23rd March, 1985, for reopening the assessment for the years 1979-80 to 1982-83. It is onlythereafter, the petitioner, by its letter, dt. 31st Dec., 1985, offered to have an assessment for the unaccounted income spread over the years 1979-80 to 1982-83. But by its letter dt. 4th Jan., 1986, the petitioner went back and sought entire unaccounted income assessed for the year 198384, contrary to its own request to assess the unaccounted income spread over the years 1979-80 to 1982-83. Even though it was admitted that the petitioner-firm had not disclosed the complete income for these years, order, dt. 12th March, 1991 passed by the Tribunal during the pendency of the above writ petition clearly proves that the petitioner did not return the complete and correct income as per the details of the amounts returned, amounts assessed originally and amounts finally assessed after the search. Hence, the respondents contend that the request of the petitioner seeking waiver of interest and penalty under s. 273A is neither bona fide nor justified. That apart, during the course of action under s. 132, it was also found that the letter obtained from the pawner to the effect that only half the weight of the jewels pledged were kept in a jewel pouch along with jewel pledged by the pawner concerned. Therefore, the respondents contend that the petitioner had deliberately suppressed the unaccounted income while submitting its returns during 1979-80 to 1982-83.According to the respondents, the offer by the petitioner as its unaccounted income assessed under s. 69 of the Act on 31st Dec., 1985 is not only long after the assessment made for the years 1979-80 to 1982-83 but also after aconsiderable time of the date of search, namely 29th March, 1983 and again after the notice issued under s. 148 on 23rd March, 1985, and, therefore, the same cannot be considered as either bona fide or voluntary disclosure enabling him to claim waiver of interest and penalty under s. 273A. In the light of the above facts and circumstances of this case, Mr. V. Ramachandran, the learned senior counsel for the petitioner, contends that s. 273A confers a discretion coupled with duty to be performed by the first respondent-CIT; the refusal to appreciate the merits of the case of the petitioner and failure to exercise such discretion conferred under s. 273A of the Act, by summarily rejecting the waiver of interest and penalty by the impugned order dt. 28th Jan., 1988, vitiates the entire proceedings. The learned senior counsel appearing for the petitioner further contends that mere search under s. 132 of the Act or the initiation of any proceedings under s. 132 would not automatically disentitle the petitioner to claim the benefits conferred under s. 273A of the Act; or merely because the returns were filed after the search, it would not cease to be a voluntary or bona fide disclosure. In this connection, he relies upon the decisions in K.C. Vedadri vs. CIT (1973) 87 ITR 76 (Mad) : TC 49R.554 and A.V. Joy Alukkas Jewellery vs. CIT (1990) 185 ITR 638 (Ker) : TC 49R.1021. Mr. V. Ramachandran, the learned senior counsel for the petitioner, further contends that even, where action is taken under s. 132, still the first respondent is under statutory obligation to apply his mind to get himself satisfied whether the disclosures are true and complete, made voluntarily and in good faith, and to give a finding whether the conditions contemplated under s. 273A are satisfied or not. Therefore, the first respondent should apply his mind to the merits of the case and give finding as to : (i) whether the conditions under s. 273A are satisfied or not ; and (ii) if they are satisfied, whether he would waive the penalty or interest or whether he would reduce the amount of penalty or interest as the case may be.

In any event, Mr. V. Ramachandran, the learned senior counsel for the petitioner, contends that assuming without admitting that the petitioner is not entitled to the relief under s. 273A(1) and (2) for the reason that he had made the disclosure only after the search and that he had not disclosed it voluntarily, the CIT still ought to have exercised his power under s. 273A(4) and granted the relief therein either by reducing or waiving the penalty payable by the assessee under the Act. The learned senior counsel, therefore, contends that the refusal to exercise such power conferred on the first respondent under s. 273A(4), again vitiates the impugned proceedings. Per contra, Mr. S.V. Subramaniam, the senior standing counsel appearing on behalf of the respondents, arguing in support of the impugned proceedings, highlights the conditions prescribed under s. 273A(1) that the alleged full and true disclosure should be made voluntarily and in good faith; should be made prior to the issue of notice under s. 148; and the term ‘voluntarily’ used under s. 273A(1) indicates an action free of any constraint of search by the Department. In support of his contention, the learned senior standing counsel relied upon the decision in Hakam Singh vs. CIT (1980) 17 CTR (All) 255 : (1980) 124 ITR 228 (All) : TC 49R.1022. In the instant case, admittedly, the disclosures were made only after the search was conducted by the Department in the petitioner’s premises on 29th March, 1983. The learned senior standing counsel further contends that the word ‘detected’ used in this context would include a case where the AO had conducted a search and started investigation into the matter. In this connection, the learned senior standing counsel relies upon the decisions in K.M. Rajan, Rajan & Co. vs. CIT (1990) 186 ITR 376 (Ker) and Tribhovandas Bhimji Zaveri vs. Union of India (1993) 115 CTR (SC) 411 : (1993) 204 ITR 368 (SC).

The learned senior standing counsel also distinguishes the decision in A.V. Joy, Alukkas Jewellery’s case (supra) and contends that the said decision is not applicable to this case, because, in that case, admittedly, the disclosures were made within 15 days after the search which is protected under Expln. 2 to s. 273A as the said Expln. 2 was in force only during the period 1st Oct., 1984 to 24th May, 1985, as the Government felt that it was not proper and justified to provide immunity to the persons who choose to come forward to declare their concealed income only after incriminating evidence had been found in their possession. In reply to the contentions of Mr. S.V. Subramaniam, the learned senior standing counsel for the respondents, Mr. V. Ramachandran, the learned senior counsel appearing for the petitioner, stresses the non obstante clause used under s. 273A, and contends that its operation is untrammelled by any other provision of the Act, which includes the search and the investigation initiated under s. 132 of the Act. Again, Mr. V Ramachandran, the learned senior counsel for the petitioner, impresses the words, ‘if he is satisfied’ and contends that the CIT would get himself satisfied about the compliance or non-compliance of the conditions prescribed under s. 273A(1) before rejecting the petition filed by the petitioner under s. 273A. The learned senior counsel for the petitioner further contends that the application is made under s. 273A and the CIT is, therefore, expected to ensure the compliance with the conditions prescribed under s. 273A(1) of the Act by exercising his judicial discretion and failure to exercise such discretion judicially, fairly and reasonably before initiating the impugned proceedings, would vitiate the entire proceedings. Mr. V. Ramachandran contends that the CIT had not applied his mind nor satisfied himself whether the conditions prescribed under s. 273A had been complied with; nor was there any finding or reason available in the impugned proceedings for rejecting the relief sought for by the petitioner under s. 273A, except a mere ground that the disclosure was made subsequent to the search and initiation of the proceedings under the Act. In this connection, the learned senior counsel for the petitioner relies upon the decision in Anwar Ali vs. CIT (1990) 51 Taxman 154 (AP), Sujatha Rubbers vs. ITO (1992) 102 CTR (AP) 152 : (1992) 194 ITR 355 (AP) : S49.3951, Public Carriers Truck Owners’ Association vs. CIT (1994) 120 CTR (Raj) 236 : (1994) 210 ITR 36 (Raj) : TC 49R.1026 and N. Subhakaran vs. CIT (1992) 198 ITR 720 (Ker). On the other hand, Mr. S. V. Subramaniam, the learned senior standing counsel for the respondents, contends that the question of getting satisfied about the compliance of the conditions prescribed under s. 273A(1) or the question of exercising the judicial discretion would arise only if the conditions contemplated under s. 273A are complied with; if the conditions prescribed under s. 273A(1) are not complied with there would be no justification in complaining that the CIT has failed to exercise his discretion conferred on him; and in support of his contention, he relies upon the decision in Smt. Harbans Kaur vs. CWT (1997) 138 CTR (SC) 211 : (1997) 224 ITR 418 (SC) : TC 66R.963.

It may be noted that the learned senior counsel for the petitioner also relies upon the very same decision and contends that the want of satisfaction as to the compliance of conditions prescribed under s. 273A vitiates the impugned proceedings. I have given a careful consideration to the submission of both sides. In order to appreciate the submissions of both sides in the light of the above decisions, it is relevant to refer to s. 273A which reads as follows : “273A. Power to reduce or waive penalty, etc., in certain cases.—(1) Notwithstanding anything contained in this Act, the Chief CIT or CIT, may in his discretion, whether on his own motion or otherwise,— (i) reduce or waive the amount of penalty imposed or imposable on a person under cl. (i) or sub-s. (1) of s. 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub-s. (1) of s. 139; or (ii) reduce or waive the amount of penalty imposed or imposable on a person under cl. (iii) of subs. (1) of s. 271; or (iii) reduce or waive the amount of interest paid or payable under sub-s. (8) of s. 139 or s. 215 or s. 217 or the penalty imposed or imposable under s. 273. If he is satisfied that such person— (a) in the case referred to in cl. (i) has, prior to the issue of a notice to him under sub-s. (1) of s. 139, voluntarily and in good faith made full and true disclosure of his income; (b) in the case referred to in cl. (ii) has, prior to the detection by the AO, 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 cl.(iii), has, prior to the issue of a notice to him under sub-s. (2) of s. 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 s. 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 cls. (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 I.—For the purposes 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 nature as not to attract the provisions of cl. (c) of sub-s. (1) of s. 271. (2) Notwithstanding anything contained in sub-s. (1),— (a) if in a case the penalty imposed or imposable under cl. (i) of sub-s. (1) of s. 271 or the minimum penalty imposable under s. 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 one hundred thousand rupees, or (b) if in a case falling under cl. (c) of sub-s. (1) of s. 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 sub-s. (1) shall be made by the Chief CIT or CIT except with the previous approval of the Board. (3) Where an order has been made under sub-s. (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 CIT or CIT 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 proceedings for its recovery under this sub-section shall be made by the Chief CIT or CIT 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 he Direct Tax Laws (Amendment) Act, 1989, shall apply to and in relation to any assessment for the assessment year commencing on the 1st 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.”

35. The points that arise for consideration in the above writ petition are as follows : (i) Whether, on the facts and circumstances of the case, the petitioner has made a true and complete disclosure, voluntarily and in good faith? (ii) The mere fact that such disclosure was admittedly made subsequent to the search under s. 132 of the Act disentitles to claim the benefits under s. 273A, particularly in the light of non obstante clause in s. 273A(1)? (iii) whether the impugned proceedings is supported with reasons and justified in law?

36. No doubt, the disclosure was made after the search conducted under s. 132. In this connection, it is relevant to refer to the decision relied upon by both the learned counsels for the petitioner and the respondents in K.C. Vedadri’s case (supra), wherein this Court has held as follows : “It is not necessary that a person who files a return under s. 139(4) of the IT Act, 1961, should contemporaneously or soon thereafter, file an independent application under s. 271(4A) and move the CIT to exercise his discretion to reduce or waive the minimum penalty imposable. Sec. 271(4A) deals only with a power and is not indicative of the procedure as is normally understood and, hence, the CIT is bound, while exercising his jurisdiction under s. 264, to consider in appropriate cases whether he should exercise his judicial discretion as contemplated in s. 271(4A). The word ‘reduce’ in s. 271(4A) also gives the clue that he could only reduce the penalty which has already been imposed. Though the word used in s. 271(4A) is discretion, it is obvious that the CIT who is deemed to be a quasi-judicial Tribunal, should see that no principles of natural justice are violated or no set prescriptions of law are ignored and he should judicially view the entire material before him and exercise his so-called discretion judiciously. The mere fact that an outer limit is fixed by s. 139(4) for filing of a return in the absence of a notice under s. 139(2) does not affect the power of the ITO to act under s. 271 to find out whether there was reasonable cause on the part of the assessee in the matter of furnishing of returns under s. 139(1) and impose penalty in an appropriate case.”

37. In A.V. Joy, Alukkas Jewellery’s case (supra), a Division Bench of the Kerala High Court has held as follows : “Held, that the CIT had refused to exercise his discretion to waive the interest under ss. 139(8) and 217 and penalty under ss. 271(1)(a) and 273(2)(b) on the ground that the returns filed were not voluntary in nature because they had been filed only after the search. Expln. 2 to s. 273A which was in force from 1st Oct., 1984 to 24th May, 1985, gave certain benefits if the disclosures were made within fifteen days of the search. The disclosures in question had been made within fifteen days of the search. It may be that during the search, certain matters or documents relating to a particular assessment year might have come to the knowledge of the ITO. But, the assessee, taking advantage of the provisions contained in s. 273A of the Act, might have made a full disclosure, not only for any particular year to which the documents obtained from search related but also for all the earlier or subsequent years. The return and the disclosure would nevertheless be voluntary even though the intention of the assessee in so doing was only to save the penalty. Hence, the disclosure or the filing of return after the search by itself would not be decisive of the fact that the returns and disclosures were not voluntary. On a perusal of the impugned orders, it could be seen that there was no detailed consideration of these aspects by the CIT. The CIT had to examine for what period suppression was found out after search, what was the nature of the suppression and omission, the gravity of the offending act, subsequent conduct of the assessee, quantum of penalty, etc. The CIT had not considered the application under ss. 271(1)(a) and 273 (2)(b) as required by law. Merely because the returns were filed after the search, they would not cease to be voluntary or bona fide disclosure. Therefore, the impugned orders of the CIT were liable to be set aside. [The CIT was directed to reconsider the matter relating to imposition of penalty under ss. 271(1)(a) and 273(2)(b)].”

38. On the other hand, in K.M. Rajan, Rajan & Co.’s case (supra), distinguishing the said decision in A.V. Joy, Alukkas Jewellery’s case (supra), the Division Bench of the Kerala High Court has held as follows : “. . . . .as a result of the survey, certain defects and discrepancies in the account were noticed by the officials. The assessee has itself admitted that it was forced to file the revised return only on account of the pressure exerted by the survey party which clearly indicated that is never had the intention of making a voluntary disclosure. Therefore, the levy of interest was justified.”

39. The facts of both the cases, viz., (i) A.V. Joy, Alukkas Jewellery’s case (supra); and (ii) K.M. Rajan, Rajan & Co.’s case (supra), are centered on the point whether the petitioners therein were entitled to invoke the benefit of Expln. 2 to s. 273A of the IT Act. But in the instant case, such question does not arise at all, because, Expln. 2 to s. 273A was inserted on 1st Oct., 1984 by the Finance Act, 1984 and got deleted by the Finance Act, 1985 on 24th May, 1985. Even though both the decisions are not directly relevant to the issue raised in the above writ petition, still I find that in both the decisions, the Division Bench of the Kerala High Court found that there was an application of mind by the CIT as to the compliance of the condition prescribed under s. 273A(1) either for granting or refusing the relief under s. 273A(1) either for granting or refusing the relief under s. 273A(1) which deserves my consideration to decide the issue raised in the above writ petition.

40. Referring to the decision in Hakam Singh’s case (supra), it may be noted that the Division Bench of the Allahabad High Court has held as follows : “The term ‘voluntary’ in s. 273A of the IT Act, 1961, has been used to indicate an action free of any constraint. A return filed under the constraint of exposure to adverse action by the IT Department will not be voluntary within the meaning of s. 273A. The action of an assessee in filing a return after the books of account had been seized at a raid would be impelled by the compelling circumstance that the assessee was likely to be dealt with under the penal provisions of the IT Act. The action of an assessee in filing a return under such a constraint cannot be said to be voluntary.”

41. Similarly, the apex Court, in Tribhovandas Bhimji Zaveri’s case (supra), has held as follows : “The object of the Voluntary Disclosure of Income and Wealth Act, 1976, is to motivate the voluntary declaration of concealed income and with that object in mind the Schedule to the Act prescribes concessional rates of tax. A declaration of concealed income made after books or other documents or valuable assets have been seized cannot be said to be a voluntary disclosure; it is made because the books, documents and assets seized would disclose to assessing authority the concealment of income. . . . . .”

42. Undoubtedly, in both the above decisions, namely : (i) Hakam Singh’s case (supra) and (ii) Tribhovandas Bhimji Zaveri’s case (supra), the fact remains that the CIT had not summarily rejected the benefit conferred under s. 273A(1); but only after getting himself satisfied that the conditions prescribed under s. 273A(1) were not complied with.

43. In Anwar Ali’s case (supra), the Andhra Pradesh High Court has held that : “The discretion conferred on the CIT under s. 273A is a quasi judicial power and that has to be exercised judiciously, reasonably but notcapriciously and arbitrarily. The conditions mentioned in sub-sections (1) and (4) of s. 273A are sine qua non of the exercise of discretionary power under that section. The extent of discretionary jurisdiction under s. 273A varies from reducing the penalty/interest to waiver of penalty/interest completely. Though no circumstances or criteria can be laid down, in which the penalty/interest may be reduced or waived, the CIT has to exercise his jurisdiction having regard to all the relevant circumstances of the case. The order under s. 273A has to be a speaking order and the CIT is bound to give reasons for limiting the relief to reduction of penalty/interest or for waiving a percentage of penalty/interest as against the claim of the assessee to the waiver of penalty/interest completely. In the instance case, no doubt, the CIT had applied his mind which was reflected in the reduction of penalty to 50 per cent, yet the order suffers from the vice of absence of reasons. From the impugned order it could be inferred that though the conditions precedent for the exercise of the jurisdiction have been satisfied, the CIT had not given any reason as to why the relief was limited to waiving 50 per cent of penalty and interest. For these reasons, the impugned order had to be quashed. The CIT was, accordingly, directed to consider the matter afresh and pass appropriate orders in the light of the observations made above, The writ petition is accordingly, allowed.”

44. In Sujatha Rubber’s case (supra), the Andhra Pradesh High Court has again held as follows : “A person entrusted with a discretion must direct himself properly in law. The discretion conferred upon the CIT under s. 273A of the IT Act, 1961, compels him to take into account relevant factors and eschew irrelevant factors from consideration. Under the provisions of s. 273A, the CIT has the discretion to reduce or waive the amount of interest paid or payable under sub-s. (8) of s. 139 or s. 215 or s. 217 or the penalty imposed or imposable under s. 273 provided the assessee has voluntarily and in good faith made full and true disclosure of his income. The word ‘voluntarily’ cannot be construed in isolation with reference to the general animus or state of mind of the assessee. From the legal obligation to file a return, no element of fear could be either attributed or inferred. The word ‘voluntarily’ in the context of s. 273A(1), therefore, has to be construed as filing of the return by the assessee without being prompted by the animus to avoid or pre-empt adverse exposure or penal action. The CIT, before rejecting the returns as not voluntary, must have material based upon which it is reasonable to infer that, in all probability, but for the filing of the ‘voluntary’ return, the assessee would have been subjected to penal action or adverse exposure. Fear on the part of the assessee, without anything more, cannot be a ground for not exercising the discretion under s. 273A. The fear must be traceable to the imminent or proximate exposure of the assessee to penal action but for the filing of the voluntary return under s. 273A and, in order to enquire into this subjective element, there must be in existence objective facts warranting such an inference. Held, that, in the instance case, without considering the effect of the survey operations on the conduct of the assessee, the CIT reached the conclusion that the returns filed were not voluntary and this conclusion was clearly impermissible in law. The aspect of fear that was alleged to have prompted the assessee to file the revised returns which was made out to be a ground for not exercising discretion under s. 273A was an irrelevant factor in the context of the failure of the CIT to give reasons indicating the genuine link between the fear and the probability of exposure to penal action. Hence, all the three revised returns filed by the petitioner must be construed to be ‘voluntary returns’ within the meaning of s. 273A and the refusal of the CIT to consider them was not valid. His order was liable to be quashed.”

45. In Public Carriers Truck Owners’ Association’s case (supra), the Rajasthan High Court has held that : “The CIT who has been clothed with the powers to reduce or waive interest and penalty under s. 273A of the IT Act, 1961, has to take a decision by exercising his discretion judiciously and objectively. In a case of bona fide mistake on the part of the assessee if the CIT is satisfied that all the conditions under s. 273A were fulfilled, the penalty is to be waived in full, unless the authority gives reasons for not granting full waiver and such reasons have to be cogent and germane. So far as the question of waiver of interest is concerned, even if it is found that it was a case of bona fide mistake on the part of the assessee, the fact cannot be lost sight of that the amount which should have come to the Revenue in time, has remained with the assessee and, therefore, there is no question of complete and full waiver of interest even if all the conditions mentioned in s. 273A are satisfied, unless such circumstances are shown by the assessee as warrant waiver of the interest in full. If the amount of interest and penalties is only reduced instead of granting full waiver, the CIT is under an obligation to give reasons for his doing so. Such a duty or obligation arises out of the language of s. 273A itself inasmuch as s. 273A itself inasmuch as s. 273A, at the very outset, starts, with the non obstante clause and a statutory discretion has been conferred upon him to reduce or waive the amount of penalty and interest, on his own motion or otherwise. Held, on the facts, that the CIT had not recorded that the assessee had not satisfied the conditions mentioned under s. 273A nor had he recorded the reasons for not allowing full waiver of the penalty or with regard to the reduction of the amount of penalty and interest to the extent indicated in the orders. His order was not valid and was liable to be quashed.”

46. In N. Subhakaran’s case (supra), the Kerala High Court has held as follows : ” The CIT exercises discretionary power when passing an order under s. 273A of the IT Act, 1961, on an application for waiver of interest. The order should ex facie disclose the application of mind and should contain reasons in support of the order. When an order is sought to be impugned on the ground that the officer concerned has not exercised his discretion properly in the sense that the reason in support of the order has not been disclosed in the order, the defect cannot be cured by furnishing the reason by an affidavit. If that is allowed, an order which is bad in the beginning may, by the time it comes to the Court when challenged, gets validated by the grounds supplied in the affidavit. For the asst. yr. 1983-84, the petitioner filed his return on 30th Jan., 1985, disclosing his total income at Rs. 52,418 stated to be the share incomes from four firms of which one was D.K.B. & Co. The income returned was based on the share income of the firms as originally disclosed in their returns. D.K.B. & Co., however, filed a revised return disclosing a further sum of Rs. 41 lakhs. Thereafter, the petitioner’s reassessment was completed making suitable additions to his share income from D.K.B. & Co. Interest was levied under ss. 139(8) and 215. The petitioner applied for waiver of interest. The IAC waived 50 per cent of the interest charged under s. 139(8) and 25 per cent of the interest charged under s. 215. The CIT confirmed the order. On a writ petition challenging the order : Held, that the interest levied for the year 1982-83 under s. 139(8) and s. 217 had been cancelled. The contention of the petitioner that when he filed his return, he could not have anticipated the revised return filed by the firm and the further fact that thesecond respondent had completely waived the interest in the case of the firm as well as the other points raised in the petition had not been adverted to by the CIT. The order of the CIT to the extent that it related to the asst. yr. 1983-84 was not valid and was liable to be quashed. The CIT was to pass appropriate orders on the revision petition filed by the assessee for the asst. yr. 1983-84.”

47. That apart, in Smt. Harbans Kaur’s case (supra), the Apex Court while dealing with the discretionary power conferred on the CIT under s. 18B of the WT Act, 1957, which is analogous to s. 273A of the IT Act, 1961, has held as follows : “. . . . . . . If the conditions stipulated in the section are satisfied, the CIT has a discretion in the matter. In exercise of that discretion, the CIT can either reduce the amount of the penalty or he may even waive the entire penalty. It is for the CIT to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted. The words ‘the CIT may in his discretion. . . . . .reduce or waive the amount of penalty’ in s. 18B of the Act are clear enough to show that the power conferred on the CIT is to be exercised by him in such manner as he deems just and proper. When a discretion is conferred on a authority, the same must be exercised fairly and not arbitrarily, justly and not fancifully, vide S.G. Jaisinghani vs. Union of India (1967) 65 ITR 34 (SC) : AIR 1967 SC 1427 Even if the legislature has not used the words ‘in his discretion’ in s. 18B(1), the CIT could have exercised only a discretionary power in view of the employment of the word ‘may’. Now, when Parliament used both expression ‘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 CIT to be reposed with the discretionary power to choose between entire waiver or reduction in any proportion. Of course, when the CIT, 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 this view, there is no warrant for the proposition that the CIT, if satisfied of the compliance of conditions, has only one choice, to waive the penalty in entirety. Otherwise, it may mean that the CIT can in a case where conditions are not satisfied, reduce the penalty amount. When conditions are not satisfied, the CIT cannot do either. Only when the said conditions are satisfied that the occasion arises for the CIT toexercise his discretion not before.”

48. Interpreting s. 273A in the light of the above decisions, namely : (i) Anwar Ali’s case (supra); (ii) Sujatha Rubber’s case (supra); (iii) Public Carriers Truck Owners’ Association’s case (supra); (iv) N. Subhakaran’s case (supra); and (v) Smt. Harbans Kaur’s case (supra), it is clear that : (a ) the CIT has got an overriding power while exercising this discretion under s. 273A, in view of the non obstante clause therein; (b) such a overriding power conferred on the CIT under s. 273A is available irrespective of the fact that the disclosure is made either prior or subsequent to the search under s. 132; (c) while exercising such discretionary power, certainly, the CIT expected to get himself satisfied as to the compliance or otherwise of the conditions imposed under s. 273A; (d) the exercise of such discretion should be based on reasons and the reasons should be supported with the relevant factors; or otherwise, the discretion should be not based on irrelevant considerations; (e) the relevancy, or irrelevancy may differ from case to case according to the facts and circumstances of each case; the CIT is, therefore, necessarily compelled to take into account, the relevant factors alone and eschew the irrelevant factors from consideration under the facts and circumstances of each case, which should be tested on the available materials to decide whether the assessee made the disclosure of his income voluntarily, in good faith, fully and truly; (f) ‘voluntarily’ cannot be construed in isolation with reference to the general animus or state of mind of the assessee to avoid to pre-empt adverse exposure or penal action; (g) discretion, either to accept or reject the voluntary disclosure, should be based on state of mind of the assessee free from the element of fear, realising his legal obligation to make the disclosure voluntarily, fully and truly; (h) the state of mind of the assessee free from fear should be inferred from the test of reasonableness relating to the imminent and proximate exposure of the assessee to penal action; (i) all these relevant factors should be spelt out by a speaking order of the CIT while exercising his discretionary power conferred under s. 273A, indicating the bona fides or otherwise of the assessee in disclosing the materials voluntarily, fully and truly, as well as, the link between fear and probability of exposure to penal action; (j) the speaking order, therefore, should, apparently, reflect the judicious application of mind of the CIT objectively; but not subjectively; (k) the exercise of such judicial discretion by the CIT, therefore, is coupled with a statutory duty or obligation to apply his mind on the principles referred to above, and to satisfy himself whether the conditions imposed under s. 273A are complied with or not; (l) the judicious exercise of discretion, therefore, should be fair, reasonable, just, fine and bona fide, but not arbitrary.

49. Therefore, the first respondent is under a statutory obligation to give reasons to get himself satisfied whether the conditions under s. 273A are complied with or not, and thereafter, should exercise his discretion whether to grant or refuse the benefits conferred under s. 273A, as sought for by the petitioner.

50. On a reading of the impugned order dt. 28th Jan., 1988, I find that the first respondent has summarily rejected the application filed by petitioner seeking relief under s. 273A, merely on the simple ground that the disclosure was made after the search conducted under s. 132 of the Act. It is evident that the first respondent had not applied his mind; because, there is no finding as to the compliance or otherwise of the conditions imposed under s. 273A; nor the first respondent had assigned any reason, whatsoever, for refusing the relief sought for by the petitioner under s. 273A while exercising his discretion; nor the first respondent had applied his mind or satisfied himself whether the petitioner made the disclosure with a fear relating to the imminent and proximate exposure to penal action. Therefore, the discretion conferred on the first respondent under s. 273A was not fairly, justly and bona fide exercised but, arbitrarily and erroneously, as a result of which, the first respondent had not even considered the claim of the petitioner for the relief under s. 273A (4) but summarily rejected his petition filed under s. 273A.

51. Hence, the impugned order requires my interference and, accordingly, the same is quashed and, consequently, the matter is remitted back to the first respondent for fresh consideration on merits with a direction to the first respondent to pass appropriate orders as per law within twelve weeks from the date of receipt of this order. In the result, the writ petition is ordered accordingly. However, there will be no order as to costs.

[Citation : 244 ITR 374]

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