Punjab & Haryana H.C : Whether the CIT, while reducing or waiving the amount of penalty imposed or imposable on a person under cl. (i) of sub-s. (1) of s. 18 of the WT Act, 1957 (for short “the Act”), can ignore his recorded satisfaction to the statutory conditions embodied in s. 18B, while exercising discretion in that direction ?

Counsel Appeared

Ashok Bhan with Ajay K. Mittal, for the Petitioner : D.N. Awasthy with B.K. Jhingan, for the Respondent

M.M. PUNCHHI, J. :

The pristinely legal question which calls for determination in this writ petition under arts. 226 and 227 of the Constitution of India is whether the CIT, while reducing or waiving the amount of penalty imposed or imposable on a person under cl. (i) of sub-s. (1) of s. 18 of the WT Act, 1957 (for short “the Act”), can ignore his recorded satisfaction to the statutory conditions embodied in s. 18B, while exercising discretion in that direction ?

Shrimati Parkash Devi, petitioner, filed voluntary returns under the Act for asst. yrs. 1970-71 to 1977-78. She took the anticipatory step of filing an application under s. 18B of the Act to the CIT on the assumption that failure, without reasonable cause, to furnish the returns of net wealth which she was required to furnish under sub-s. (1) of s. 14, would attract the penalty under s.: 18 ; for the returns which she filed voluntarily on 22nd April, 1978, she paid the full amount of the total tax due on the returned wealth. When the WTO framed assessment and created additional demands, these too she met on 6th July, 1978. The WTO then initiated proceedings against her for levy of penalty under s. 18(1)(a) of the Act as the returns filed by her were late. On the application submitted by the petitioner, the CIT, vide his order dt. 20th May, 1981, held that the satisfying of the conditions set forth in s. 18B of the Act were accomplished. However, the CIT while opting either to waive the penalty or reduce it chose to impose penalty at 10 per cent. of that imposable in respect of each of the asst. yrs. 1970-71 to 1977-78, vide order, annex. P-2. This order has been challenged in this writ petition. Sub-s. (1) of s. 18B is relevant for our purpose which need be extracted : ” 18B. Power to reduce or waive penalty in certain cases.—(1) Notwithstanding anything contained in this Act, the 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) of sub-s. (1) of s. 18 for failure without reasonable cause to furnish the return of net wealth which such person was required to furnish under sub-s. (1) of s. 14 ; or (ii) reduce or waive the amount of penalty imposed or imposable on a person under cl. (iii) of subs. (1) of s. 18, 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. (2) of s. 14, voluntarily and in good faith, made full and true disclosure of his net wealth, and (b) in the case referred to in cl. (ii), has, prior to the detection by the WTO, 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 mad full and true disclosure of such particulars, and also has co-operated 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 ……. ..”

It is plain therefrom that in the instant case we are concerned with sub-cl. (i) pertaining to the discretion of the CIT and sub- cl. (a) pertaining to the CIT’s satisfaction, as warranted by the facts of the present case. The Commissioner has, in so many words, in the impugned order stated that he was satisfied that the conditions set forth in s. 18B are satisfied in this case. To enumerate them, these are : (1) that the returns were filed by the petitioner prior to the issuance of a notice to her under sub-s. (2) of s. 14 of the Act; (2) that these were filed voluntarily and in good faith; (3) that the petitioner had made full and true disclosure of her net wealth ; (4) that she had co-operated in the inquiry relating to the assessment of her net wealth; and (5) that she had paid or made satisfactory arrangements for the payment of the tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment years.

There is no gainsaying the fact that the aforesaid five conditions culled out from the reading of s. 18B of the Act are foundational to the exercise of discretion under sub-cl. (i) of sub-s. (1) of s. 18. That in the manner of arriving at that milestone of satisfaction in relation to these five particulars, the CIT has to remain uninfluenced by extraneous factors is a matter well settled. It has now gained ground that he has to pass a speaking order in these proceedings. See in this connection S. Sannaiah vs. CIT, (1974) 95 ITR 435 (Mys) and Rasiklal Ranchhodbhai Patel vs. CWT, (1980) 121 ITR 219 (Guj). That the CIT has to remain uninfluenced by extraneous factors like the assessee being an old assessee under the IT Act is well settled and the converse deprecated in the decisions of this Court in Dr. Paramjit Singh Grewal vs. CIT, (1980) 125 ITR 549 (P&H), Major Naranjan Singh vs. CWT (C.W. P. No. 582 of 1980 decided by S. S. Kang J. on 28th April, 1981,reported in (1982) 138 ITR 88). Similar was the view of the Allahabad High Court in Kundan Lal Behari Lal vs. CWT, (1975) 98 ITR 359. Precedents on that aspect need not be multiplied. All these are cases on the side of pre-satisfaction stage and do not squarely cover the point in issue. We are confronted in the present case with the post-satisfaction stage. It is contended on behalf of the petitioner that, in the instant case, the CIT, in the exercise of his discretion either to waive or reduce penalty, totally ignored the five factors which prompted him up to the satisfaction stage and these five, according to the learned counsel, Would remain relevant and pervasive towards exercise of discretion under sub-cl. (i). On the other hand, the learned counsel for the respondent contends that these five considerations had outlived their utility and could not be put to use at such a discretionary stage. However, in the instant case, the CIT has dealt with the case in this manner: “On a perusal of the WTO’s report and relevant records, I am satisfied that the conditions set forth under s. 18B of the WT Act are satisfied in this case. However, having regard to all the circumstances, I am of the opinion that it is a fit case for reduction of penalty, imposable rather than for complete waiver. I may, in particular, mention that it is not a case of a marginal wealth-tax payer. The net wealth, after exemptions, for most of the years, is well above Rs.2 lakhs, while for asst. yrs. 1975-76 to 1977-78, net wealth is around Rs. 3 lakhs. The delay in filing of return ranges from 9 months in respect of assessment year 1977-78 to 73 months in respect of asst. yr. 1970-71. In this connection, it is worth noting that as per the assessee’s own showing as per letter dt. 15th April, 1978, addressed to ITO, Distt. II(9), Jullundur, in connection with her income-tax proceedings in respect of asst. yrs. 1971-72 to 1977-78, it was some time in September, 1976, that she came to know that voluntary returns under the IT Act, had to be filed by her. In spite of her knowledge about her liability to file voluntary returns under the IT Act, in respect of asst. yrs. 1971-72 to 1977-78, she did not care to ascertain her liability under the WT Act in respect of the above assessment years and in fact filed the returns as late as 22nd April, 1978. Having regard to the above facts and other circumstances, I accordingly direct that the penalty imposable/imposed under s. 18(1)(a) shall be reduced to 10per cent of that imposable in respect of each of the asst. yrs. 1970-71 to 1977-78.”

The consideration put at the foremost by the CIT is that the petitioner had become cognizant of her liabilities under the IT Act and that she should have taken care to ascertain her liabilities under the WT Act in respect of the assessment years in question and thus there was late filing of the returns. Now, this consideration, if it would have weighed with the CIT at the pre-satisfaction stage, would have been considered extraneous and the CIT’s order struck down on that score alone. It is also noticeable in the order that the five considerations which were fundamental to his recording satisfaction have receded to the background at the post-satisfaction stage. To our mind, the existence of those five statutory conditions of the pre-satisfaction stage remains pervasive in the context not only up to the stage of satisfaction, uninfluenced by extraneous factors, but even after such stage, equally so but to be taken into account in conjunction with other germane factors so as to strike a balance. E. S. Venkataramiah J. of the Karnataka High Court (who now adorns the Supreme Court Bench), had in Shankara Apaya Swami vs. WTO, (1976) 103 ITR 649 (Kar), observed as follows (p. 652) : “It is needless to mention that the CIT while exercising his discretion under s. 18(2A) has to bear in mind several factors such as the gravity of the default, the loss occasioned to the Revenue by the assessee not filing the return in time, and the extent of tax withheld. These factors are only illustrative but not exhaustive, just like in criminal cases a judge while imposing a sentence on the accused who is found guilty of an offence takes into consideration several factors apart from the fact that he has committed the offence in question, the CIT should take into consideration all other relevant factors while reducing or waiving the penalty imposed or imposable under s. 18(1)(a) of the Act. (s. 18(2A) of the old Act is now s. 18B).”

This case was followed by a Division Bench of the Andhra Pradesh High Court in Seetha Mahalakshmi Rice and Groundnut Oil Mill Contractors Co. vs. CIT, (1981) 127 ITR 579. Then again, M. P. P. Chandrakantaraj Urs J., of the Karnataka High Court in S. B. Naik Patil vs. CWT, (1981) 130 ITR 162, following Shankara Apaya Swami’s case (supra), took the view that the CIT was not required to direct his mind to the reasonableness of the cause explained by the assessee but to the factors which are required to be considered by him in giving relief or refusing relief under s. 18B of the Act. This view, with due respect to the learned judge, appears to us to be too conservative and diminishing the scope spelled out in Shankara Apaya Swami’s case (supra),. Taking into account the judicial precedents on the subject and otherwise the scheme of the statute under consideration, we are of the considered view that like in a criminal case the CIT too has to take into account, while imposing sentence, all relevant considerations and then come to a conclusion whether it was a case of complete waiver or reduction of penalty. To illustrate, if the accused in a criminal trial for theft had pleaded that he had stolen some food on account of dire necessity, the Court while legitimately convicting him could not ignore the circumstances of the case and such plea at the stage of the sentence and ask the convict to give a substituted explanation. The explanation remains pervasive at both the stages. Similarly, the statutory factors which go to record a satisfaction must compel the CIT to influence his discretion both in isolation and in conjunction with other relevant factors to exercise his discretion to waive or reduce penalty. Patently, those factors had receded to the background, and altogether ruled out in the manner in which the CIT exercised his discretion while passing the impugned order. Necessarily, there has not been a proper application of mind requiring the impugned order to be quashed and asking him to re-determine the cause in the light of the foregoing observations. Resultantly, this petition is allowed. The impugned order of the CIT (annex.P-2) is quashed partially, preserving the satisfaction stage, directing him to re-hear the petitioner only on the question of waiver or deduction of penalty in the light of the observations made above. In the circumstances of the case, there will be no order as to costs. The petitioner through her counsel is directed to appear before the CIT on 2nd Dec., 1981.

[Citation : 141 ITR 122]