Dr. V.M. Sivaprakasam vs Commissioner of Income Tax and another

A.R. Lakshmanan J.

This writ appeal is filed under clause 15 of the Letters Patent against the order of K. Venkataswami J., as he then was, in W.P. No. 3333 of

1992, dated 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 u/s 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 his professional income taking into

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 u/s 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 and benefits available to him under the provisions of section 273A of the Act, and, in particular,

the interest of Rs. 10,855 charged u/s 139(8) of the Act and Rs. 13,661 charged u/s 217(1A) of the Act may be waived, and the various penal

proceedings initiated u/s 274 of the Act read with 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, u/s 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 advance tax 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, recomputing the professional income in consequence of disbelieving certain credits taken for agricultural income, low

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, considering 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 impossible to the extent noted in a tabular statement at page

3 of his order. The first respondent has partly allowed the petition filed u/s 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 impossible, 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 u/s 273A of

the Act cannot be exercised.

The writ petition was dismissed by the learned single judge by observing as follows :

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 impossible and, therefore the contention of learned counsel for the petitioner that the Commissioner can invoke the provisions of

section 273A of the Act only where penalty was already levied, cannot be accepted.

The decision reported in Hasan Ahmad Khan Vs. Commissioner of Wealth Tax and Another, , is not directly on point and, therefore, not helpful

to the petitioner.

The fact that the petitioner himself has moved the first respondent even before the penalties were actually levied will only show that he was

aware that the Commissioner can exercise his powers u/s 273A of the Act even at that stage. JAKHODIA BROTHERS Vs. COMMISSIONER

OF Income Tax AND ANOTHER., , it has been held that section 273A of the Act can be invoked before or after penalty is imposed. In Indra

and Co. Vs. Commissioner of Income Tax, , it had been held that an application u/s 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 reduction 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 impossible 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 in 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

u/s 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 lie is entitled to full waiver of penalty and interest.

A perusal of the application filed u/s 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 u/s 273A of the Act 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 estimate of advance tax and concealment of income. The above facts would disclose beyond any doubt that the appellant has

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 appellant might have filed the returns for all the assessment years prior to the issue of notice u/s 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 u/s 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 provision of

the Act and in particular, the interest of Rs. 10,855 charged u/s 139(8) of the Act and Rs. 13,661 charged u/s 217(1A) of the Act. He also prayed

for the waiver of those amounts and dropping of the various penal proceedings initiated u/s 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 :

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 sub-section (1) of section 271 for failure, without

reasonable cause, to furnish the return of total income which he was required to furnish under sub-section (1) of section 139; or

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

(iii) reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 of the penalty

imposed or impossible u/s 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 sub-section (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) if the cases referred to in clause (iii), has, prior to the issue of a notice to him under sub-section (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 u/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 clauses (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. - 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 a nature as not to attract the

provisions of clause (c) of sub-section (1) of section 271.

(2) Notwithstanding anything contained in sub-section (1), -

(a) if in a case the penalty imposed or impossible under clause (i) of sub-section (1) of section 271 or the minimum penalty impossible u/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

impossible under the said clause or of the minimum penalty impossible 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 sub-section (1) of section 271, the amount of income in respect of which the penalty is imposed or

impossible 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-section (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 sub-section (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 ....

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 impossible and, therefore, the contention of learned counsel for the appellant, that the first respondent can invoke the provisions of

section 273A 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 u/s 273A of the Act even at that stage. u/s 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 Vs. Commissioner of Wealth

Tax and Others, . That judgment was rendered by a learned single judge of the Delhi High Court. On the facts and circumstances of that case, the

learned judge held that u/s 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 u/s 273A of the Act for the waiver of the various interests charged in the assessment and the penal proceedings 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 Mohammed Ali Vs. Commissioner of Wealth-tax and Others, 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 u/s 14(2) of the Wealth-tax 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 impossible under the Act. The Division Bench held that the

Commissioner was fully satisfied that all the conditions precedent for the exercise of the power u/s 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 impossible. This judgment also has

no application since the facts and circumstances are different in our case.

The decision reported in Hasan Ahmad Khan Vs. Commissioner of Wealth Tax and Another, , again 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 became possible for the Commissioner to consider the assessee''s application u/s 18(2A) of the

Wealth-tax Act for waiving the penalty impossible 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 he 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 u/s 18(2A) of the

Wealth-tax Act. 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, 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 u/s 271(4A) of the Income Tax Act would not make any difference and would not preclude the imposition of penalty for concealment of

income u/s 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 u/s 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 Smt. Harbans Kaur etc. Vs. Commissioner of Wealth-tax, Jullundur, . In that case, penalty was imposed u/s 18 of the Wealth-

tax Act on the assessees, who are the appellants before the Supreme Court for failure to file the returns in respect of the assessment year 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 assessees 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 per cent. for the relevant assessment years. The assessees 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 per cent. 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 (page 420) :

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 this 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 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 indicate 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.