Hari Om Jindal vs Chief Commissioner of Income Tax

Heard Sri R.R. Agrawal, learned Counsel for the Petitioner and Sri Shambhu Chopra, learned Standing counsel appearing on behalf of Respondents.

By means of the present petition, the Petitioner is challenging the order of the Commissioner of income tax, Moradabad dated 31-3-2006 passed u/s 273A of the Income Tax Act (hereinafter referred to as the "Act") rejecting the application for the waiver of penalty u/s 271(1)(c) of the Act and also the order of the Chief Commissioner of income tax, Bareilly, dated 28-3-2006 which had been communicated by the Office of the Chief Commissioner of income tax, Bareilly vide letter dated 24-5-2006, by which he had refused to grant approval as contemplated u/s 273A(2)(b) of the Act.

Learned Counsel for the Petitioner submitted that the Commissioner of income tax, Moradabad had rejected the waiver application merely on the ground that the Chief Commissioner of income tax, Bareilly had refused to grant approval vide its order dated 28-3-2006. He further submitted that the Chief Commissioner of income tax, Bareilly had refused to grant approval merely on the ground that the revised return was not voluntary, without considering the report of the Income Tax Officer in which he had stated that the Assessee made the disclosure voluntarily and the assessment was completed on the revised return disclosing the income of tax Rs. 19,19,430 and Assessee co-operated in the assessment proceeding and the entire taxes and interest had been paid and, therefore, the order of the Chief Commissioner of income tax, Bareilly refusing to grant approval is a case of non-application of mind, without considering the material on record and, therefore, liable to be set aside. He further submitted that since the discretion, which is to be exercised by the Commissioner of income tax u/s 273A of the Act, for granting the waiver is subject to the approval by the Chief Commissioner of income tax as contemplated u/s 273A(2)(b) of the Act, and refusal to grant the approval affects the right of the Assessee, thus before refusing to grant the approval opportunity of hearing should be given to the Petitioner. In support of the contention he relied upon the Division Bench decision of this Court in the case of S.K. Traders v. Addl. Commissioner (2009) 26 VST 601 and the decision of the Apex Court in the case of Rajesh Kumar and Others Vs. D.Commissioner of Income Tax and Others, which has been approved by the Larger Bench of the Apex court in the case of Sahara India (Firm) Vs. Commissioner of Income Tax and Another,

Shri Shambhu Chopra, learned Standing counsel supported the order of the Commissioner of income tax, Moradabad and the order of the Chief Commissioner of income tax, Bareilly.

Section 273A(1) and (2) reads as follows:

273A. Power to reduce or waive penalty, etc., in certain cases.-

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

(ii) reduce or waive the amount of penalty imposed or imposable on a person under Clause (iii) of Sub-section (1) of Section 271; or

(iii) ** ** **

if he is satisfied that such person-

(a) ** ** **

(b) in the case referred to in Clause (ii), has, prior to the detection by the assessing 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, and also has, in the case referred to in Clause (b), 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) ** ** **

(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 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-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.

We have perused the order of the Commissioner of income tax, Moradabad and the order of the Chief Commissioner of income tax, Bareilly. Both the orders are referred herein below for the purposes of convenient:

Finding of Commissioner of income tax.--In view of the assessing officers report and considering the facts of the case as also keeping in view the amount involved being more than 5 lakhs, the case was referred to the Chief Commissioner of income tax, Bareilly seeking approval for waiver as per the provisions of Sub-section (2) of Section 273A of the Income Tax Act, 1961. The learned CCIT, vide his Letter F. No. T.10/Misc./CC/Bly./2005-06, dated 28-3-2006, has observed that this is not a fit case for the waiver of penalty u/s 273A. Hence, the application is hereby rejected.

Extract of this letter dated 24-5-2006.--In this connection, I am directed to inform you that no specific order has been passed by the worthy Chief Commissioner of income tax, Bareilly. However, the observations of the worthy Chief Commissioner of income tax, Bareilly has been conveyed vide his F. No. T.10/Misc./CC/Bly./2005-06/2249, dated 28-3-2006 which are reproduced herein below:

In the facts and circumstances of the case, I am of the view that the revised return is not voluntary. Hence, the waiver cannot be granted.

In the order passed u/s 273A of the Act, it is mentioned that in the report, the assessing authority had stated that the Assessee made the disclosure voluntarily and the assessment was completed on the revised return disclosing the income of tax Rs. 19,19,430 and the Assessee had co-operated in the assessment proceeding and paid taxes and interest on the completion of the assessment. The Chief Commissioner of income tax in its order has completely overlooked the report of the assessing authority and has not given any reason for coming to the conclusion that the revised return was not voluntary. In this view of the matter, we are of the view that the order cannot be sustained and is liable to be set aside. Since the order of the Commissioner of income tax, Moradabad is based on the order of the Chief Commissioner of income tax refusing to grant approval, therefore, the order of the Commissioner of income tax, Moradabad dated 26-3-2006 is also liable to be set aside. We accordingly, set aside both the orders.

Perusal of Section 273A(2)(b) of the Act shows that the grant of waiver is subject to the approval of the Chief Commissioner of income tax, in case where the amount exceeds to rupees five lakhs. Therefore, we are of the view that in case, where the Chief Commissioner of income tax proposes to grant approval for waiver, no opportunity is required to be given to the Assessee but in case he proposes to refuse the approval, the principle of natural justice is to be observed and the opportunity to the Assessee should be given as it adversely affects the right of the Assessee and Assessee suffers from civil consequences. We are further of the view that power u/s 273A(2)(b) of the Act should not be exercised mechanically. Requirement to take the approval in case of amount exceeds rupees five lakhs is to monitor the proper exercise of power of Commissioner of income tax therefore, for granting the approval or for refusal of approval the reasons should be recorded and there should be an application of mind.

A similar situation came up for consideration before this Court under the UP Trade Tax Act hereinafter referred as Trade Tax Act.

Under the First Proviso to Section 21(2) of the Trade Tax Act, the Commissioner has been given power to grant the approval to initiate the reassessment proceeding beyond the normal period. There is no specific provision for affording the opportunity to the dealer. The aforesaid provision has been considered by the Division Bench of this Court in the case of Manaktala Chemicals (P.) Ltd. v. State of UP 2006 UPTC 1128 wherein the following has been held:

Section 21(2) though specifically does not say that opportunity is to be afforded to the dealer before granting the sanction by the Commissioner but the principle is well recognized, that even if there is no specific provision in the Statute, such opportunity need be given, to make the action taken or order passed in consonance with the principles of natural justice, unless, of course, the Statute specifically excludes the applicability of principle of natural justice, such an opportunity is deemed to be inbuilt in the provision, in case any action taken or order passed would effect the rights of any person adversely. In the case of Indian Oil Corporation, Agra v. Commissioner Trade Tax, reported in 1999 UPTC 365 a Division Bench of this Court after holding the Circular issued on 7-7-1992 binding on the Assessing Authority held that the dealer should have been given a hearing in the matter before any reassessment order could have been passed, and since such an opportunity was not given, the order of approval granted by the higher authority was quashed.

The same view has been taken by this Court in the case of Olympic Zippers (P.) Ltd. v. Commissioner of Trade Tax 2007 UPTC 146 and in a recent decision of this Court in the case of S.K. Traders (supra).

In the case of Rajesh Kumar (supra), the Apex Court was considering the provisions of Section 142(2A) of the Act which empowers the assessing officer, after obtaining the approval of the Commissioner to direct for special audit of the books of account of the Assessee. The provisions of Section 142(2A) of the Act does not provide for giving of any opportunity of hearing by the Commissioner to the Assessee. The Apex court has held as follows:

The factors enumerated in Section 142(2A) of the Act, thus, are not exhaustive. Once it is held that the Assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. The principles of natural justice are required to be applied inter alia to minimize arbitrariness.

It is trite, even if there is a possibility that the Tribunal would correctly follow the statutory provisions, still compliance of principles of natural justice would be required. (See R.V. Kensington and Chelsea Rent Tribunal, ex p. MacFariane (1974) 1 WLR 1486).

Justice, as is well known, is not only be done but manifestly seem to be done. If the Assessee is put to notice, he could show that the nature of accounts is put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the assessing officer considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the revenue.

It has further held as follows:

The hearing given, however need not be elaborate. The notice issued may only contain briefly the issues which the assessing officer thinks to be necessary. The reasons assigned therefore need not be detailed ones. But, that would not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensure if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly. The hearing given is only in terms of Section 142(3) which is limited only to the findings of the special auditor. The order of assessment would be based upon the findings of the special auditor subject of course to its acceptance by the assessing officer. Even at that stage the Assessee cannot put forward a case that power u/s 142(2A) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the Appellate Authority would not go into such a question since the direction issued u/s 142(2A) of the Act is not an appellate order.

The above view taken by the Apex court has been affirmed by the Larger Bench of the Apex Court in the case of Sahara India (Firm) (supra).

In the result, the writ petition is allowed. The order of the Commissioner of income tax, Moradabad dated 31-3-2006 passed u/s 273A and the order of the Chief Commissioner of income tax, Bareilly dated 28-3-2006 communicated vide letter dated 24-5-2006, which is filed along with supplementary affidavit, are set aside. The matter is remanded back to the Commissioner of income tax, Moradabad to pass a fresh order in accordance to law, as stated above.