V. Suneetha Prasad vs Commissioner of Income Tax and Another

V. Bhaskara Rao, J.—The petitioner is seeking a Writ of certiorari quashing the order in HQRS. 1-94/87-88 on the file of CIT, Visakhapatnam, dt. 11th March, 1988 and consequential order of (i) waiver or reduction of interest charged under s. 139(8) of IT Act (for short "the Act") and (ii) penalty levied under s. 271(1)(a) of the Act for the asst. yr. 1977-78.

The facts in brief are that the petitioner is an assessee under GIR No. S. 1830/SKL on the file of ITO, Srikakulam (subsequently transferred to ITO, D. Ward, Vizianagaram) for the asst. yr. 1977-78. Her income from property was Rs. 848 and from other sources Rs. 890. She earned Rs. 53,929 from sale of land and incurred an interest of Rs. 27,271 on the borrowed capital for construction of a cinema hall. It is her case that she was under the impression that there is no taxable income for the asst. yr. 1977-78. However, she was advised that the profit on sale of land would be considered as capital gain within the meaning of s. 45 of the Act and it is chargeable to tax. As regards the interest paid by her she was advised that she may claim deductions of such amount and on that advice she filed a return on 29th December, 1983 duly computing her total income. The ITO completed the assessment on a total income of Rs. 63,070 by working out relief under s. 80TT of the Act at 25 per cent. while she claimed 35 per cent. by disallowing the interest. He raised a demand for Rs. 16,796 being the interest charged under s. 139(8) of the Act at 12 per cent. from 1st August, 1977 to 29th December, 1983. Then a notice under s. 274 r/w s. 271 for levy of penalty under s. 271(1)(a) of the Act for belated filing of the return was issued. She responded to the show-cause notice and submitted the explanation. On a consideration of the explanation, the ITO, levied a penalty of Rs. 33,592 by his order dt. 29th September, 1987. She filed an appeal before the AAC, Visakhapatnam, and the same was dismissed by an order dt. 2nd December, 1986. Thus, she became liable to pay (i) the interest of Rs. 16,796 charged under s. 139(8) and (ii) penalty of Rs. 33,592 under s. 271(1) of the Act. She asserted that she filed the return voluntarily without any notice either under s. 139(2) or under s. 148 of the Act.

Then she filed a petition under s. 273A of the Act before respondent No. 1 seeking waiver or reduction of interest as well as penalty on the ground that she filed the return voluntarily without any notice under s. 139(2) or under s. 148 of the Act making a true and full disclosure of her income. It is also her case that claiming allowance under s. 80T of the Act at 35 per cent. while it ought to be 25 per cent. would not amount to non-disclosure of true and full income. Respondent No. 1 by the impugned order dt. 11th March, 1988 rejected her petition on three grounds namely (a) that she has not shown the correct income in the return (b) that the payment of tax rightfully due from her was deliberately postponed till the completion of the assessment and (c) that there was no co-operation from her in the matter of recovery of taxes. She submits that the impugned order is based on improper exercise of discretion and it is invalid in law and contrary to the ratio in Commissioner of Income Tax Vs. Padma Timber Depot, Hence, the writ petition.

Respondent No. 1 resisted the petition by filing a counter. It is admitted that the petitioner filed return for the asst. yr. 1977-78 declaring her property income as Rs. 848 and income from other sources as Rs. 890 but it is denied that she was under a bona fide belief that the profit from sale of land was not liable for capital gain tax or that interest payment of Rs. 27,271 constituted her business loss. The assessing authority after due consideration of the relevant facts held that the assessee was guilty of non-discharge of statutory obligation and accordingly levied penalty which was confirmed by the AAC. The interest at Rs. 16,796 was levied for delay of 76 months in filing the return.

Turning to the petition filed under s. 273A of the Act, it is asserted that the tax due to the Exchequer was withheld even in the belated return by making untenable claims of 35 per cent. deduction under s. 80T of the Act as against 25 per cent. and also claiming interest payment as business loss even though there may be business during the period. Hence, the writ petition is liable to be dismissed.

In view of the above pleadings the following points arise for determination.

(i) Whether the petitioner is not liable to any interest of Rs. 16,796 under s. 139(8) of the Act ?

(ii) Whether she is not liable to pay a penalty of Rs. 33,592 under s. 271(1)(a) of the Act ?

Point No. 1 : It is not in dispute that the petitioner filed her return on 29th December, 1983 for the asst. yr. 1977-78. Hence, there is a delay of 76 months in filing the return. The legitimate tax due to the exchequer has thus been withheld without any lawful excuse. Her plea that she was under the impression that there is no taxable income for the asst. yr. 1977-78 or that the consideration on sale of land amounting to Rs. 53,929 is not taxable or that the interest payment of Rs. 27,271 constituted a business loss, was not accepted by the Revenue and rightly so. We, therefore, find justification for charging the interest under s. 139(8) of the Act for the interest at 12 per cent. per annum from 1st August, 1977 to 29th December, 1983. Point No. 1 is answered accordingly.

Point No. 2 : It is noteworthy that the petitioner filed her return though belatedly on her own volition and without being served with a notice under s. 139(2) or under s. 148 of the Act. She has, therefore, asserted that she has voluntarily filed the return and made full and true disclosure of her income and her case falls under s. 273A(iii)(a) of the Act.

Sri Y. Ratnakar, learned counsel for the petitioner strenuously contended that the above provision squarely applies to this case and respondent ought to have exercised the discretion in favour of the petitioner and waived the entire penalty. The learned standing counsel for Income Tax, however, contended that her claim of 35 per cent. deduction under s. 80T of the Act from the capital gain tax as against 25 per cent. was not done in good faith and hence it was not a full and true disclosure of her income, and hence the petitioner is not entitled for any indulgence.

We carefully considered the rival contentions. It would be beneficial to extract s. 273A of the Act.

273A : 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 clause (i) of 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) ....

(iii) reduce or waive the amount of interest paid or payable under s. 139(8) 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 clause (i) has, prior to the issue of a notice to him under sub-s. (2) of s. 139 voluntarily and in good faith made full and true disclosure of his income.

(b) ..........

(c) in the cases referred to in clause (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.

A bare reading of the above provision shows that cases of filing of returns prior to the issue of a notice under s. 139(2) or under s. 148 of the Act voluntarily and making full and true disclosure of the income in good faith fall within the ambit of clause (a) and (c) of s. 273A(iii) of the Act. Undoubtedly, the petitioner herein filed a return voluntarily before any notice under s. 139(2) or under s. 148 of the Act was issued. As far as the particulars of income or the sale consideration of the land or interest which is sought to be shown as a business loss are concerned, the Revenue does not dispute the figures. What all is stated is that she claimed deduction of 35 per cent. instead of 25 per cent. under s. 80T of the Act. In our considered view the explanation to the above provision enjoins that unless the above deduction is such as not to attract the provisions of clause (c) of sub-s. (1) of s. 271 of the Act, the petitioner shall be deemed to have made full and true disclosure of her income. We are unable to see as to how s. 271(1)(c) of the Act is attracted in this case and hence it is a case of voluntary disclosure of full and true income made in good faith. Thus, in our view, it is a fit case under s. 273A(iii)(a) of the Act to waive the penalty. The impugned order regarding imposition of penalty is quashed. Point No. 2 is answered accordingly.

For all the reasons given above, this writ petition is allowed in part waiving the penalty of Rs. 33,592 and confirming the interest. There will be no order as to costs.