Seetha Mahalakshmi Rice And Groundnut Oil Mill Contractors Co. v. Commissioner Of Income-Tax, A.P

1. This writ petition by the assessee under Article 226 of the Constitution of India gives rise to a short question of law whether, on the facts and in the circumstances, the Commissioner of Income-tax has or has not exercised his discretion vested in him under Section 271(4A) of the I.T. Act, 1961 (hereinafter referred to as

" the Act"

2. In order to appreciate the scope of the question, it is necessary to briefly state the admitted facts. The petitioner is a partnership firm carrying on business in rice and groundnut oil mill from the year 1953 at Vijayawada. Since 1953, the assessee had been filing returns well in time and was co-operating with the department in the assessment proceedings. There was a change in the constitution of the firm since the assessment year 1965-66.

3. For the assessment year 1965-66, the return of income was due to be filed by the assessee on or before September 30, 1965. The assessee had filed the return only on October 5, 1966. On July 27, 1965, there was a direction by the ITO, which is found in the order sheet of the assessment file, to his office to issue notice under Section 139(2), and the notice was stated to have been despatched on July 30, 1965. However, there is no proof of service of the notice on the assessee, nor is there any note in the assessment file that the notice could not be served. Hence, it must be taken for granted that the assessee, on the date of filing the return, namely, October 5, 1966, was not served with any notice under Section 139(2). The assessee had filed the return on October 5, 1966, showing an income of Rs. 47,676.

4. Finally, the ITO had passed an order dated July 25, 1972, determining the income of the assessee at Rs. 85,770 and imposed a tax of Rs. 5,234 which was paid by the assessee.

5. In the meanwhile, the ITO had issued a notice on December 27, 1969, proposing to levy penalty under section 271(1)(a) for the delay in filing the return and finally levied a penalty of Rs. 9,168 by his order dated December 23, 1972. The appeals preferred by the assessee to the AAC, Vijaya-wada, and the Income-tax Appellate Tribunal, Hyderabad, were without success. The Writ Petition No. 6134 of 1975, filed by the assessee to quash the order of the Income-tax Appellate Tribunal, was also finally rejected.

6. Simultaneously, the petitioner had approached the Commissioner of Income-tax on December 27, 1975, under section 271(4a) of the i.t. act for waiver or reduction of penalty of Rs. 9,168 on the ground that no notice was issued by the ITO under Section 139(2) and that it had filed the return voluntarily and in good faith. The Commissioner had, by his impugned order dated March 24, 1976, held that though notice was not served on the petitioner requiring it to file the return, the ITO directed the office to issue notice, that the provisions of" the Act" are not new to the assessee, that the assessee was quite aware of the same and that the assessee had not filed the return voluntarily and in good faith but filed it after considerable delay and dismissed the application. Hence, this writ petition.

7. A counter has been filed on behalf of the respondent to the effect that the provisions of section 271(4a) as it stood then confer a wide discretion upon the Commissioner to waive or reduce the quantum of penalty, provided the conditions enumerated therein are satisfied, that the Commissioner is not obliged to waive or reduce the penalty automatically, that the assessee being an old assessee did not file the return voluntarily and did not make a full and true disclosure of the income, that good faith is lacking and that the petitioner had not made out how the discretion exercised by the Commissioner declining to interfere, is not proper.

8. Mr. S. Dasaratharama Reddy, counsel for the petitioner, contends that the mere fact that his client was an old assessee would not disentitle him from taking recourse to the provisions of section 271(4a) and that the petitioner is entitled to have the exercise of discretion vested in the Commissioner under that provision in his favour as the assessee satisfied the requirements of law. This claim of the petitioner is resisted by the standing counsel for the I.T. Dept., Sri P. Rama Rao, contending, inter alia, that the Commissioner is not bound to waive or reduce the penalty in every case, that he has wide discretion to reject the request of the assessee in appropriate cases, that the assessee did not voluntarily disclose fully and truly and in good faith all the material facts necessary for the assessment and, therefore, the impugned order is not liable to be quashed. Incidentally, the departmental counsel brought to our notice that the appeals against the levy of penalty have already been dismissed and there is no merit in this writ petition.

9. Section 271(4A) was deleted with effect from October 1, 1975. However, this power to reduce or waive the penalty imposed or imposable and the interest paid or payable has now been conferred upon the Commissioner by Section 273A. In fact, the impugned order was passed under section 273a(1) on march 24, 1976. section 273a(1), in so far as it is relevant for the purpose, may be read thus :

" 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 imposable 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......

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 ;......

and also has, in all the cases referred to in Clauses (a), (b) and (c), co-operated in any inquiry 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) Sub-section (1) of Section 271."

10. Section 273A(1)(i) comes into play irrespective of the assessee pursuing the remedies of appeals to the AAC or the Tribunal or reference to the High Court challenging the validity or correctness of the levy of penalty under section 271(1)(a) for his failure to furnish the return of total income without reasonable cause. This view is supported by the use of the expression " notwithstanding anything contained in this Act ". This 'non obstante clause indicates that the power to reduce or waive penalty imposed or imposable by the Commissioner under Section 273A is an independent power which does not stand equated to that of the other statutory powers conferred on the authorities in respect of levy of penalty. This provision is not only independent but complementary to the power under the statutory provisions of appeals and reference provided under" the Act". In fact, the power to waive or reduce the amount of penalty in appropriate cases can be exercised even though the assessee has failed to succeed in the appeals and the reference provided under" the Act".

11. Further, this provision would come into play only when the liability of the assessee to pay penalty is established. If there is no case for the imposition of penalty or that is not a case where the penalty is imposable under Clause (a) of Section 271(1), this provision will not be attracted at all. Having found that there is a liability for the assessee to pay penalty, under Section 273A(1)(i), the Commissioner under the special circumstances indicated therein may exercise his power to either reduce or waive the amount of penalty imposed or imposable on the assessee. This power is a discretionary one to be exercised in appropriate cases judiciously and fairly and in the interest of justice. The legal liability of the assessee to pay the imposed penalty is not in dispute, but, however, the Commissioner may take a sympathetic view if the requirements of the provisions of Section 273A(1) are satisfied. The conditions to be satisfied for attracting this provision are : First, the assessee must establish that he has filed the return voluntarily and prior to the issue of a notice to him under Sub-section (2) of Section 139. Secondly, the voluntary return must be one filed in good faith indicating a full and true disclosure of his income. Thirdly, the assessee must have co-operated in any inquiry relating to the assessment of his income. Fourthly, he must have either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed in respect of the relevant assessment year. If the aforesaid ingredients of Section 273A(1) are satisfied, the Commissioner of Income-tax has to exercise his discretion either suo motu or on the application of the assessee to reduce or waive the amount of penalty imposed or imposable. The use of the word " otherwise " in the above provision indicates that the Commissioner can exercise this power at the instance of either the assessee or any other aggrieved party. The very Section also provides for the suo motu exercise of the power. The very fact that Parliament designedly empowered the Commissioner to exercise the power suo motu, indicates that this power has to be exercised to do real and substantial justice wherever possible and the discretion vested in him under the section must be exercised judiciously, fairly, reasonably and objectively and to meet the ends of justice, and not arbitrarily or capriciously. The satisfaction of the requirements of the power to be exercised under this section must be an objective satisfaction and not a subjective satisfaction. This satisfaction intended being statutory it can be tested by the courts under Article 226 of the Constitution of India. This satisfaction can, by no stretch of imagination, be considered to be a subjective one depending upon the view of an individual Commissioner. The Commissioner, therefore, cannot in limine dismiss or reject the request of the assessee for the exercise of his discretion under this provision on the simple ground that the assessee had already availed of the remedies of appeals and reference under" the Act" in respect of the penalty imposed ; nor is it open to him to reject the assessee's prayer on any ground which is extraneous to the question. This view of ours gains support from the decision in Smt. Kherunissa Allibhai v. CIT . This power of discretion has to be exercised when once the ingredients indicated in the provision are satisfied. The Commissioner has no jurisdiction to refuse to entertain an application under this provision on the ground that the assessee was an old assessee who was conscious or aware of the law relating to the filing of the returns under section 139(1) of" the act". The section does not limit the exercise of the discretionary power in respect of new assessees only. We cannot read something new which is not stated in the section. Parliament must have designedly conferred this power on the Commissioner with a view to give some appropriate relief to the assessees on humanitarian grounds if they establish satisfactorily the ingredients indicated therein. True, as contended by Mr. P. Rama Rao, the Commissioner is not bound to exercise the discretion always in favour of the assessee in each and every case ; nor can it be said that the discretion vested in the Commissioner under this provision must be exercised only in a particular way. The Commissioner has a statutory duty and obligation to examine the facts and circumstances of each case and exercise his discretion fairly and objectively and arrive at a correct conclusion. This objective examination and satisfaction are necessary because it is a statutory discretion. A careful reading of the requirements or ingredients of this provision shows that Parliament enacted this provision to show some equitable consideration to honest assessees who have not only co-operated in any enquiry relating to the assessment of his income, but also either paid or made satisfactory arrangements for payment of any tax or interest payable by them in respect of the relevant assessment year. He must have, voluntarily and in good faith, made full and true disclosure of his income. The expressions " good faith " and " full and true disclosure of his income " used in Section 273A(1)(a) reveal that the assessee, in the circumstances, must have felt that he has filed the return voluntarily and in good faith and, according to him, has made a full and true disclosure of his income. The mere fact that what has been disclosed by him in the return is not accepted by the ITO, subsequently, in the order of assessment, would not in any way disentitle him straightaway for the relief enshrined in Section 273A(1). What is determined by the ITO in the assessment order cannot be taken to be the yardstick to measure " good faith " and " full and true disclosure of his income " in every case.

12. We may now turn to the Explanation which requires that 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, it must be deemed that the assessee has made full and true disclosure of his income or of the particulars relating thereto. The Explanation supports our view that Section 273A(1) which provides for the exercise of discretion by the Commissioner can be availed of by the assessees who are not liable to be proceeded against for levy of penalty under Section 271(1)(c), which would come into play only when the officer in the course of any proceedings under" the Act" is satisfied that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. The concealment of income and furnishing of any inaccurate particulars of such income would take the case of any party out of the purview of Section 273A(1)(a).

13. In the present case, admittedly, there are no proceedings taken under Section 271(1)(c). Consequently, it must be taken for granted that the assessee has not committed an offence so as to be proceeded against for levy of penalty under Section 271(1)(c) for concealing the particulars of its income or for furnishing inaccurate particulars of such income for the assessment year in question. In this view and in view of the Explanation to Section 273A(1), the assessee shall be deemed to have made full and true disclosure of his income.

14. It must also be noticed that the assessee need not have been an honest assessee co-operating in the inquiry relating to the assessment of his income or paying, or making satisfactory arrangements for the payment of, any tax or interest payable by him under the I.T. Act. The use of the expression " in respect of the relevant assessment year " in this provision would prove beyond doubt that the assessee who requires the Commissioner to exercise the discretion vested in him under Section 273A(1) for any particular year of assessment must comply with the provisions of this section in respect of that assessment year alone. The intendment and object of this section would clearly show that the assessee can avail of the provisions of this section in respect of any assessment year if he has satis-

fied the requirements thereof for that assessment year, each assessment year being a unit by itself for the purpose of assessment. This relief would be available to the assessees if they comply with the requirements of Section 273A(1) for the particular assessment year although they might not be found to have complied with them all through and for all the assessment years. This view of ours gains support from the decisions rendered in Ghulam Mohd. Sheikh v. CWT [1977] 109 ITR 395 (J & K), Madhukar Manilal Modi v. CWT , Mahavir Transport Co. Ltd. v. CIT and Shankara Apaya Swami v. WTO .

15. Relying upon the unreported decision of a Division Bench of this court in W.P. No. 3769/78 dated 8th September, 1978 (Ashok Enterprises v. CIT--since supra) Sri P. Rama Rao, learned counsel for the revenue, pressed upon us that the application under Section 273A is not maintainable and the Commissioner has no jurisdiction to deal with the matter under section 273a of" the act" which came into force only on October 1, 1975. This claim of the department is resisted by Mr. Dasaratha-rama Reddy, learned counsel for the assessee, stating that Section 273A being a beneficial provision, it must be construed to be of a procedural nature and that alone is applicable to the case on hand when the application for the relief was sought for on 25th December, 1975. He relied upon a decision of the Division Bench of the Kashmir High Court in Fairdeal Motors v. CIT , wherein it was held that section 271(4a) of" the act" was undoubtedly a beneficial provision and as it is meant to give relief to the assessee it would apply to proceedings which were pending on the date when the amendment came into force.

16. In the decision of the Division Bench of this court relied upon by Shri P. Rama Rao, this point was not raised specifically and determined after contest. However, this point need not detain us any longer in view of the fact that the Commissioner himself has passed the impugned order under Section 273A without raising any objection relating to jurisdiction. Hence, we feel it is not open to the Commissioner at this stage in the writ petition to raise this objection relating to jurisdiction.

17. In this view, the impugned order of the Commissioner is hereby quashed as he did not apply his mind and exercise the statutory discretion vested in him one way or the other. We hereby direct the Commissioner to consider the application afresh in accordance with law and in the light of the observations made herein and dispose of the application. The writ petition is, accordingly, allowed. There will be no order as to costs.