:
The appeal filed by the writ petitioner impugns the order of summary rejection of his writ petition. At the stage of the admission of the appeal, the Division Bench took the view that
"at the hearing of the appeal what should be gone into is not only the propriety of the order rejecting the writ petition in limine but the entire writ petition on merits ...."
. We have, accordingly, treated the writ petition as having been admitted and so heard the matter.
2. The writ petitioner (whom we shall refer to as "the assessee") was, according to the returns of income filed by him, carrying on the business of running a saving unit scheme. He was assessed to income-tax for the asst. yrs. 1974-79 onwards under s. 143(1) of the IT Act, 1961. During the course of the assessment proceedings for the asst. yr. 1980-81, the ITO noticed transactions in the assessees book of account which he found suspicious. He impounded the books of account. On 26th November, 1981, he carried out a survey operation of the assessees premises under s. 133A which, on the same day, was converted into a search under s. 132. Cheque books with cheques signed by different parties were found in the course of the search. Examination of the seized material seemed to suggest that the assessee had been carrying on the business of bogus havala transactions by receiving unaccounted moneys in cash and returning the same by way of loans. The assessee made statements to the Revenue authorities that appeared to confirm that he had been doing such bogus havala business in his own name and in the names of his friends, in their personal names as also in the names of proprietary concerns. On 7th December, 1981, the assessee retracted the statements. Upon examination of the seized material, the ITO found that, out of the loans advanced in the names of the assessee, his friends and relatives, loans aggregating to Rs. 42,43,200 were still outstanding. The ITO issued prohibitory orders to the parties to whom the loans had been given prohibiting them from returning them to the assessee, his friends and associates. The ITO then reopened the assessment of the assessee for the asst. yr. 1979-80, which had been finalised for a total income of Rs. 17,340, and made a fresh assessment for a total income of Rs. 8,52,940. The assessee filed an appeal, and the CIT(A) reduced the total income by Rs. 2,30,000. For the asst. yr. 1980-81, the ITO finalised the assessment for a total income of Rs. 4,74,899. The assessee filed an appeal, and the CIT(A) reduced the total income by Rs. 2,27,200. On 6th February, 1984, a notice was issued to the assessee under s. 148 for the asst. yr. 1981-82.
3. On 11th December, 1984, the assessee petitioned to the CIT XII, Bombay, for the settlement of his income-tax matters and made proposals. The petition referred to discussions which had already been held. It suggested that the entire income of the six persons named therein in their individual and proprietary names should be taxed only in the assessees hands. In other words the total business done by all of them should be considered his own. In doing so, the appropriate peak should be worked out in each case and a combined peak, which worked out to approximately Rs. 50.67 lakhs, should be the total income to be considered for the purposes of the settlement. Thereout a fair portion should be considered as genuine and the balance as additional income in the hands of the assessee alone. Tax would be levied on the additional income and would be paid within a reasonable time. No proceedings would be initiated for levying penalty or interest and no prosecutions would be launched. Immunity should be granted to the assessee, the six named persons and all persons and parties to whom loans had been given from penalty and interest proceedings and prosecutions. On 22nd December, 1984, the assessee addressed a letter to the Member (Investigation), CBDT, and asked that the loans given by him to M/s. Suresh K. Mehta and M/s. Raja Pictures & their Associates in the sums of Rs. 1 lakh and Rs. 3.25 lakhs respectively should be collected directly from them and the assessee should be asked to pay only the balance.
4. It appears from the affidavit filed on behalf of the Revenue to oppose admission that, pursuant to the assessees petition, the concerned CIT wrote to the Secretary, CBDT. The letter noted that the tax due was to be paid within a reasonable time as mutually agreed. No penalty proceedings were to be initiated. No interest was to be charged nor any prosecution launched. The proposal originally given had been modified by the assessees letters of 14th and 22nd December, 1984. There was much in favour of the settlement for, despite prohibitory orders for Rs. 42,43,200, none of the parties had responded and recovery certificates had yielded only Rs. 79,000. The letter recommended that 35% of the total turnover of the assessees business should be treated as genuine and the balance of approximately Rs. 27,58,000 should be treated as additional income arising upon the havala business. The letter recommended that the assessee should be asked to pay the tax before 31st March, 1985. In its last paragraph, the letter stated that the assessee had asked for waiver of penal interest, penalty and immunity from prosecution, which required the CBDTs consideration. On 25th/28th January, 1985, the Secretary, CBDT, wrote to the CIT. The letter stated,
"The Board are of the view that you can decide upon the quantum of income and hand where the income can be assessed. Regarding the assessees request that he and his associates should be granted immunity from penalty, interest, prosecution and other proceedings under the IT Act, 1961, and under any other law for the time being in force, I have been directed to state that no such immunity can be granted either to the petitioner-assessee or his associates. While the assessee is free to move an application under s. 273A of the IT Act, 1961, if so advised, no guarantee for waiver or reduction of penalties and interests can be given"
. On 6th February, 1985, the CIT addressed a letter to the assessees ITO. The letter stated that, after discussion with the assessees Chartered Accountant and communication with the CBDT, it was decided to tax the additional income of Rs. 27,58,080 in the hands of the assessee. The ITO was requested to make a fresh assessment after adding the said amount towards income from undisclosed source for the asst. yr. 1980-81. Penal interest was to be charged under ss. 139(8), 215 and 217 under the law. Similarly, penalty proceedings were to be initiated under the provisions of ss. 271 and 273. On 26th February, 1985 the CIT wrote to the assessees ITO. Since the highest peak related to the asst. yr. 1981-82, the ITO was directed to tax the additional amount of Rs. 27,58,080 towards income from undisclosed sources for the asst. yr. 1981-82 instead of the asst. yr.1980-81. On 19th March, 1985, the assessee Chartered Accountant appeared before the ITO and signed at the foot of the order sheet recording the proceedings of that day before the ITO. The order sheet stated that penal interest was to be levied upon the assessee under s. 178, ss. 215 and 217 and penalty proceedings were to be initiated under ss. 271 and 273.
On 8th March, 1985, the CIT addressed a letter to the ITO which mentioned a "settlement" in the case of the assessee and his associates. On 15th March, 1985, the assessee filed a return for the asst. yr. 1981-82 disclosing the income of Rs. 27,58,080. It was in connection with the finalisation of the assessment upon this return that Paliga, the assessees Chartered Accountant, attended the meeting with the ITO on 19th March, 1985, and signed the order sheet. On 26th March, 1985, the assessment order for the asst. yr. 1981-82 was made. The income that was returned was accepted. Interest was levied under ss. 138(8), 215 and 217 and penalty proceedings under ss. 271(1)(a) and 273 were ordered.
On 27th March, 1985, the assessee filed a petition under the provisions of s. 273A before the CIT asking him to waive the interest and penalty as the same would create "tremendous hardships". On 3rd December, 1985, the assessee wrote to the CIT referring to his petition under s. 273A and submitted that he had voluntarily and in good faith come forward with the proposal of offering an additional income of Rs. 25 lakhs which had not been detected by the Revenue. The Revenue had not collected any evidence during the course of the search proceedings except for the confessionary statements which were obtained from him under threat and coercion. It had been submitted in his petition for settlement that out of the total tax payable by him an aggregate sum of Rs. 4,25,000 would be collected from M/s. Suresh K. Mehta & Co. and M/s. Raja Pictures & their Associates and directions in this connection had been issued. He had given all assistance and co-operation during the course of the settlement. He, therefore, prayed for the favourable consideration of the petition for waiver of interest and penalty.
On 16th December, 1985, was passed the order which was impugned in the writ petition. By that order the assessees petition for waiver of interest and penalty under s. 273A was rejected. In paragraph 3 of the order the CIT set out in detail the facts. In paragraph 4 he stated that, from the facts thereinabove mentioned, it was seen that the disclosure of the income of Rs. 27,58,080 made by the assessee in the return of income for the asst. yr. 1981-82 was not voluntary and in good faith. The assessee had offered this income for taxation only after the ITO had carried out investigations, taken survey action under s. 133A and search action under s. 132. The additions made on account of income from undisclosed sources in the assessees assessments for the asst. yrs. 1979-80 and 1980-81 had been substantially confirmed by the CIT(A) in the appeal for those years. The assessees counsel had argued that the disclosure should be treated as voluntary and in good faith because the Revenue had not detected the additional income, and the additions made by the ITO for the asst. yrs. 1979-80 and 1980-81 were much less than the amount of the income of Rs. 27,58,080 offered by the assessee for the asst. yr. 1981-82. In paragraph 5 of his order the CIT found no force in the contention. The additional income had been disclosed only after the ITO had carried out a detailed investigation and taken survey and search action. The ITO had also issued prohibitory orders in respect of loans amounting to Rs. 42,43,200. Accordingly, the disclosure made by the assessee was not voluntary and in good faith as envisaged by s. 273A. In paragraph 6 of the order the CIT stated that a notice under s. 148 for the asst. yr. 1981-82 had been served on the assessee on 6th February, 1988, and the return of income from that assessment year was filed thereafter. This meant that one of the essential condition laid down in s. 273A was not fulfilled. Another essential condition in the CITs view was that the tax should have been paid, and he found that it had not been paid. In this view the liability to pay the tax on the income disclosed was that of the assessee and did not stand discharged by the request made by the assessee that an amount of Rs. 4,25,000 should be collected from M/s. Suresh K. Mehta & Co. and M/s. Raja Pictures and their Associates. Accordingly, the CIT held that the assessee had not fulfilled the various conditions laid down in s. 273A for the asst. yr. 1981-82 and he rejected the request for waiver of interest and penalty.
28th June, 1991
5. It was the case of the assessee in the writ petition that the settlement arrived at by him with the Revenue was a single, composite and inseparable transaction and the Revenue had either to accept it or reject it in its entirely. In other words, it was not open to the Revenue to contend that it would accept the proposed settlement in part and not the whole. If the assessee had been informed that the Revenue would accept only a part of the proposed settlement and would insist on imposing penalty, levying interest and initiating recovery proceedings even in respect of the amount of Rs. 4,25,000 recoverable from M/s. Suresh K. Mehta & Co. and M/s. Raja Pictures and their Associates, the assessee would have withdrawn the proposal and not have proceeded to act on it by filing a return. The Revenue clearly and specifically stated and represented to the assessee that the proposal was being accepted and acted upon by the Revenue and it was on this basis that the necessary directions were given to the ITO by the CIT in the letter dt. 8th March, 1985. The submission of the assessee was that, therefore, the Revenue must be, in law, taken to have accepted the proposed settlement in its entirety and the Revenue was bound in law to comply with the terms of the settlement and act in accordance thereof and not in any way contrary thereto. The levy of interest and penalty was, therefore, bad in law and null and void.
6. Now, it is interesting to note that what was pleaded was an oral agreement between the assessee and the Revenue, as is clear from the words, "The IT authorities clearly and specifically stated and represented to the petitioner that the said settlement proposal made by the petitioner was being accepted and acted upon by the IT authorities. The petition was silent as to who on behalf of the Revenue stated and represented this to the petitioner and when and where.
7. The assessees CA, one Ammar G. Ayyaz, filed an affidavit in support of the petition. He averred that the represented the assessee in the matter of the settlement and the terms and conditions proposed for settlement "were accepted" by "the Department". He went on to say that "if the Department had conveyed that any of the terms of settlement including waiver of interest and penalty were not acceptable to them, I would not have advised the appellant to settle the matter. I say that both myself and the appellant proceeded on the basis that all the terms and conditions of the settlement as proposed were accepted by the Department and it is on that basis that the appellant filed the return of income on 15th March, 1985, and also filed a formal application for waiver on the 27th March, 1985". Again, there are no particulars of the manner of acceptance of the settlement by "the Department".
8. In the affidavit filed on behalf of the Revenue was disclosed the order sheet of the assessees ITO dt 19th March, 1985. The order sheet was signed by the assessees CA, Paliga. The order sheet referred to the letter written to the ITO by the CIT on 6th February, 1985, and stated,
"As per the said letter taxed are to be collected immediately and penal interest to be levied under s. 139(8), 215/217 and penalty (proceedings) under ss. 271 and 273 are to be initiated. Assessment for asst. yr. 1981-82 will be framed accordingly"
. The order sheet signed by the assessees CA shows clearly that he was made aware that the term regarding waiver of interest and penalty was not accepted by the Revenue.
9. Paliga filed an affidavit in which he stated that he had signed the order sheet wherein reference was made to the CITs letter dt. 6th February, 1985. He was shown this letter from the file but was refused a copy. It was his case that though the letter stated that penal interest was to be charged and penalty proceedings to be initiated, it was made clear to the ITO that, under the settlement, there was to be a waiver of penalty and interest leviable under the various provisions of the Act, as stated in the letter dt. 15th March, 1985 of the assessee to the ITO that the basis of the settlement was the waiver of penalty and interest and the ITO concerned agreed that the assessee should file a formal waiver application under s. 273A after the assessment was made for waiver of interest and penalty. Accordingly, on 27th March, 1985, the assessee filed a formal waiver application.
The petition does not state that the assessees CA, Paliga, had been shown by the ITO the letter written to him by the CIT which directed him to levy penal interest and initiate penalty proceedings. It seems to us that the assessee deliberately left this fact out of the petition with a view to mislead the Court.
We find no difficulty in disbelieving the statement in the petition that the assessee was at no time informed that the proposed settlement was unacceptable to the Revenue in so far as it related to interest and penalty. The averments in the petition in this behalf are defeated by the affidavit of the assessees CA, Paliga.
We also find no difficulty in concluding that the assessee accepted the position that the settlement had been accepted by the Revenue, excluding the term that related to interest and penalty. Had that not been so, Paliga would have insisted that the ITO record in the order sheet that he (the ITO) agreed that waiver of interest and penalty was an integral term of the settlement and that the petition under s. 273A for waiver thereof a mere formality. In any event, Paliga would have written a letter to the ITO forthwith to record this. We would also have found a letter written by the assessee to the CIT protesting against the proposed levy of interest and penalty in the assessment order that was to be passed. Further, the petition that was filed under s. 273A and the written submissions made in that behalf in the letter dt. 3rd December, 1985, do not bear out what Paliga alleged nor, in fact, do they aver that the Revenue had agreed to the term of the proposed settlement that there should be no levy of interest or penalty.
Paligas affidavit was filed in an attempt to restore the credibility of the case in the petition which stood destroyed by the disclosure of the documents in the affidavit filed by the respondents. We have to record that we do not, for the reasons aforestated, believe Paliga.
10. Having so held, let us assume that an agreement in respect of the proposed settlement was arrived at between the assessee and some officer of the Revenue or that the agreement could be said to have been arrived at by conduct on the part of the Revenue acting through one of its officers. We asked counsel for the assessee, how the Union of India would be bound by such as agreement and how the agreement could be enforced against it. Counsel fairly stated that he had no answer. No such agreement can bind the Union of India or be enforced against it unless translated into valid orders under the Act.
11. It was submitted, in the alternative, that the assessee met all the conditions specified in s. 273A, and that, therefore, his petition for waiver ought to have been allowed. Our attention was drawn to the Division Bench judgment of this Court in Laxman vs. CIT (189) 174 ITR 465 (Bom), where s. 273A was analysed. The analysis indicated that the following conditions were specified for the exercise of the discretion thereunder :
"(a) voluntary disclosure of income before issuance of notice under s. 139(2);
(b) making of full and true disclosure of the income in good faith;
(c) co-operation in the conduct of income-tax assessment proceedings;
(d) payment or satisfactory arrangement for payment of tax or interest payable in consequence of an order passed with respect to the relevant assessment year."
Counsel for the assessee submitted that there had been a voluntary disclosure of income for the relevant assessment year by the assessee. In his submission, the fact that the disclosure was made after the survey, search and statements did not make the disclosure any the less voluntary. Our attention was drawn in this behalf to the judgment of the Division Bench of the Kerala High Court in A. V. Joy, Alukkas Jewellery vs. CIT (1989) 185 ITR 638 (Ker). It was there said that the CIT under s. 273A had to examine whether the disclosure was bona fide and voluntary on the facts of each case. He had to examine the nature of the incriminating documents found after the search and the period to which they related. What was seized might or might not show suppression. The raid might wake up the sleeping assessee to corrective action. It might be that, during the search, certain matters relating to particular assessment years might have come to the knowledge of the ITO. Documents relating to a particular year might be in the possession of the Revenue but, the assessee, taking advantage of the provisions contained in s. 273A, might have made a full disclosure, not only for the particular year to which the documents obtained from search related but also for all earlier or subsequent years. By virtue of the seizure of certain documents the assessee might have decided to make a full disclosure of the income for earlier years also. The return and the disclosure would nevertheless be voluntary even though the intention of the assessee in so doing was only to save the penalty.
Now, as against this, our attention has been drawn by Dr. Balasubramanian, learned counsel for the Revenue, to the judgment of the Allahabad High Court in Hakam Singh vs. CIT (1980) 124 ITR 228 (All), which followed the earlier judgment of that Court in Mool Chand Mahesh Chand vs. CIT (1978) 115 ITR 1 (All). The Allahabad High Court said that the question was whether a return filed out of a sense of fear of penalty or prosecution was voluntary. The word voluntary had been defined as performed or done of ones own free will, impulse or choice, not constrained, prompted or suggested by another, proceeding from the free, unprompted or unconstrained will of a person. A return filed under the constraint of exposure to adverse action by the Revenue would not be voluntary within the meaning of s. 273A. The action of the petitioner before the Allahabad High Court in filing the returns after the books of account had been seized at a raid was impelled by the compelling circumstances that the petitioner was likely to be dealt with under the penal provisions of the IT Act. The action of the petitioner in filing the returns under such constraint could not be said to be voluntary. This was what had earlier been held in Mool Chand Mahesh Chands case.
We are inclined to agree with the Kerala High Court that in every case the CIT must, having regard to the search, seizure or statements, determine whether or not the disclosure subsequently made is or is not voluntary, but, we are also inclined to agree with the Allahabad High Court that where a disclosure is made consequent upon seizure of incriminating material relevant to the particular assessment year, the disclosure is made because adverse consequences under the Act are attracted. Such a disclosure is not voluntary.
12. In the order under s. 273A, the CIT set out (in paragraph 3), the facts in some detail. Upon the basis thereof he held (in paragraphs 4 and 5), that the disclosure made by the assessee of the additional income of Rs. 27,58,080 for the asst. yr. 1981-82 was not voluntary but, was prompted by the consideration of averting further adverse consequences under the Act.
It will be noted that the search of the assessees premises revealed the presence therein of cheque books with cheques signed by different parties. The assessee made confessionary statements, which he retracted later, explaining how he carried on the bogus havala business. The examination of the seized material led the ITO to issue prohibitory orders in respect of loans aggregating to about Rs. 42,43,200. It was after all this that the assessee started discussions with the Revenue authorities. He then made an offer for settlement and thereafter the disclosure of the income of Rs. 27,58,080. We have no doubt that, in these circumstances, the disclosure cannot be said to be voluntary.
For the purposes of reducing or waiving the amount of interest payable under s. 139, s. 215 or s. 217 or the penalty imposable under s. 273 the CIT has, before he permits the reduction or waiver, to be satisfied that the concerned assessee has, prior to the issue of notice to him under sub-s. (2) of s. 139, or where such notice has been issued and period 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. In the instant case it is an admitted position that before the disclosure was made by the assessee a notice under s. 148 was served upon him. It was submitted by his counsel that the assessee was unable to file his return for the concerned assessment year because all the relevant book of account and papers had been seized. It is not disputed that the assessee had not asked for inspection of the seized material nor had he made an application for extension of time to file the return. We are, therefore, satisfied that the assessee does not satisfy this condition for waiver of interest and penalty.
13. Counsel also drew our attention to sub-s. (4) of s. 273A which empowers the CIT, on an application made in this behalf by an assessee and after recording his reasons for so doing, to reduce or waive the amount of any penalty if he is satisfied that to do otherwise would cause genuine hardship to the assessee, having regard to the circumstances of the case. Counsel submitted that the assessee had pleaded hardship and that the CIT in the order under s. 273A had not even taken account of that plea. In the petition under s. 273A made on 27th March, 1985, the assessee stated that ".... if any penalty or interest is levied (it) will create hardship on me" and again, "We, therefore, once again request you to kindly consider and waive the above stated penalties and interest as the levy thereof would create tremendous hardships to us". The word "hardship" was used but, no case whatever on the ground of hardship was made out. The making out of such a case is imperative for the CIT has to record reasons for waiving or reducing the interest an penalty. The CIT cannot be faulted for not noting the plea.
14. Lastly, we must note that Dr. Balasubramanian, learned counsel for the Revenue, submitted that the discretion under Art. 226 could, in any event, not be allowed to be invoked here, having regard to all the facts and circumstances. We agree.
15. The appeal is dismissed. The appellant shall pay to the respondents the costs of the appeal.
16. Counsel for the assessee requests continuation of the interim relief that was granted pending the disposal of the appeal. Having regard to what we have said we are unable to accede to the request.