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Case Number

Writ Petition No. 3740 of 1994

Attorney(S)

S.N Inamdar
R.V Desai, Senior Advocate with P.S Jetly instructed by T.C Kaushik

Judges

V.C Daga
J.P Devadhar, JJ.

Acts

INCOME TAX ACT 1961

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Smart Summary

Structured Summary of the Opinion (J.P. Devadhar, J.)

Factual and Procedural Background

The petitioner is the legal heir of late Smt. Kamlaben Apte, who had been assessed to tax under the Income-tax Act. For the assessment years 1981-82, 1984-85 and 1988-89 the assessee filed returns of income belatedly but the returns were accepted and assessments were completed after issuance of notices under section 148 of the Income-tax Act; penalty and interest were imposed for delay in filing returns and for delay in payment of advance tax.

On 1-11-1990 Smt. Kamlaben applied to the Commissioner of Income Tax under section 273A seeking waiver or reduction of the penalty and interest. After Smt. Kamlaben's death on 8-9-1991 the petitioner, as her legal heir, pursued that application. An ex parte disposal of the application was set aside on Writ Petition No. 457 of 1993 by an order dated 8-2-1993; the Commissioner was directed to decide afresh after hearing the petitioner. The impugned order dated 25-3-1994 rejected the application on the ground that the returns were not voluntary nor in good faith and therefore not eligible for relief under section 273A. The present writ petition challenges that order.

Legal Issues Presented

Whether the belated returns filed by the assessee, which were accepted by the Income-tax authorities and assessed, amount to a "voluntary and in good faith" full disclosure within the meaning of section 273A of the Income-tax Act.
Whether an audit query raised in respect of a partnership firm (in which the assessee was a partner), but not intimated to the assessee, negates the voluntariness of the assessee's returns such that relief under section 273A must be denied.
Whether belated ("non est") returns filed after an audit query or otherwise preclude consideration for waiver under section 273A.
Whether non-payment of penalty and interest during the pendency of an application under section 273A constitutes non-cooperation that disentitles the assessee to relief.

Arguments of the Parties

Appellant's Arguments (counsel: Mr. S.N. Inamdar)

The returns were filed before any notice was issued to the assessee and before detection by the department; there were no incriminating documents in the assessing officer's possession on the date returns were filed.
The returns constituted full and true disclosure made voluntarily and in good faith and were accepted by the assessing officer; therefore all preconditions of section 273A were satisfied and penalty and interest should have been waived.
Section 273A is an amnesty provision intended to encourage defaulting taxpayers to disclose voluntarily; "voluntarily" must be interpreted in light of that object and the circumstances of the case.
The Commissioner erred in treating the audit query raised in the partnership firm's case as evidence that the returns were not voluntary because the audit query was not intimated to the assessee and no incriminating documents were available to the audit party against the assessee.
Relied on the Apex Court decision in Jaswant Rai v. Central Board of Direct Taxes (231 ITR 745) for the proposition that voluntary and good faith disclosure may be effected by filing a return or by petition to the Commissioner.

Respondents' Arguments (counsel: Mr. R.V. Desai)

Although the returns were filed before any formal notice, they were filed after an audit query was raised by the audit party in respect of the firm (audit query dated 9-6-1989; returns filed 24-7-1989), so the returns were not voluntary.
Belated returns are "non est" (time-barred) and such non est returns cannot be said to have been filed voluntarily and in good faith for the purposes of section 273A.
The assessee had not paid the interest and penalty levied under the Act; therefore the Commissioner was justified in holding that the preconditions of section 273A were not met and in rejecting the application.
Relied on the decision of this Court in Saberaj Industries v. F.J. Bahaduri, Commissioner of Income Tax (217 ITR 831 (Bom.)) to support the submission that returns filed pursuant to or in response to departmental steps do not qualify for relief under section 273A.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Jaswant Rai v. Central Board of Direct Taxes and Revenue, 231 ITR 745 (Apex Court)	The principle that the condition for relief under section 273A is that the assessee should have voluntarily and in good faith made full disclosure of income prior to detection; such disclosure can be made by filing a return or by submitting a petition to the Commissioner.	The court relied on this authority to hold that voluntary disclosure may occur by means other than a timely return, and therefore a belated return that is a full and voluntary disclosure can qualify for consideration under section 273A.
Saberaj Industries v. F.J. Bahaduri, Commissioner of Income Tax, 217 ITR 831 (Bom.)	Holds that returns filed pursuant to a notice under section 148 (or treated as complying with such notice by correspondence) would not qualify for relief under section 273A.	The court distinguished this case on its facts: in Saberaj the assessee had sought to have time-barred returns treated as returns in compliance with a section 148 notice (and that issue was the basis for denying relief). The present case did not involve returns filed in pursuance of a notice or treated as such; therefore Saberaj was not determinative here.

Court's Reasoning and Analysis

The court proceeded step-by-step, staying within the facts before it:

Undisputed facts: on the date of filing the returns no notice under the Income-tax Act had been issued to the assessee; the assessing officer accepted the returns as constituting full disclosure and assessments were made accordingly.
The audit query addressed to the partnership firm (about payments to the assessee as partner) had not been intimated to the assessee; the assessee was therefore unaware of it. The court concluded that, because the assessee was not aware of any such query, the query could not be regarded as having compelled the assessee to file returns.
The court observed that the Revenue did not contend that the assessee had suppressed the fact of income from the firm; indeed, the assessee had previously disclosed income from the firm in earlier assessments (up to AY 1981-82). This weighed against the proposition that the returns were not voluntary.
The court applied the legal principle from Jaswant Rai that what matters for section 273A is a full and true disclosure made voluntarily and in good faith, which can be effected by filing a return (even if belated) or by other means such as a petition to the Commissioner.
Given that the returns in this case were accepted as full disclosure and were filed before any notice was served on the assessee, the court found that the returns were voluntary and in good faith for the purposes of section 273A. The fact that penalty and interest had not been paid while the waiver application was pending did not evidence non-cooperation.
On the point of "non est" belated returns raised by the Revenue in affidavit, the court held that (a) the impugned order must be judged by the reasons contained within it (and the orders did not rest on that ground), and (b) under section 273A what is relevant is whether there was full and true disclosure made voluntarily and in good faith, regardless of whether disclosure came via belated returns or otherwise.
The court distinguished the Saberaj decision on its specific facts (letters asking the assessing officer to treat time-barred returns as compliance with a section 148 notice), noting Saberaj did not address whether belated voluntary disclosure could qualify for section 273A relief.

On this legal and factual matrix the court concluded the Commissioner was not justified in holding the preconditions of section 273A were not fulfilled.

Holding and Implications

Holding: The court quashed and set aside the order of the Commissioner of Income Tax dated 25-3-1994 and remanded the matter to the Commissioner for fresh consideration of the application for reduction or waiver of penalty and interest under section 273A, on the footing that the preconditions for such waiver are complied with by the assessee.

Consequences and practical effect:

The Commissioner's order rejecting the application under section 273A is set aside and the matter is remitted for decision on merits.
The Commissioner is directed to decide the waiver/reduction application afresh treating as established (for the purpose of consideration) that the assessee satisfied the preconditions of voluntary and good faith full disclosure.
The petition is allowed and rule made absolute in terms of the prayer clause (a) of the petition; however, the court made no order as to costs.
No broader new legal precedent was declared by the court beyond applying and distinguishing earlier authorities; the decision resolves the parties' dispute by remand rather than creating a novel rule of law.

Petition allowed.

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Anand B. Apte v. Commissioner Of Income Tax, Kolhapur .

J.P Devadhar, J.:— In this Writ Petition, the petitioner has challenged the order dated 25-3-1994 passed by the Commissioner of Income Tax, Pune declining to consider the application of the petitioner filed under section 273A of the Income Tax Act, 1961 seeking waiver of penalty and interest levied against the petitioner for the assessment years 1981-1982, 1984-1985 and 1988-1989.

2. The petitioner is the legal heir of late Smt. Kamlaben Apte, who was assessed to tax under the I.T Act. For the assessment years 1981-1982 and 1984-1985 to 1988-1989 the returns of income were filed by the assessee voluntarily but belatedly. It was the case of Smt. Kamlaben that the returns could not be filed in time, because of the breakdown of the relationship with her three sons and at the relevant time the accounts were not maintained properly. The said returns of income were regularised by issue of notice under section 148 of the i.t act and were accepted as correct and assessment orders were passed accordingly with penalty and interest for delay in filing the returns and delay in payment of advance tax.

3. On 1-11-1990 the said Smt. Kamlaben made an application to the Commissioner of Income Tax under section 273A of the I.T Act seeking waiver or reduction of penalty and interest imposed upon her in respect of the aforesaid assessment years.

4. On the death of Smt. Kamalaben on 8-9-1991, the petitioner as her legal heir has pursued the application filed by her under section 273A of the Act. By an ex-parte order, the said application was disposed of. However, on a Writ Petition filed by the petitioner being Writ Petition No. 457 of 1993, the said ex parte order was set aside on 8-2-1993 and the Commissioner of Income Tax was directed to decide the matter afresh after hearing the petitioner. Thereupon, by the impugned order dated 25th March, 1994, the Commissioner of Income Tax has rejected the claim of the petitioner on the ground that the requirements of section 273A of the I.T Act were not met with viz. the returns filed were neither voluntary nor in good faith and, therefore, not eligible for any relief under section 273A of the I.T Act. Challenging the said order, the present petition has been filed.

5. Mr. S.N Inamdar, learned advocate appearing on behalf of the petitioner submitted that on the date on which the returns were filed, no notice was issued to the assessee and there were no incriminating documents in possession of the assessing officer. He submitted that in the returns, the assessee had voluntarily and in good faith made full and true disclosure of her income and the same has been accepted by the assessing officer. He submitted that all the preconditions laid down in section 273A has been fulfilled and, therefore, the penalty and interest levied ought to have been waived. He submitted that the provisions of section 273a of the i.t act are in the nature of amnesty provisions, the object of which was to encourage defaulting tax payers to come clean on their own, prior to the detection by the department and disclose the unassessed income and pay taxes thereof. He submitted that the provisions of section 273a of the i.t act comes into play only when the liability is established and if there is no case for imposition of penalty, then the said provision is not attracted at all. He submitted that the term “voluntarily” incorporated in section 273A of the Act has to be interpreted bearing in mind the object of the provision and the circumstances of the case. He submitted that the conclusion of the Commissioner of Income Tax that the returns were not filed voluntarily because the department had in its possession “information” in the form of audit query in the case of the partnership firm in which the assessee was a partner is wholly erroneous, because the alleged audit query was neither intimated to the assesses nor the audit party had any incriminating, document against the assessee. The fact that the assessee was a partner of the firm was already known to the department. Accordingly, it was submitted that in view of the audit query raised in the case of the firm, it could not be said that the returns filed were not voluntary so as to decline waiver of penalty and interest under section 273A of the I.T Act.

6. Mr. Inamdar relied upon the Judgment of the Apex Court in the case of Jaswant Rai v. Central Board of Direct Taxes and Revenue reported in 231 ITR 745 and submitted that the principle condition for grant of relief under section 273A is that the assessee should have voluntarily and in good faith made full disclosure of her income prior to the detection of the same and such disclosure could be made even otherwise that in the course of a return by submitting a petition to the Commissioner. He submitted that in the present case, full and complete disclosure was made by the assessee by filing returns voluntarily and in good faith and the taxes payable thereon has been duly paid by the assessee before service of any notice upon the assessee and before detection of the same by the Income-tax authorities. Accordingly, he submitted that all the conditions of section 273A of the I.T Act being satisfied, the Commissioner of Income Tax ought to have entertained the application made by the assessee.

7. Mr. R.V Desai, learned Senior advocate appearing on behalf of the respondents on the other hand submitted that in the present case, even though the returns were filed before the issue of notice, they were filed subsequent to the query raised by the audit party in respect of the firm in which the assessee was the partner. He submitted that the audit query was on 9-6-1989 and the returns for the years in question were filed on 24-7-1989. Accordingly, he submitted that the returns filed by the assessee being beyond time, the said returns were to be treated as non est returns and non est returns cannot be said to have been filed voluntarily and in good faith. He submitted that in the instant case, although the assessee has paid the taxes, the assessee has not paid interest and penalty levied under the Act. Therefore, the Commissioner of Income-tax was justified in holding that the conditions set out in section 273A have not been complied with. Accordingly, it was submitted that the Commissioner of Income Tax was justified in rejecting the application of the petitioner.

8. Mr. Desai, relied upon the Judgment of this Court in the case of Saberaj Industries v. F.J Bahaduri Commissioner of Income Tax reported in 217 ITR 831 (Bom.) in support of his contention. He submitted that as the assessee had requested the I.T.O to treat the returns which were time barred, to be returns in compliance with section 148 of the i.t act, it could not be said that the preconditions laid down by section 273A of the I.T Act have been complied with and, therefore, the C.I.T was justified in rejecting the claim of the petitioner.

9. We have heard the Counsel on both sides. In the present case, it is not in dispute that on the date on which returns were filed, no notice was issued to the assessee regarding non filing of returns for the assessment years in question. It is also not in dispute that the disclosure of income made by the assessee has been accepted by the Income-tax authorities as full disclosure of income and the assessments have been made as per the returns filed by the assessee. The fact that the audit party had raised a query to the firm regarding the payments made by it to the assessee as a partner of the firm was not intimated to the assessee. As the assessee was not aware of any query raised by the audit party, it could not be said that the returns filed by the assessee were not voluntary. It is not the case of the Revenue that the assessee had suppressed the fact that she had a source of income from the firm. In fact, upto AY 81-82, the assessee had filed returns from time to time by showing income received by her from the firm. Therefore, in the facts of the present case, audit query raised to the firm cannot be said to have compelled the assessee to file returns, especially when the assessee was not even aware of such audit query raised against the firm. Where the income disclosed though belatedly is a full disclosure and the said disclosure has been made voluntarily and in good faith, then the penalty and interest leviable for late filing of return could be waived by the C.I.T under section 273A of the I.T Act. In the facts of the present case, we are of the opinion that the assessee had voluntarily and in good faith made full and true disclosure of her income and had also paid the taxes payable thereon. Non payment of penalty and interest during the pendency of the application for waiver under section 273A cannot be said to be non co-operation on the part of the assessee. Therefore, in our opinion, the C.I.T was not justified in holding that the preconditions set out under section 273A of the I.T Act have not been fulfilled in the present case.

10. The decision of this Court in the case of Saberaj Industries (supra) is distinguishable on facts. In that case, the contention of the assessee was that the C.I.T was in error in holding that the returns were filed in pursuance of notice under section 148 of the i.t act, when in fact, the returns were filed, though belatedly, before the issuance of notice under section 148 of the i.t act. In that context, referring to the letters addressed by the assessee in reply to the notices issued under section 148 of the i.t act requesting the assessing officer to treat the returns which were time barred as returns in compliance with the notice under section 148 of the i.t act, it was held that the C.I.T was justified in holding that the returns were filed in pursuance to notice under section 148 of the i.t act. Accordingly, it was held that returns which were filed pursuant to the notice under section 148 of the i.t act would not qualify for relief under section 273A of the I.T Act. The issue as to whether the disclosure made voluntarily even in belated returns could be considered for the purpose of section 273A of the I.T Act, was neither raised nor considered in that case. In the present case, the issue required to be considered is whether the disclosure made by the assessee voluntarily in the belated returns could be considered for the purpose of section 273A of the I.T Act. The Apex Court in the case of Jaswant Rai (supra) has held that the disclosure could be made by filing a return or by submitting a petition to the Commissioner. Thus, what is relevant for section 273A is the full and true disclosure made voluntarily and in good faith and if such a disclosure is made through the belated returns it does not cease to be a voluntary disclosure. If the disclosure made in the belated returns are voluntary and in good faith and are accepted, then the application for waiver under section 273A of the I.T Act cannot be rejected on the ground that there is no voluntary disclosure. The contention of the Revenue in its affidavit in reply that the belated return is a non est return and the non est return cannot be said to be filed voluntarily is without any merit, because, firstly, that was not the ground on which the impugned order has been passed and it is settled law that the validity of an order is to be tested on the basis of the reasons contained in the order and not on the basis of the reasons set out in the affidavit in reply and secondly, under section 273A of the I.T Act, for waiver of penalty and interest what is relevant is the full and true disclosure made voluntarily in good faith, whether by way of belated returns or otherwise.

11. In this view of the matter, we quash and set aside the order of the Commissioner of Income Tax passed under section 273A of the I.T Act on 25th March, 1994 and remand the matter back to the Commissioner of Income-Tax to decide the application regarding reduction or waiver of penalty and interest on merits on the footing that all the pre-conditions for grant or waiver of penalty and interest contemplated under section 273A of the I.T Act are complied with by the assessee.

12. Petition is allowed in above terms. Rule is made absolute in terms of prayer clause (a). However in the facts and circumstances of the case, there shall be no order as to costs.

Petition allowed.

Anand B. Apte v. Commissioner Of Income Tax, Kolhapur .

Structured Summary of the Opinion (J.P. Devadhar, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments (counsel: Mr. S.N. Inamdar)

Respondents' Arguments (counsel: Mr. R.V. Desai)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Anand B. Apte v. Commissioner Of Income Tax, Kolhapur .

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