TMI Blog2001 (8) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... ijayawada, on December 29, 1986. The background facts leading to the filing of these writ petitions be noted briefly as under: The petitioners in these two writ petitions are partners of the firm, Durga Lorry Transporters. The said firm was engaged in the transportation of cement manufactured by ACC Limited, Vijayawada. On December 21, 1986, a search was conducted under section 132 of the Act in the business premises of ACC Limited, Vijayawada and several other premises connected with it. The information gathered in the course of the said search revealed that the sale prices of cement had been collected through bank drafts by some of the employees of ACC Limited. The information so gathered from 36 banks revealed that the demand drafts were also obtained in the name of the firm, Durga Lorry Transport, of which the petitioners are the partners. As matters stood thus, on March 30, 1988, the petitioners came forward to disclose the value of the demand drafts as their undisclosed income. The petitioner made a disclosure of a sum of Rs. 57,00,000 which was subsequently revised to Rs. 60,00,000 as suggested by the Income-tax Department authorities. Accordingly, the petitioners filed r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jayawada. The premises of the said company was searched on December 21, 1986. The premises of the persons connected with the company were also searched. During the course of investigation regarding the collection of cement price through demand drafts under the names of several persons including that of Durga Lorry Transport, the assessee, Sri K. S. N. Murthy, and Sri K. Appa Rao, another partner of Durga Lorry Transport, came forward to disclose the value of some demand drafts as their income. The aggregate disclosure was Rs. 60 lakhs. Assessments were completed based on the disclosures in the case of the assessee and Sri K. Appa Rao. These assessments related to the assessment years 1982-83, 1983-84, 1984-85, 1985-86 and 1986-87 in the case of the assessee. In the case of Shri K. Appa Rao assessments were completed in respect of the assessment years 1982-83, 1983-84 and 1984-85. Penalties under section 271(1)(a) were levied as a consequence of the assessments. 2. The assessee approached the CBDT for waiver of penalties levied in the aforementioned circumstances. On a consideration of the facts and circumstances of the case, the petition under section 273A was rejected by the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the returns by the petitioners on March 30, 1988, cannot be said to be voluntary. Learned standing counsel would maintain that the judgment of this court (see [1992] 194 ITR 355) and that of the Calcutta High Court (see [1995] 211 ITR 562) can be distinguished on the facts and they are not helpful to the petitioners herein. Learned counsel would further contend and conclude that no grounds are made out to interfere with the discretionary order made by the Commissioner and the court is not entitled to usurp the power of the Commissioner under section 273A and it cannot substitute its own opinion in place of the opinion formed by the Commissioner in his discretion. After hearing learned counsel for the parties, the only question that arises for consideration is whether the disclosure of income made by the petitioners on March 30, 1988, can be said to be voluntary disclosure made in good faith and whether the disclosure so made is full and true disclosure? Before dealing with this question, it is necessary to notice the provisions of section 273A of the Act which confer power on the Commissioner to reduce or waive penalty or interest in certain circumstances. Under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry provisions of appeals and reference provided under the Act. There is no doubt that the power given to the Commissioner under section 273A is discretionary. As pointed out by the Supreme Court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696, this is quite clear from the use of the expression "in his discretion". A perusal of section 273A shows that the Commissioner is given the discretion when the requisite conditions envisaged by section 273A are satisfied that he may waive or reduce the penalty or interest imposable under the given sections of the Act. However, the exercise of discretion cannot be either arbitrary or capricious and has to be judicious and objective, once the conditions required for exercise of discretion in any judicial or quasi-judicial proceedings are satisfied. In other words, such discretion must be exercised judiciously by taking into consideration all relevant facts and not arbitrarily or capriciously and the Commissioner's satisfaction can be tested by the courts under article 226 of the Constitution, because the satisfaction for exercise of discretionary power under this section must be based on objective considerations and not on subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption of the scope of its power under the statute, mandamus can issue directing such authority to re-hear and determine the matter afresh according to law. In taking this opinion, we are fortified by the judgments in Laxman v. CIT [1988] 174 ITR 465 (Bom); Seetha Mahalakshmi Rice and Groundnut Oil Mills Contractors Co. v. CIT [1981] 127 ITR 5 79 (AP); Mool Chand Mahesh Chand v. CIT [1978] 115 ITR 1 (All) ; Patel Engg. Co. Ltd. v. C. B. Rathi [1985] 151 ITR 542 (Guj), Rohitkumar and Co. v. F. J. Bahadur, CIT [1991] 190 ITR 93 (Bom); Julius v. Lord Bishop of Oxford [1880) 5 AC 214 (HL) ; Madhuhar Manilal Modi v. CWT [1978] 113 ITR 318 (Guj), Sannaiah v. CIT [1974] 95 ITR 435 (Mys) ; Paras Bhan Sadh v. CIT [1978] 114 ITR 834 (All) and Jaswant Rai v. CBDT (1998] 231 ITR 745 (SC). In the case of Jaswant Rai v. CBDT [1998] 231 ITR 745, the Supreme Court has opined that the power under section 273A is coupled with a duty to do justice and the Commissioner is under statutory obligation to exercise the power in favour of an assessee who has fulfilled all the conditions of the section. The Supreme Court in Apex Finance and Leasing Ltd. v. CIT [1994] 207 ITR 781 has laid down that the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without coercion, compulsion or constraint. Coercion may in turn be direct or positive as in cases where physical force is used to compel an act against one's will or it may be implied. That would not, however, mean that a mere legal obligation to do something should constitute a constraint of the kind which would render any such action involuntary. In K. L. Swamy v. CIT [1999] 239 ITR 386, the Karnataka High Court has opined that the circumstances, conditions or constraints that make a disclosure under the Act "involuntary" must be constraints other than obligations that arise under the Act, requiring the assessee to take a particular action. A Full Bench of the Allahabad High Court in Bhairav Lal Verma v. Union of India [1998] 230 ITR 855, was called upon to pronounce its opinion on the question whether a disclosure made subsequent to search and seizure was necessarily a non-voluntary disclosure? After surveying the case law available on the subject, the Full Bench opined thus: "The word 'voluntarily' in section 273A of the Act means out of free will without any compulsion. Disclosure of concealed income after the Department has seized the incriminating material with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the returns filed under the Scheme, the petitioner therein preferred appeals to the Deputy Commissioner of Income-tax (Appeals), Vijayawada. By order dated November 29, 1989, the Appellate Deputy Commissioner allowed the appeals and directed cancellation of penalties. The petitioner while pursuing the remedy by way of appeals in relation to levy of penalties, made an application before the Commissioner for waiver of interest under section 273A of the Act. The said application was dismissed by the Commissioner holding: "I find that the income disclosed by the assessee in the returns filed on July 23, 1986, is not true and full. In all the years under review, the Income-tax Officer has levied penalties under section 271(1)(c) and according to the provisions of section 273A(1), in cases where proceedings under section 271(1)(c) are initiated, the income disclosed by such assessee cannot be considered as a true and full disclosure. Moreover, in the instant case, the assessee has filed the revised returns of income on July 23, 1986, after survey operations had been conducted under section 133A on July 9, 1986. It may be also stated here that the disclosure made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a confidential one and it cannot be presumed that the petitioner became aware of the said report. In a case where a return was filed by an assessee after he was apprised of any adverse material leading to a real apprehension of penal action against him, his return could not be construed to be voluntary within the meaning of section 273A(1). But that is not the fact-situation here. Survey operations followed by enquiries which have not even progressed to the extent of the assessee being apprised of the alleged adverse material collected against him could not be construed as relevant factors for rejecting the returns filed by such an assessee as not voluntary if they contained 'full and true disclosure of his income.' The second ground on which the impugned order is based, viz., that it was out of fear because of survey operations, that the petitioner made the disclosure, slides into the first ground to a very large extent, the exclusionary part being fear as the motive prompting the assessee to file the return. We think, this ground is totally irrelevant. There is no basis for presuming that free will or a sense of commitment to the well being of the State always propels the citiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r from a wrong perspective. He felt that the returns were filed after the survey operations were completed and that is what is discernible from the words, 'after conducting survey operations under section 133A on July, 9, 1986, the revised returns were filed.' The extent of the progress made in the survey operations we have already referred to supra, after going through the record placed before us. Without considering the effect of the survey operations on the conduct of the assessee, the Commissioner reached the conclusion that the returns filed were not voluntary and this conclusion is clearly impermissible in law. The discretion conferred upon the Commissioner under section 273A also compels him to take into account relevant factors and eschew irrelevant factors from consideration. The aspect of fear that is alleged to have prompted the assessee in filing the revised returns which was made out as a ground for not exercising discretion under section 273A is in our view an irrelevant factor in the context of the failure of the Commissioner in not giving reasons indicating the genuine link between the fear and the probability of exposure to penal action." In that view of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, as well as at the business premises of five different firms namely "Jaree and Saree Stores", "Saraf Saree Centre", "Annapurna Textiles", "Sanwalram Raj Kumar", and " Gouri Shankar Saraf" at 212, Mahatma Gandhi Road, as well as at Ramkumar Rakshit Lane, Calcutta. In the course of the said search, certain jewellery and ornaments and a sum of Rs.2,600 in cash were found in the bedroom of the appellant-writ petitioner. None of these items were seized by the income-tax authorities. On the same date, namely, March 7, 1986, the business premises of the partnership firm, Annapurna Textiles, Surat, of which the appellant writ petitioner was a partner in his capacity as karta of a Hindu undivided family was sealed by the income-tax authorities. Subsequently, on March 26, 1986, the seals on the said business premises of the said Annapurna Textiles, Surat, were removed and the searching officials came across certain cheque books and pay-in-slips in respect of the two bank accounts, namely, Current Account No. 253 with the State Bank of India in the name of Rachna Textiles and the Current Account No. 1469 with the Oriental Bank of Commerce in the name of A. K. Textiles. These two were the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, it cannot be said that the tax authorities had detected concealment merely by having seized certain books and papers a few days before the furnishing of revised returns by the assessee. In order to show that a concealment had already been detected, it was obligatory on the tax authorities to look into the seized books and documents, verify the entries therein with the income already disclosed by the assessee in his original returns and thereafter if the tax authorities had found that certain income, although found to be reflected in the seized books and records, had not been disclosed by the assessee in the original returns, it could have been said that the concealment had already been detected by the Department prior to the furnishing of revised returns. This is not the case here." As could be seen from the provisions of section 273A of the Act, the Commissioner has the discretion to reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 of the Act or penalty imposed or imposable under section 273 of the Act provided the assessee has made voluntarily and in good faith the true disclosure of his income. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expression. In deciding the question of "good faith", what comes into consideration is the intention of honesty and the absence of bad faith or mala fides. As such, what is necessary is that the assessee should have acted honestly in making the disclosure. In other words, he should not have been guilty of having acted dishonestly in making the disclosure. This court in K. Ramulu and Bros. v. CIT [1990] 185 ITR 517 and Jakhodia Bros. v. CIT [1978] 115 ITR 61 (All) has opined that the fact that before making the disclosure, the conduct of the assessees had been dishonest or that he did not act in good faith is irrelevant for the purposes of applying these provisions of section 273A. It is relevant to notice that the disclosure is made by an assessee under section 273A for the purpose of getting the benefits provided therein. Therefore, the fact that in the past, the assessee did not make a full and true disclosure of his income and concealed the same is immaterial. In the premise of these well settled principles governing the concept of "good faith and bad faith", the opinion of the Commissioner that the disclosure made by the assessees is not in good faith cannot be sustained. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be at least a plausible one and the public should not be deprived of this only safeguard. Looking from that angle also, the non-disclosure of reasons in support of the finding recorded by the Commissioner that the disclosure of the income by the assessees was not in good faith cannot be sustained in law. Coming to the facts of this case, the Commissioner except stating that the disclosure was made subsequent to the search carried out in the premises of ACC Limited, Vijayawada, on December 21, 1996, has not referred to or considered or disclosed any material resting with him on the basis of which he could reasonably infer that, in all probability, but for the filing of the voluntary return, the assessee would have been subjected to penal action or adverse exposure. It is not the case of Income-tax Department that the disclosure made by the petitioners is not full or true. What has been stated by the Commissioner in paragraph 3 of the impugned order to reject the applications of the petitioners is an obvious fact. There is no controversy between the parties that admittedly the disclosures were made by the petitioners only on March 30, 1988, that is to say, after the search was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the order has been passed without applying his mind to the relevant provisions of the statute and the facts or where the application has been rejected on untenable grounds or where the Commissioner refused to exercise discretion on irrelevant considerations, it can only, in the first instance, quash the order made by the Commissioner and it cannot substitute its own opinion in place of the opinion formed by the Commissioner. It is for the Commissioner to decide on the facts and circumstances of a particular case whether waiver in entirety or reduction alone is warranted. In that view of the matter, we think it appropriate that the Commissioner should reconsider the applications of the petitioners afresh after taking into account the relevant factors germane to the decision-making. In the result and for the foregoing reasons, we allow the writ petitions and quash the impugned order No. 21/W. Ptn. 273A/93-94-CIT(C) dated August 10, 1993, passed by the second respondent. The proceedings shall stand remitted to the second respondent-Commissioner with a direction to reconsider the applications of the petitioners de novo in the light of this judgment and the judgment of this court i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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