http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

PETITIONER: JASWANT RAI AND ANOTHER

       Vs.

RESPONDENT: CENTRAL BOARD OF DIRECT TAXES AND REVENUE AND OTHERS

DATE OF JUDGMENT:       04/05/1998

BENCH: SUJATA V. MANOHAR, S. RAJENDRA BABU

ACT:

HEADNOTE:

JUDGMENT:                      J U D G M E N T S Rajendra Babu, J.      The appellants  before us  preferred  a  writ  petition under Article  226 of  the constitution  of India before the High Court  of Delhi  seeking for  a direction to extend the benefit of  waiver of penalty arising under Section 271 (4A) of the  Income Tax Act. 1960(hereinafter referred to as "the Act"). Pursuant to a scheme, the second appellant, Firm made an application  on February 12, 1965 stating that they would place before  the Income  Tax Officer  a true  statement  of their financial  assets, transactions and they were prepared to file a statement of the affairs as on march 31, 1965. The statement of  affairs filed  on 20th  May. 1965 disclosed an income of  about Rs.  28,000/- as the total accretion to its wealth over  the eight years upto March 31. 1965. ultimately after some negotiations between the Department officials and the appellants,  the appellants agreed to be assessed at Rs. 66,56,000/- subject  to the usual allowance for depreciation etc. spread  over eight  assessment years 1958-59 to 1959-60 were to  be reopened  inasmuch as they were complete by that time. The  Inspecting Assistant  Commissioner issued notices to the  appellants to initiate proceedings under Section 271 (1)(c) of  the Act  for the  non disclosure  of  the  income relating to  the aforesaid period. A penalty in a sum of Rs. 4,90,365/- was imposed on the appellants for the years 1958- 59 to  1964-65. Appeal  preferred against  the said order to the Income Tax Appellate Tribunal met with failure.      During the  pendency  of  the  penalty  proceedings  an application was  filed under section 271 (4A) of the Act and the Commissioner  of Income  Tax sent  a report  on the said application on  23.3.1968 setting forth the circumstances to reduce the  penalty  against  the  appellants  in  terms  of provisions of  Section 271(4A)  of the Act. The Commissioner noticed that  the said provision had envisaged disclosure of income made  (f) voluntarily; (ii) in good faith; (iii) such disclosure being  full and  true; and  (iv) is made prior to the detection  by the  I.T.O. of the concealment in question and held  that these  circumstances  to  attract  waiver  or reduction under Section 271(4a) stood satisfied. He referred to various  items  such  as  Hundi  loans  and  the  amounts

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

surrendered, accretion  to wealth  between different  dates. However a  communication was  sent by  the Secretary  of the Central Board  of Direct  Taxes on 28th march. 1968 refusing to reduce  the penalty.  Again another  letter was  sent  on April 18,1969  by the  Commissioner  pursuant  to  a  letter received by  him on 14th April, 1969 making a further report on the  matter, he set out the various details thereto as to how  the   matter  had   been  dealt  with  by  the  various authorities and  the manner in which the appellants would be entitled to  the benefit  under the  provisions referred  to earlier. The  Central Board  of Direct  Taxes has to approve any action of the Commissioner to waive or reduce penalty in cases when the same is above Rs.50,000/-. Hence in this case reference was  made by the Commissioner of Income Tax to the Board for  approval of  his action to reduce the penalty but the Board  refused to reduce the penalty as suggested by the former.      Writ petition  was preferred  before the High Court. In the High Court two contentions were out forth; firstly, that the  imposition   of  the  penalty  on  the  appellants  was premature inasmuch  as the  application  of  the  appellants filed under  Section 271(4A)  of the  Act for  waiver of the penalty was  still  pending  disposal;  secondly,  that  the condition precedent  for the  satisfaction of the Income Tax officer that  the assessee  had concealed his income had not been satisfied in view of the voluntary disclosure made. The High Court  found no  substance in either of the contentions and dismissed  the writ  petition. The  High Court  took the view that  the levy  of penalty under section 271 (1) (c) of the Act  was not  in any  way dependent on the provisions of section 271(4A)  of the  Act and  the question  of reduction would arise  only when the penalty is imposed. Therefore, it was of  the view  that the  penalty could  be imposed  under Section 271(1) (C) of the Act when an assessee has concealed particulars of income of furnished inaccurate particulars of such income.  The assessee in the present case had concealed the  income,   but  later  on  disclosed  the  same  in  the statements of  returns which  had been  filed prior  to  the introduction to  the voluntary  disclosure scheme  and  that circumstance would not make any difference so far as levy of penalty is concerned and dismissed the writ petition. Hence, these appeals by special leave.      Shri  Dipankar   P.  Gupta,   learned  Senior   counsel submitted  that  Section  271(1)  of  the  Act  enables  the assessing officer  to impose penalty in three different sets of circumstances  and in  the present case, we are concerned with the  exercise of  power under  clause (c) thereof which states that  the assessee  has concealed  the particulars of his income  or  furnished  inaccurate  particulars  of  such income.  provisions   of   Section   271(4A)   enables   the Commissioner in his discretion to reduce or waive the amount of minimum  penalty impossible under the provisions in cases falling under Clause (c) of sub-section (1) also. Therefore, he submitted  that merely  because a  case  of  an  assessee attracted penalty  under section 271(1) (c) of the Act would not take  away the discretion of the Commissioner if certain conditions are  satisfied  to  which  the  Commissioner  had already adverted  to in  the Report made by him to the board in seeking  the previous approval for waiver or reduction of the  penalty.   The  Board  in  the  present  case  had  not considered the  matter in  the manner required under law. He submitted that the Board had indicated that the proposal for reducing or  waiving the  penalty was not approved as in the facts and  circumstances of  the case section 271(4A) of the Act was  not applicable.  He submitted  that it is not clear

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

form  the   communication  sent   by  the   Board    to  the Commissioner as  to now  Section 271(4A)  of the Act was not attracted to the facts of the case.      It will be necessary to explain the background in which the  penalty   under  Section  271(1)(c)  vis-a-vis  section 271(4A) of  the Act  was levied  and those circumstances are ascertainable  from   the  order  made  by  the  Income  Tax Appellate Tribunal to which we may advert to in some detail. It  was   contended  that   the  Tribunal  could  take  into consideration Section  271(4A) of  the Act  in determing the penalty arising  under Section  271(1)(c)   of the  Act. The Tribunal noticed  that in view of the fact that such a power could be  exercised only  by the Commissioner and not by the Tribunal and  the order  made by the Commissioner and not by the Tribunal  and the order made by the Commissioner thereto being final,  they could  not examine the said contention. A contention was  raised before  the Tribunal  as to whether a penalty as  provided under  Section 271(1)(c) of the Act was attracted  at   all  or   not  on  the  basis  that  in  the circumstances  of   the  case   there  was   no   deliberate concealment  of   income   or   furnished   any   inaccurate particulars of its income and, therefore, the Department had not discharged  its burden.  The Tribunal  proceeded to hold that the  Inspecting Assistant  Commissioner had  based  his findings of  concealment on  the sole consideration that the assessee had itself returned and assessed the higher figures of income than those admitted in its returns originally. The Tribunal noticed  that the argument addressed by the learned counsel for  the appellants that in such a case there was no concealment  of  income  was  very  plausible,  but  in  the circumstances of  the case  the concealment or furnishing of inaccurate particulars by the assessee had been established. The Tribunal  also noticed  that the  evidence led  and  the conclusions  arrived   at  in   the  course   of  assessment proceedings are  not conclusive  of the penalty proceedings. later an  it may  come to  light that  an item of income had been assessed  wrongly or  that  the  assessee  is  able  to furnish additional  or  new  material,  it  may  change  the factual position  of the  case. After  noticing the  returns filed by  the assessee  and setting  out a  table as  to the assessment years,  the date  of filing of the return and the income returned  stated that  the picture  that emerges  was that the  assessee had on the whole incurred a loss of about Rs.10 lakhs,  that is  the capital with which he had started on 1.4.1957.  The assessee on 12.2.1965 filed declaration as to the correct position which may be seen from the statement of financial  affairs as  on 31.3.1965. This declaration had been made  by the  assessee before  the  provisions  of  the Finance Bill 1965  regarding voluntary disclosure scheme was introduced and  it was  also true  that the  assessee  acted voluntarily in coming forward with this declaration and that in the  return for  its cooperative  attitude  the  assessee expected to  be let  off lightly  in regard  to the  penalty proceedings and  also in  regard  to  payment  of  tax.  The voluntary nature of the declaration was all the more sincere and was  beyond doubt since the statement of affairs sent by the assessee  with  its  letter  dated  20th  of  May.  1965 represented really  the income earned by the assesses during the aforesaid  period. It  was also  noticed by the Tribunal that there was a confession made by the assessee voluntarily and earnestly  that it  had not  returned  the  full  income earned by  it in  those years  and had  come forward  with a disclosure of  its escaped  income. The disclosure might not have revealed  the full  extent of assessee’s concealment as the assessee  was also  disclosing  its  activities  over  a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

period of  time and  expecting that the escaped income would be distributed  over a  period of  ten years  and  would  be avoiding penal  actions and  possibilities of investigations and searches  with a  further expectation of some concession in regard  to payment  of tax.  The Tribunal  concluded that after scrutinising the circumstances in which the disclosure was made, it is impossible to believe that at that stage the assessee had any motives to disclose what was not its income really and hence penalty under Section Section 271(1) (c) of the Act  was attracted.  if we  bear this aspect in mind, we cannot say  that the  appellant had not disclosed its income at all before scrutiny by assessing officer.      A reading  of the provisions of Section 271 (4A) (after deletion of the said provisions by Taxation Laws (Amendment) Act, 1975  with effect  from 1.10.1975  such  power  is  now conferred upon  the Commissioner  under Section  273A of the Act) will indicate that it is a power coupled with a duty to do  justice   and  the   commissioner  is   under  statutory obligation to  exercise the  power in  favour of an assessee which has fulfilled all the conditions of the provisions. In deciding such  a matter, therefore, cannot take into account factors or  reasons which  are invalid  or extraneous to the said provisions. The principle condition for grant of relief under the  said provision  is that  the assessee should have voluntarily and  in good  faith made  full disclosure of his income  prior   to  the  detection  of  the  same  and  such disclosure could  be made  even otherwise than in the course of a return by submitting a petition to the Commissioner. In the present  case, we have already noticed that the assessee had made  the disclosure  prior to  the coming into force of the  voluntary   disclosure  scheme   and  long  before  the Department could  initiate any  action  in  respect  of  the canceled income.  The levy  of penalty  under Section 271(1) (c) by  itself will not be a circumstance to take him out of the purview of Section 271(4A) of the Act.      However,  the   learned  counsel   for  the  Department submitted that in the present case the records disclose that the concealed  income had  not been disclosed voluntarily or in good  faith prior to the initiation of the proceedings by the  Department.   If  this   contention  is  examined  with reference to  the findings recorded by the Tribunal to which we have  made detailed  reference, it becomes clear that the same cannot  be accepted  without further  scrutiny  of  the matter. Whether  such scrutiny had been made by the Board in this case  is not  clear from  the endorsement issued to the Commissioner of  Income Tax.  The Commissioner of Income Tax has explained  each one  of the circumstances arising in the case whether  there has been concealment by the assessee and its disclosure,  the extent  to which they were voluntary or the same had been made prior to the detection of the same by the Department. Therefore, it does not appear that the Board had duly  applied its  mind or  made an  order revealing its mind by making a speaking order.      In the  circumstances, we  have no  hesitation to quash the order  made by the Board and direct the Board to restore the proceedings  to its  file and  examine the  matter  once again in  the light  of what  we have  stated above.  In the result, the  order made  by the  High Court  which is  under appeal before us shall stand modified in terms stated above. The appeals are allowed. No costs.