Penalty waiver discretion under income-tax law must consider all relevant circumstances, not rest on an erroneous view of belated filing.

Section 273A(1)(ii) confers a discretion to reduce or waive penalty for belated return filing, and that discretion must be exercised on relevant considerations, including voluntary filing and surrounding circumstances. The Commissioner refused waiver on the erroneous premise that delay in filing alone barred relief, without properly weighing the material placed before him. That narrow approach amounted to an arbitrary exercise of discretion. The refusal was quashed and the matter had to be reconsidered de novo.

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Issues: Whether the Commissioner properly exercised his discretion under section 273A(1)(ii) of the Income-tax Act, 1961 in refusing waiver of penalty for delayed filing of the return.

Analysis: The return had been filed voluntarily without initiation of proceedings under section 139(2) or section 148 of the Income-tax Act, 1961, and the petitioner sought waiver of penalty on the basis of cooperation and surrounding circumstances. The refusal was founded on an erroneous view that penalty could not be waived merely because the return had been filed belatedly. The discretionary power under section 273A(1)(ii) required consideration of all relevant circumstances and a decision on whether the penalty should be reduced or waived, but that exercise was not undertaken.

Conclusion: The refusal to waive penalty was an arbitrary exercise of discretion and was quashed; the matter was required to be reconsidered de novo.

Ratio Decidendi: A statutory discretion to reduce or waive penalty must be exercised on relevant considerations and not on a narrow or erroneous premise; failure to apply mind to the material circumstances vitiates the decision.

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