1978 (4) TMI 65 - HC - Income Tax

Court quashes penalty, directs fresh decision. Commissioner's flawed ruling overturned.

The court allowed the writ petition, quashing the Commissioner's orders rejecting the petitioner's application for waiver of penalties and interest. The ... Power to reduce or waive the amount of penalty imposable - waiver of interest payable or paid - meaning of 'imposable' in waiver provisions - voluntary and in good faith disclosure - obligation to consider all prayers in an application for waiverPower to reduce or waive the amount of penalty imposable - meaning of 'imposable' in waiver provisions - Scope of the Commissioner's power under section 273A to reduce or waive penalties even where the penalty has not yet been imposed - HELD THAT: - The court held that section 273A authorises the Commissioner to 'reduce or waive the amount of penalty imposed or imposable', and the word 'imposable' plainly covers penalties which have become liable though not yet formally imposed by an assessing officer. The power is therefore not confined to cases where a penalty has already been levied; it extends to cases where liability to penalty exists and the penalty may be imposed in future. Construing 'imposable' to mean only penalties already levied is untenable and restricts the statutory scheme which is intended to encourage voluntary disclosure by permitting waiver of penalties and interest even before formal imposition.The Commissioner's construction limiting his power to cases where penalty has already been imposed is rejected; the Commissioner may waive or reduce penalties that are imposable though not yet levied.Obligation to consider all prayers in an application for waiver - power to reduce or waive the amount of penalty imposable - Whether the Commissioner dealt with the petitioner's prayer for waiver of penalty when rejecting the application - HELD THAT: - The court found that the impugned order addressed only the question of waiver of interest and did not deal with the petitioner's specific prayer for waiver of penalties under the relevant clauses. Because section 273A empowers the Commissioner to deal with both penalty and interest, the Commissioner's failure to consider the penalty prayer amounted to nonconsideration of a material part of the application. An order which rejects an application without adjudicating a clearly articulated prayer is liable to be quashed.Impugned order is quashed insofar as the Commissioner did not consider the petitioner's prayer for waiver of penalty; the matter must be decided afresh.Voluntary and in good faith disclosure - waiver of interest payable or paid - Whether the petitioner's disclosure was voluntary and in good faith so as to attract relief under section 273A(1)(iii) in respect of interest - HELD THAT: - On the material before the court the disclosure application was filed on 24 April 1974 and reassessment notices under section 148 were issued only after that disclosure; the petitioner subsequently filed returns consistent with the disclosure. The Commissioner gave no finding that the disclosure was made under compulsion or after detection. The court held that for clause (iii) what is required is that the assessee, prior to detection by the assessing officer, voluntarily and in good faith make full and true disclosure and pay tax on the disclosed income. The Commissioner's conclusions that the disclosure was not voluntary or not in good faith were not supported by findings; moreover, past dishonest conduct is immaterial to the existence of good faith in the disclosure itself. Accordingly the Commissioner's rejection on these grounds was not tenable.The finding that the disclosure was not voluntary or not in good faith is set aside; the Commissioner must reexamine the application respecting waiver of interest in accordance with law.Final Conclusion: The orders of the Commissioner dated 4 September 1975 and 17 September 1976 are quashed. The Commissioner is directed to decide the petitioner's application afresh, considering both the prayer for waiver of penalty and for waiver of interest in accordance with the statutory tests in section 273A and the observations above. The petitioner is awarded costs. Issues involved: Petition under article 226 for quashing orders of Commissioner of Income-tax dated 17th September, 1976 and 4th September, 1975.Assessment Years 1969-1974:The petitioner, a partnership concern, filed a disclosure petition on April 24, 1974, disclosing an amount to be assessed over 5 years. The Commissioner rejected the application for waiver of penalties on the grounds that it was filed after detection by the department. Subsequent applications were made for waiver of penalties and interest. The Commissioner rejected the application on September 17, 1976, leading to the filing of a writ petition.Section 273A - Power to Reduce or Waive Penalty:Section 273A allows the Commissioner to reduce or waive penalties and interest. The Commissioner's power is not limited to cases where penalties have already been imposed but extends to cases where liability has been incurred. The Commissioner's rejection of the petitioner's application based on the timing of the penalty imposition was deemed untenable.Waiver of Interest and Good Faith Disclosure:The Commissioner questioned whether waiver could be allowed when assessment followed a notice under section 148 and if the disclosure was made in good faith. The petitioner's disclosure was voluntary, made before reassessment notices were issued, and in conformity with the returns subsequently filed. The Commissioner erred in finding the disclosure not made in good faith, as the petitioner acted honestly in making the disclosure to avail the benefits under section 273A(1)(iii).Conclusion:The Commissioner's rejection of the application lacked consideration of all relevant facts. The writ petition was allowed, quashing the Commissioner's orders and directing a fresh decision on the petitioner's application in accordance with law. The petitioner was awarded costs.