Dr. Mrs. Sudha Kankariya vs Commissioner Of Income Tax And ...
2004 Latest Caselaw 74 Bom

JUDGMENT

J.P. Devadhar, J.

1. The challenge in this petition is to the order passed by the CIT, Nasik, declining waiver of interest and penalties levied on the assessee under Section 273A of the IT Act, 1961.

2. The petitioner (hereinafter referred to as 'the assessee') and her husband are doctors practising as Ophthalmologists at Ahmednagar. It is the case of the assessee that the assessee and her husband had kept certain deposits in Andhra Bank at Ahmednagar. On being advised by their consultant that the said deposits should be disclosed in their assessment, the assessee and her husband transferred the said amount on 31st Jan., 1990, to their regular account with intention to disclose the same in the respective assessment years. The assessment year relevant for the purpose herein is asst. yr.

1988-89.

3. It is the case of the assessee that on 22nd Feb., 1990, the assessee's husband approached the ITO at Ahmednagar of his own free will and had made a voluntary disclosure before the AO (3rd respondent) and offered for taxation the amounts which were deposited by him and the assessee in the Andhra Bank. The AO served a formal summons under Section 131 of the IT Acton the assessee's husband across the table and recorded his statement. In the statement, the intention to offer the said amounts for taxation by the assessee for asst. yrs. 1988-89 and 1987-88 was recorded. Accordingly, revised return from asst. yr. 1988-89 was filed by the assessee.

4. Thereafter, on 4th May, 1990, a detailed affidavit was filed by the assessee before the CIT of setting out the events leading to the voluntary surrendering, of deposits on 22nd Feb., 1990. In the assessment proceedings relating asst. yr. 1988-89, both the assessee and the AO sought instructions from the Dy. CIT under Section 144A of the IT Act. The Dy. CIT in his directions dt. 19th March, 1991, took note of the fact that the AO did not know of the existence of the deposits in question until the assessee's husband met him in person on 22nd Feb., 1990, and considering that the assessee had approached the CIT, granted some relief regarding the quantum of the amount and directed finalisation of the penalty proceedings by taking into account the evidence on both sides meticulously.

5. Thereafter, the AO completed the assessment for asst. yr. 1988-89 on 25th March, 1991, on the lines of the assessee's disclosure and sought to levy interest under Sections 139(8), 215 and 217 of the IT Act and also levied penalty under Section 271 (1)(a) and 271 (1)(c) and 273 of the IT Act.

6. The petitioner thereupon approached the CIT, Nasik, with a formal application under Section 273A of the IT Act seeking waiver of the aforesaid penalties and interest. It was stated that the assessee had fulfilled all the conditions set out under Section 273A of the IT Act and since the amounts were disclosed voluntarily, the interest and penalty levied be waived. By the impugned order dt. 17th Jan., 1994, the CIT following his decision in the assessee's husband's case declined to consider the application of the petitioner/ under Section 273A of the IT Act, inter alia on the ground that the conditions set out under Section 273A of the IT Act were not fulfilled. Challenging the said order, the present petition is filed.

7. Mr. Inamdar learned counsel appearing on behalf of the petitioner submitted that CIT was in error in holding that there was no voluntary disclosure on the ground that the revised return was filed by the assessee after the commencement of enquiries by the AO. Relying upon the decision of this Court in the case of Laxman v. CIT (1988) 174 ITR 465 (Bom) and the decision of the Gujarat High Court in the case of Madhukar Manilal Modi v. CWT and Anr. , Mr. Inamdar submitted that merely because the AO had initiated enquiries before the voluntary disclosure does not render the disclosure non-voluntary. Mr. Inamdar relied on the Full Bench decision of Allahabad High Court in the case of Bhairav Lal Verma v. Union of India and submitted that if there was no incriminating material with the Department before the disclosure, then the disclosure must be said to be voluntary. It was submitted that in the present case, there was no incriminating material of any nature whatsoever in possession of the AO and it is only on account of voluntary disclosure made by the assessee through her husband on 22nd Feb., 1990, additions were made in the relevant assessment year. It was submitted that even the summons under Section 131 of the IT Act was served upon the husband of the assessee across the table when husband of the assessee had visited the office of the IT Department for the purpose of disclosing the aforesaid income. He submitted that since all the conditions set out under Section 273A of the IT Act were fulfilled, the CIT ought to have exercised its discretion to reduce or waive the penalty and interest levied upon the petitioner.

8. Mr. Jetly, learned counsel appearing on behalf of respondents, on the other hand supported the order of the CIT passed under Section 273A of the IT Act. He submitted that the AO vide letter dt. 26th Feb., 1990, had intimated the assessee regarding his intention to make additions and only thereafter, the revised returns came to be filed by the assessee on 19th March, 1990. Accordingly, Mr. Jetly submitted that the AO had already initiated investigation and only after service of the notice, revised returns came to be filed and, therefore, the disclosures made by the assessee cannot be said to be voluntary disclosure within the meaning of Section 273A of the IT Act. Accordingly, it was submitted that the CIT was justified in rejecting the claim of the assessee.

9. We have heard the counsel on both sides. It is well established in law that the conditions precedent required to be fulfilled before exercise of powers to reduce or waive penalty or interest by the CIT under Section 273A of the IT Act, as it stood then, are :--

(a) There must be voluntary disclosure of income before issue of notice under Section 139(2);

(b) Assessee must have made full and true disclosure of income in good faith prior to the detection by the AO:

(c) Assessee must have co-operated in the conduct of the assessment proceedings; and

(d) Assessee must have paid or made satisfactory arrangement for payment of tax or interest payable in consequence of an order passed under the Act with respect to the relevant assessment year.

In the present case, the CIT has declined to exercise powers under Section 273A of the IT Act only on the ground that there is no voluntarily disclosure. Thus, there is no dispute that the assessee has complied with all other conditions set out under Section 273A of the IT Act, save and except the conditions regarding voluntarily disclosure. According to the Revenue, the disclosure made by the assessee cannot be said to be voluntary, because, the AO had already initiated investigation and by a letter dt. 26th Feb., 1990, the AO had intimated the assessee regarding additions to be made in the relevant assessment year. Although the revised return for asst yr. 1988-89 was filed by the assessee on 19th March, 1990, after the receipt of letter dt. 26th Feb., 1990, it is not in dispute that on 22nd Feb., 1990, the husband of assessee had visited the Income-tax Department and voluntarily disclosed the amount which was deposited in Andhra Bank Ltd. It is not in dispute that the visit of the husband of the assessee on 22nd Feb., 1990, was voluntary. Even the summons under Section 131 of the IT Act was served upon the husband of the assessee across the table on 22nd Feb., 1990, and thereafter, statement was recorded. In that statement the fact that the husband of the assessee had voluntarily attended the office with intention to disclose and offer the amount for taxation by the assessee is recorded. Moreover, even the letter dt. 26th Feb., 1990, was not issued by the AO on the basis of any incriminating documents in possession of the AO, but the same was addressed on the basis of the voluntary disclosure made on behalf of the assessee on 22nd Feb., 1990. Under these circumstances, it cannot be said that the disclosure made by the assessee was not voluntary disclosure.

10. Merely because the AO had initiated enquiry regarding the assessee's source of income, it could not be said that the disclosure was to avoid or preempt adverse exposure or penal action. This Court in the case of Laxman (supra) has held that even assuming that the Inspector of income-tax had visited the premises and made enquiries about the assessee's source of funds, it would not lead to the conclusion that such visit and enquiry by itself amounted to compulsion that made assessee to file revised return due to fear of detection. In the present case, there were no incriminating documents in possession of the AO when the disclosure was made on behalf of the assessee. The fact that the AO could have found out the undisclosed income of the assessee and in that event the assessee would have been liable to pay interest and penalty, is no ground to hold that the disclosure was not voluntary. Under Section 273A of the IT Act, apart from other conditions what is required to be seen is whether the voluntary disclosure is prior to the detection by the AO and in the present case that condition is fulfilled by the assessee. Therefore, the CIT was not justified in declining to exercise powers under Section 273A of the IT Act.

11. In this view of the matter, we quash and set aside the order passed by CIT under Section 273A273A of the IT Act dt. 17th Jan., 1994, and remand the matter back to the CIT to decide the application regarding reduction or waiver of penalty and interest on merits on the footing that all the pre-conditions for grant of reduction or waiver of penalty and interest contemplated under Section 273A of the IT 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.