ORDER
K.S. Viswanathan, Accountant Member
1. We find it convenient to dispose of these 5 appeals by a common order. The issue involved in all these 5 appeals is whether the assessee is liable for penalty for concealment in respect of the asst. years 1972-73 to 1976-77.
2. The assessee is a registered firm having a business in preparation and sale of sweets. The original assessments for these 5 years were completed ruing up the income which was estimated between Rs. 9,000 for 1972-73 to Rs. 16,000 for 1976-77. The assessments had become final at that stage.
3. On 1 -5-1977, the assessee had made a petition to the Commissioner of Income-tax in which they admitted that they have been under-assessed for these 5 years. As a matter of fact, they had much higher income than what was disclosed. In a statement prepared they had shown the following as the correct incomes:-
——————————————————————————–
Asst. year Income assessed Income admitted in
revised return
--------------------------------------------------------------------------------
1972-73 9,000 40,000
1973-74 11,000 50,000
1974-75 12,000 60,000
1975-76 12,000 70,000
1976-77 16,000 75,000
--------------------------------------------------------------------------------
It was also submitted that the partners were also filing revised returns accordingly.
4. The main controversy in this appeal is whether the Commissioner whom the assessee and their auditor had met had agreed to waive or exempt them from the levy of penalties. A clear request for this purpose is there in the letter of 1-5-1977. The last paragraph of that letter reads as follows:-
The partners request the learned Commissioner of Income-tax to complete the assessments on the basis of the revised returns and waive the penalties leviable under various sections of the Income-tax Act both in the firm's and partners' cases.
5. The letter is dated 1-5-1977 and it is admitted that the meeting with the Commissioner was on 2-5-1977. It is clear that the Commissioner had accepted these returns and had directed his office to forward the same to the concerned territorial ITO. The covering letter by which these returns were forwarded is dated 2-5-1977 and it reads as follows:-
ITA Nos. 249 to 253/H/87 – M/s. K. Ramulu & Bros., Rajahmundry heard on 15-11-1988.
H. Qrs. I. 26/Misc/77-78 . O/o CIT A.P. Hyderabad
Dt. 2-5-77
To
The Income-tax Officer,
D-Ward, Rajahmundry.
Sir,
Sub: Income-tax assessment - M/s. Katika Ramulu & Bros., Sweet-meat Merchants - Rajahmundry - Regarding
I am directed to forward the revised returns of income filed by the assesee firm before the CIT today (2-5-77) along with the explanatory note for necessary action at your end.
The details of the incomes shown in the revised returns are as follows:-
Asst. year Total income
Rs.
1972-73 40,000
1973-74 50,000
1974-75 60,000
1975-76 70,000
1976-77 75,000
The above returns are filed by Sri V.M. Sarma, authorised representative of the assessee firm. It has been stated by him that the assessments in respect of the above asst. years were finalised by the Department, on estimated basis fixing the incomes between Rs. 9,000 to Rs. 16,000 per each year. He also made a claim that the revised returns are now filed voluntarily and in good faith making full and true disclosure of the assessee’s income prior to the detection of the concealment of particulars of income by the Department. It was also explained, that the Department has not earlier taken any sort of action or made any move by way of inquiry, etc., to vitiate the voluntary nature of the present disclosure. The ITO is requested to consider the submissions of the assessee, and if found correct, to act immediately upon the revised returns of income submitted and send a report to the Commissioner regarding the facts of the case, action taken and, assessee’s eligibility for waiver of penalties, etc.
Yours faithfully,
Encl: 5 returns & copy Sd/- V. Murahari Rao
of letter ITO (H. Qrs. I) for CIT, A.P.,I.
Copy to the IAC, Vizag. Hyderabad.
6. Nothing was heard of regarding these assessments from the concerned Income-tax Officer. The Commissioner had also not given any order in writing to the assessee promising waiver of penalties. So the assessee seem to have reminded the Commissioner on in a while about the pending matters. On 30-11 -1977, the Income-tax Officer having jurisdiction to assess the assessee has written a letter asking the assessee to produce the books for the asst. years 1971-72 onwards and copies of agreement entered into for purchase of property, extent of agricultural income of the partners and the source for deposits made in the name of two persons. Nothing has happened thereafter and the assessee reminded the Commissioner by his letter dated 28-3-78, 8-6-78,24-9-78, 1-11-78 and 1-1 -79. However, the Income-tax Officer following his information gathered after the letter to the assessee dated 30-11-77 had reported to his immediate superior on 4-1-78. In this letter, he had stated that the assessee had entered into agreement to purchase a house property for a sum of Rs. 3,25,000. This agreement was entered into on 12-2-77. This transaction necessitated the assessee to show resources for the consideration. That is how, they showed an extra income for the 5 years which totalled to Rs. 2,95,000.
7. In the meanwhile, the Commissioner had also looked into the question of the waiver of the penalties. His office had put up a note to him in this matter and paragraph 20 of the note is relevant and it is reproduced below:-
20. It may be pre-mature to give any sort of assurance to the assessee before completion of the asst. proceedings for the reason that the enquiries suggested above may bring into light some more facts which may ultimately lead to establishment of concealment. If no such concealment were to be found ultimately, the assessee may perhaps have a good case, seeking for waiver of the penalties under Section 273A. With regard to the aspect of waiver of interests, the position is slightly different, in that, had the revised incomes were returned in the original returns themselves, the assessee would have been under an obligation to pay advance tax, year after year. Taking this factor into consideration, the assessee may be eligible for reduction of interests, though not for full waiver. Anyway, this is a matter to be decided on the merits of the case, in due course.
8. It would be remembered that the assessee had filed the returns for these 5 years after the original assessment has been completed. So these returns had no standing in the eyes of law. They can be recognised as returns only if a notice under Section 147 is issued. The Income-tax Officer issued that notice on 24-8-77. The assessee wrote a letter on 29-8-77 stating that the returns already filed before the Commissioner may be treated as the returns filed under Section 148. Thereafter, there was a lull and the assessments were passed on 19-3-82. In this assessment order, the revised returns filed before the Commissioner was accepted as correct. No additions were made. However, the Income-tax Officer had directed issue of notice under Section 271(1)(c) for concealment of penalty. The assessee’s case was that the returns were filed voluntarily before the Commissioner and the department has not detected any concealment. The Income-tax Officer was also informed that the Commissioner had been requested for waiver of penalty. The Income-tax Officer did not accept these submissions. He found that there was no direction for waiver of penalty. According to him, there was concealment and levied a penalty based on the tax on the additions made between the original return and the revised return.
9. The assessee appealed. The contention before the Appellate Asstt. Commissioner was the same, i.e., the assessments made on an agreed basis and the additional income shown was only to purchase peace. The Appellate Asstt. Commissioner also found nothing to show that there was an agreement regarding penalties. It would appear that after the Income-tax Officer has passed the order levying the penalties and before the Appellate Asstt. Commissioner took up the appeals, the Commissioner had taken up the question of waiver of penalty. The assessee had, after the assessments were over put in a fresh petition on 15-2-84, requesting the Commissioner for waiver of penalty. The Commissioner found that it was not a fit case for waiver of penalties under Section 271 (1)(c). The AAC referred to this order of the Commissioner and pointed out that this order itself shows there was no agreement between the assessee and the department on this point. He, therefore, upheld the order of penalties.
10. The AAC however was of opinion that the quantum of penalty levied by the Income-tax Officer requires review. He found that the original returns were filed at a time when the law regarding quantification of penalties was based on the income concealed. It was not based on the tax on such concealed income. In so. far as the ITO had levied penalty on the tax, that was in the opinion of the Appellate Asstt. Commissioner a mistake. He further issued enhancement notices for the penalties. After hearing the assessee, he enhanced the penalties for the four asst. years.
11. The assessee is on further appeals before us. Sri Ratnakar appearing for the assessee first submitted that there was no concealment at all involved in this appeal. He submitted that the returns were filed admitting additional income only as a gesture to buy peace from the department. It did not represent the assessee’s income. We are unable to accept this submission. The original assessments had been completed and there was no investigation going on in the assessee’s case regarding their business activities. It was the assessee, one fine morning, approached the Commissioner and placed before him the 5 returns containing larger incomes than what was assessed earlier. There was no war going on between the assessee and the department at that time so that the assessee could be said to buy peace by these gestures. The theory of buying peace and surrendering certain amounts for taxation would arise only in cases where in an ongoing proceedings the assessee is required to explain certain credits and the assessee is unable to produce convincing evidences on that point. In such cases, although the credits may be genuine, nevertheless he surrenders it for assessment because he is unable to produce that kind of evidence which would be acceptable to the department. In such cases, it would be said that there was no concealment. But, the facts in this case, are entirely different. The assessee had been assessed at nominal amount and subsequently he has filed returns showing much larger income. This larger income also emanated from the same business whose income was assessed at smaller figures earlier. If this is not concealment we would like to know what will be the concealment. We have no doubt at all there is concealment involved in this appeal.
12. However, that does not close the matter. Sri Ratnakar case is that the returns were filed by them on a promise and understanding that no penalty would be levied by the department in respect of the amounts concealed in these returns. In ordinary course, there would be a clear and positive evidence by way of Commissioner’s assurance on this point. Sri Ratnakar is unable to produce any such evidence. Therefore, he has to fall back upon the surrounding circumstances and the conduct of the parties to show that there was an assurance that no penalty proceedings would be taken in this case. We have to evaluate these evidences to finding out whether the Commissioner had given any such assurance. If the Commissioner had committed himself to such an assurance, that is, of excusing the assessee from the justifiable penalty-in that case then it will not be open for the department to levy penalty.
13. This would take us to a scrutiny of the circumstances and other surrounding evidences. The very first piece of evidence is the forwarding letter written by the Income-tax Officer, Head Quarters, on 2-5-77 by which he had forwarded the returns to the Income-tax Officer, Rajahmundry, who had jurisdiction over the assessee. We have extracted this letter in para 5 of this order. In this letter, after setting out the facts that the assessee appeared before the Commissioner that day and filed these returns he set out the submissions of the assessee before the Commissioner. It is stated that these returns were filed voluntarily and in good faith making full and true disclosure of the assessee’s income and this was prior to the detection of concealment by the department. The department had not taken any sort of action by way of enquiry, etc., earlier. To repeat the direction of the Commissioner to the Income-tax Officer:
The Income-tax Officer is requested to consider the submissions of the assessee and if found correct to act immediately upon the revised returns of income submitted and sent a report to the Commissioner regarding the facts of the case, action taken and the assessee’s eligibility for waiver of penalties, etc.
Now what are the submissions, the Income-tax Officer has to consider? The submissions are that these figures in the revised returns were disclosed voluntarily or whether there was any investigation going on that point. This is only aspect on which the Income-tax Officer could have been asked to consider. The Commissioner at Hyderabad may not know whether the Income-tax Officer has already started any investigations in this case and whether the returns were filed as a consequence of that investigation. Therefore, the Commissioner would like to have information on that point. As far as this point is concerned, as a matter of fact, it is clear there was no investigation in this case and it cannot be said the returns were filed as a consequence of that investigation. Therefore, the Commissioner would like to have information on that point. As far as this point is concerned, as a matter of fact, it is clear there was no investigation at all done by the department prior to the filing of the revised returns. Nothing has been shown before us which would indicate such contemporaneous investigations. Further, the fact that the revised returns were accepted without the addition” of even one paisa would show that no investigation was going on. In this connection, we must however, refer to the submission made by Sri Viswanatham that the assessee had entered into an agreement for purchase of a property for Rs. 3,25,000 on 12-2-77. Their books would not show, according to Viswanatham sufficient funds far making this payment and this position necessitated the assessee coming forward with the revised returns. The facts as far as it is stated by the department are correct and acceptable. But that is not the issue. The issue was whether on 1-5-77 when the assessee filed the revised returns, was there any ongoing investigation into the affairs of the assessee ? Plainly there was none. Maybe had the assessee kept quite and had not filed the returns, when he effected the purchase of the property, he would be called upon to explain the sources and if did not have any ostensible source he would be in a difficult position. But that is a matter of the future. We are not concerned with that. Neither is the Commissioner in the forwarding note of 2-5-77 concerned with it. He was only enquiring if there were any contemporaneous investigations. There were none and therefore the fact that it was a voluntary disclosure of the assessee stood proved.
14. The next mandate of the Commissioner as per the letter of 2-5-77 was to take immediate action on the revised returns. For some reason or other, this had been delayed considerably and the assessments were completed 5 years later. It is this delay in the finalising of the assessments which were against the specific order of the Commissioner that has caused the problem for the assessee. Had these revised returns been acted upon immediately, there would have been no difficulty at all probably. The Commissioner, if he had given such a promise to the assessee, would have directed the Income-tax Officer to implement it.
15. The third point and this in our opinion is very important is a requirement of the Commissioner to send a report regarding the facts of the case, action taken and the assessee’s eligibility for waiver of penalties. The Income-tax Officer after completing the assessments was expected to send a report to the Commissioner. This direction had been completely lost sight off by the Income-tax Officer. That is why, there is no reference at all in the assessment order or in the penalty order. When the assessee insisted before the Income-tax Officer that there was an understanding that no penalty should be levied, he was probably referring to the necessity of sending a report and taking instructions from the Commissioner on this point. Instead of doing this, the Income-tax Officer straightaway levied the penalties.
16. In doing this, the Income-tax Officer is not to be blamed fully. The assessee had also canvassed the issue by filing a waiver petition before the Commissioner on 15-2-84. But, the assessee’s predicament and anxiety is understandable. The Income-tax Officer obviously has forgotten about the requirements of the Commissioner which is contained in the letter of 2-5-77. On the other hand, he had completed the assessment and issued penalty notice under Section 271(1)(c). When the Income-tax Officer was about to finalise these penalty proceedings that the assessee probably thought it necessary to file one more petition and this was the petition dated 15-2-84. So the Income-tax Officer referred to this petition of 15-2-84 and stated that he could not wait till the petition is disposed of by the Commissioner because the penalty proceedings were getting time barred. It is, however, unfortunate for the assessee that the Income-tax Officer had initiated penalty proceedings itself without remembering the requirement to send a report.
17. It is, therefore, clear from this piece of evidence that there was some understanding between the Commissioner and the assessee and it is also clear that the Commissioner was willing to waive penalty provided there was no ongoing investigation and the Income-tax Officer did not find anything further which would disentitle the assessee from waiver. He required immediate report thereon before he could take any action. It is but natural in cases like this, the Commissioner could not take final decision till a report is received from the Income-tax Officer having jurisdiction thereon.
18. We will now look into the second piece of evidence which also supports the view that there was such an understanding. The second piece of evidence is the series of correspondence which had already been referred earlier between the assessee and the Commissioner. The assessee had gone on reminding the Commissioner about the submissions of the revised returns and the fact that they were still pending. In all these reminders, there is an understanding that the acceptance of the returns would put to an end to all further proceedings. None of these letters had been replied. If there was any reservation in the mind of the department regarding the claims of the assessee, they could have said so to one of the replies of the assessee. However, there is no such letter from the department.
19. The third piece of evidence is in the shape of an office note. As stated earlier that the Income-tax Officer had taken up this issue some time in middle of 1977, but, the actual assessments were completed much later. It would appear that the question of waiving of penalty was the subject-matter of a note to the Commissioner. Para 20 of the note has already extracted in para 7 of this order. Here also, there is practically a reiteration that if no concealment was found over and above what was declared in the revised return the assessee has a good case for waiving of penalties. Thus, the incumbent who was the Commissioner when this note was made was also of opinion that no penalty should be levied in this case on the facts as ascertained.
20. Coming to the conduct of the assessee, we find from the records that 11-5-77 i.e. 10 days after the returns were filed, each partner was credited in the books of account with an amount of Rs. 44,000. This figure represents the partner’s share in respect of the additional income which had been offered for assessment. Now these entries coming immediately after the disclosure made to the Commissioner were not be possible if we take human probabilities, unless there was an assurance regarding the exemption from penalties. It was otherwise too much of risky action in crediting these disputed amounts to the partners’ accounts. Further, the assessee had immediately paid the tax as per the returns not only of the firm but also of the partners. This also would have been not done unless there was some discussions and understanding regarding the acceptance of the returns and/or the levy of penalties. At the time of hearing, Sri Viswanatham had laid much stress on the order dated 12-3-85 of the Commissioner under Section 273A rejecting the assessee’s claim for waiver of the interest under Sections 139(8) and 217 and the penalty charged under Section 271(1)(c). It was submitted that the Commissioner who was the authority to waive the penalty after considering all the facts has found that this was not fit case for waiver of penalty. We have gone through the order. The Commissioner’s case was that the assessee had filed revised returns only with the motive of bringing sufficient funds in the books for effecting the purchase of the property. He had pointed out that the disclosure being motivated, it could not be said to be in good faith. In our opinion, the order of the Commissioner based on certain findings will not help the department in proving there was no understanding of the exemption from penalty proceedings when the assessee approached the Commissioner in 1977. The order of 12-3-85 does not refer to the circumstances in which the returns were filed and the contemporaneous note of the Commissioner’s office dated 2-5-77 and further the note of the another Commissioner on the same issue on 21-4-79. These two points clearly show a different picture than what is given in the order of the Commissioner dated 12-3-85. The earlier proceedings are very relevant in arriving at a finding whether the assessee had been given a promise that no penalty would be levied. Since the Commissioner’s order does not refer to these earlier proceedings, to that extent we are unable to rely upon the orders as evidence in favour of the department.
21. On an overall consideration of all the facts, we are satisfied that there was an agreement, although an oral agreement that the assessee would not be subjected to penalties if their submissions made on 1-5-77 were found to be true. The penalties levied are therefore against these assurances. Under these circumstances, we are of opinion that the penalties should be cancelled.
22. Sri Ratnakar had made certain submissions regarding the quantification of penalties. Since we are of opinion that the levy of penalty itself has to be cancelled, we do not refer to these submissions.
23. The appeals are allowed.
R.D. Agrawala, Judicial Member
1. I have had the benefit of going through the order of my learned brother. With respect, I have my reservations to agree with it in full.
2. On a question of concealment by the appellant firm, I endorse my learned brother’s finding, as concluded in para 11 of the combined order that it is a clear case of concealment.
I will however add that the concealment in this case is writ large since the real income of the assessee was within their knowledge right from the inception, available with them in cash. In addition, the following averment made by the assessee in their petition dated 1-5-77 to the Commissioner clinches the issue:
The reason for filing the revised returns is that the petitioners did not admit a major portion of their business income for income-tax purposes…. Since the petitioners are feeling guilty for suppressing their income, they are filing the revised returns.
Lastly it may also be stated here that at our instance the assessee has filed a statement showing the following incomes returned by them for the subsequent years:
Asst. Yr. Income returned 1977-78 Rs. 68,910 1978-79 Rs. 1,07,290 1979-80 Rs. 1,64,010
These figures sufficiently go a long way to establish that the revised incomes shown by the assessee at Rs. 40,000, Rs. 50,000, Rs. 60,000, Rs. 70,000 and Rs. 75,000 for the assessment years 1972-73,1973-74,1974-75,1975-76 and 1976-77 respectively happened to be their real income which did not represent the contributions made by wife and sisters-in-law and mother of Shri Katika Ramulu, Managing Partner of the appellant firm, although declared to be the appellant firm’s income on the advice of their auditor as claimed in a sworn deposition of 28th October 1988 before the learned Special Judge, Economic Offences, Hyderabad copy of the statement available at page 13 of the paper book, which statement was, though not permitted by us to be referred for the purposes of these appeals, inter alia, on the ground that the same was post-penalty proceedings, wholly inconsistent with the assessee’s explanation before the authorities below etc.
3. I, however, find unable to persuade myself to agree to the other finding that there was an oral agreement, as held in the combined order, that the assessee would not be subjected to penalties as the submissions made by them on the 1st May 1977 were found to be true. On the contrary, I am strongly of the view that there was no such agreement and in fact there could be none in the facts and circumstances of the case, inter alia, for the following reasons.
4. There is no dispute to the absence of an order/assurance from the Commissioner to the waiver of the penalties. However, before proceeding further, it appears necessary to go through the background which led to the disclosure of the concealed income by the assessee firm. Relevant facts in this regard are these: The assessee entered into an agreement on 12-2-77 to purchase a house for a sum of Rs. 3,25,000. Not being fully equipped resources-wise to accomplish this deal, they needed to show up a paper augmentation impelling them to offer the extra income for 5 years in the vicinity of Rs. 3 lakhs which forms approximately 91 % of the total sale consideration of Rs. 3,25,000. The income assessed and the income admitted in the revised return, even at the cost of repetition, is tabulated below:
——————————————————————————–
Asst. Yr. Income assessed Income admitted in
revised returns
--------------------------------------------------------------------------------
1972-73 9,000 40,000
1973-74 11,000 50,000
1974-75 12,000 60,000
1975-76 12,000 70,000
1976-77 16,000 75,000
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5. With this background in view, the assessee chartered out a petition dated 1st May, 1977 before the learned Commissioner with request to waive the penalties both for the firm and the partners.
6. The Commissioner sent for a report from the jurisdictional Income-tax Officer vide communication dt. 2-5-77 reproduced in para 5 of the combined order. In no manner this communication is indicative that there was any assurance much less any agreement between the assessee and the Commissioner for the waiver of the penalties.
7. Next, we may refer here to the office note prepared by the Commissioner’s office which is extracted by my learned brother in para 7 of his order. This note which stands no yardstick for the Commissioner’s mind on the issue records that it may be premature to give any sort of assurance to the assessee before completion of the assessment proceedings. Secondly, it ends up with the remark that this is a matter to be decided on the merits of the case in due course. Both these narrations considerably negate the existence of any agreement/assurance to waive the penalties.
8. Further, an agreement is different from an assurance and runs on a much higher plane than even the consideration of a matter sympathetically.
9. Now, passing on to the returns filed by the assessee, these are patently non est because of a lapse of 5 years from the completion of the original assessments. A notice under Section 147, therefore, followed from the Income-tax Officer to which the assessee replied that the returns filed by them before the Commissioner may be treated as filed under Section 148.. This was accepted and in fact revised assessments were completed for all these years on the figures adduced in these returns, without any addition.
10. The Income-tax Officer simultaneously issued penalty notices under Section 271(1)(c). The assessee informed the Income-tax Officer that they had requested the Commissioner for waiver of penalty. The Income-tax Officer eventually imposed penalties. The first appellate authority confirmed these penalties in the absence of any agreements as to their waiver.
In the meantime, the Commissioner took up the waiver issue on which a fresh petition dated 15-2-1984 was also filed by the assessee. He rightly held that it was not a fit case for waiver which finding is referred to in the order impugned before us.
11. As is evident, there being no direct evidence to the agreement or an assurance to waive the penalties, the case rests upon the attendant circumstances for drawing an inference as to whether such agreement or assurance existed or not. While these circumstances detailed below favourably exist as per the combined order to show the existence of an oral agreement, I respectfully differ with this view.
12. The first of them is that these returns were filed on compromise that no penalty would be levied. In this connection, lot of stress was laid by the learned counsel for the assessee that the returns were filed ‘voluntarily’ and in ‘good faith’. This submission is not found convincing as in the facts and circumstances of the case, hereinafter described, the returns cannot be legally treated either as being filed voluntarily or in good faith, summum bonum for the exercise of Commissioner’s power to waive penalty under Section 273A of the Act.
The term ‘voluntary’ appearing in Section 273A has been the subject-matter of Interpretation in a Division Bench decision of the High Court of Allahabad in Hakam Singh v. CIT [1980] 124 ITR 228 wherein it was held as under:
The term ‘voluntary’ in Section 273A of the I.T. Act, 1961, has been used to indicate an action free of any constraint. A return filed under the constraint of exposure to adverse action by the I.T. department will not be voluntary within the meaning of Section 273A. The action of an assessee in filing a return after the books of account had been seized at a raid would be impelled by the compelling circumstances that the assessee was likely to be dealt with under the penal provisions of the I.T. Act. The action of an assessee in filing a return under such a constraint cannot be said to be voluntary.
We now extract below a passage from the order of the learned Commissioner Under Section 273A.
Three of the assessments namely 1974-75,1975-76 and 1976-77 were completed on 30-11-1976,31-12-1976 and 31-12-1976 respectively by which time the assessee must have already been on the look out for investment in purchase of a house and yet it did not choose to place the same facts before the Income-tax Officer. After the investment was made, the assessee became aware that the department would have knowledge of the transactions as under the provision of Section 230A of the Income-tax Act, 1961, the seller who would be presenting the sale deed for registration had to obtain a tax clearance certificate from the Income-tax Officer. Also under Section 269P of the I.T. Act, 1961 the registering officer has necessarily to forward a statement of the transaction in the prescribed form setting out certain particulars which include the names of the transferee and the purchase consideration. Therefore, the assessee came forward by filing the socalled revised returns spreading the investment over the assessment years under consideration after the assessments had already been completed on the basis of the returns filed by the assessee.
This being the factual position, it is abundantly clear that the returns were filed by the assessee-firm under the constraint of exposure to an adverse section by the Income-tax department as the deal for purchasing the house was well in progress, the agreement having been entered as early as on 12-2-77. I am therefore, unable to agree with my learned brother’s finding that the fact that it was a voluntary disclosure by the assessee stood proved. In my opinion, there was no element of voluntariness in the filing of these returns which was done by the assessee with an ulterior motive, being pushed to the wall and on being prompted by a sense of fear of a coercive action by the income-tax authorities.
On ‘good faith’ claimed by the assessee, before examining the same, it appears relevant to refer here to another submission made by the learned counsel, namely, that the assessee disclosed the income with a view to purchase peace, totally discarded in the combined order with which, I fully concur. Rightly held therein there was no war going on between the assessee and the department occasioning or provoking the assessee to declare a fat income for all these five years, the assessments for which had been completed without any demur. It was sticking a sleeping dog. Why so ? Answer is the motive discussed hereinbefore.
13. As per the General Clauses Act, a thing shall be deemed to be done in ‘good faith’ where it is in fact done honestly, whether it is done negligently or not. In the case in hand, the assessee had entered into an agreement on 12-2-77 for purchase of the house for Rs. 3,25,000. Their books did not show sufficient funds which necessitated the assessee to come with the revised returns. This is how, the assessee despite the acceptance of these returns at as low figures as Rs. 9,000, Rs. 11,000, Rs. 12,000, Rs. 12,000 and Rs. 16,000 respectively for the assessment years 1972-73 to 1976-77 returned incomes as high as at Rs. 40,000, Rs. 50,000, Rs. 60,000, Rs. 70,000 and Rs. 75,000 and that too without any discovery or impending investigations by the Department. As to why they did so, the answer is obvious. The assessee being hell bent on purchasing the property, had to bring in to their books sufficient funds to complete the transaction. How could such an act of assessee be taken to be done in good faith? Could it be said to be done honestly ? Certainly not. On the other hand, the only inference which could be judicially churned out from these facts is that the assessee declared the inflated incomes for all these years with an oblique motive. This being the state of affairs, it rather passes one’s comprehension as to how the assessee could become entitled to the waiver of penalties in the wake of these accentuating circumstances which did not admit of any mitigating factor much less generate sympathy or compassion for the assessee firm who were showing sunlight to their evaded income. Why a senior public functionary like the Commissioner of Income-tax will agree to the waiver request is nearly eluding. He could obviously not do so as being a creature of law he could act only within the parameters of Section 273A of the Income-tax Act.
14. Legislature has carved out one identical pre-condition for the valid exercise of the power under different clauses of Section 273A namely that the disclosure of the income or inaccurate particulars is true and made voluntarily and in good faith. The authority to reduce or waive penalty vested in the Commissioner is not and cannot be arbitrary. It must flow from within the ambit of Section 273A. No statutory authority high ranking as the Commissioner can be expected to agree to such a waiver at the outset, without thoroughly examining the relevant facts qua his powers, unlike as claimed by the appellant according to whom the Commissioner on the bare filing of a petition on 1-5-1977 readily agreed for the compounding as if he was waiting for the appellant to make an approach simpliciter followed by an action gullible, as it appears manifest, in making a promise/understanding not to levy any penalty. To me it is rather unusual to visualise as the same would be a freak and careless exercise of a statutory power, not vested in the Commissioner and we shall hardly be justified in berating him by drawing any inference on that score in the absence of any real and strongly cogent material.
15. Now dealing with the correspondence on record, one sided as it is, they are only letters addressed by the assessee to the Commissioner, as is evident from pages 1 to 12 of the assessee’s paper book. They need a discussion in a little detailed measure: The first of these letters is dated 1st May 1977 along with which revised returns were filed. The second is dated 28-3-1978 addressed to the Commissioner wherein he was reminded that while forwarding the returns to the Income-tax Officer, a direction was issued to complete the assessments at an early date which was not done till date. This letter ends up seeking direction for the Income-tax Officer to complete the assessments at an early date. Comes than the second reminder dated 8-6-78 with identical request. This is followed by a reminder dated 24th Sept. 78 with more or less the same request. So are two other reminders dated 1-1-79 (page 8) and 6-4-79 (page 9 of the paper book). All these reminders contain the only prayer about the early completion of assessments except the last one dated 6-4-79 where the assessee has also tried to explain voluntarily that they had not admitted the income before the Commissioner for the purposes of purchasing some property. Here, although we are not on that issue, even then as is minimally necessary to put the records straight, that this assertion made by the assessee is not correct, as already held by us. The assessee has also made one another assertion, patently wrong in para 2 of the letter which runs as follows:
Subsequent to the date of filing of the letter before the learned Commissioner of Income-tax, the petitioners wanted to purchase property relating to Shri C. Nagaraju and others, which is situated by the side of the petititioner’s shop.
Even at the cost of repetition, it may be observed that the assessee had entered into an agreement as early as on 12-2-77 i.e. much before the 2nd of May 1977 when they filed their first letter dated 1st May 1977 along with the returns before the Commissioner.
Further, in all the aforesaid reminders mention about the non-imposition or waiver of penalty much less the existence of any agreement or assurance between the assessee and the learned Commissioner is conspicuous by its absence. This is found only in the assessee’s covering letter dated 1-5-1977 filed along with the returns wherein a prayer was made for the waiver of penalties. As regards reminders spread over 30-11-1977 to 6-4-1979 in no manner any claim as to the existence of any agreement between the assessee and the Commissioner for the waiver of penalties is made.
I have no hesitation in further observing that even if there had existed some such reference, the reticence of the department in not replying cannot be taken to be of any special significance as per common knowledge, in Government departments no attention is generally bestowed to such communications which only gather dust and burden records. Even in such a situation, to draw an adverse inference to bring it in aid of proving an agreement/assurance, which is vehemently denied by the Revenue, would be too much of a judicial risk.
16. Third is the office note already adverted to by me in para 7 of this order. For reasons already assigned, it cannot be taken to be a shot in the assessee’s arm.
17. Lastly, the conduct of the assessee in crediting the individual accounts of the partners shortly after the filing of the returns. I have a respectful disagreement with my learned brother as this act of the assessee cannot be taken to be fraught with risk inasmuch as, having declared the income, the same had to be apportioned in among the partners. What was the escape for them ? It was only consequential.
18. In view of the above, the proposition as to the existence of an agreement that no penalty should be imposed does not commend itself to me.
19. Such an agreement did neither exist factually nor could it be made lawfully on 1-5-1977 as pleaded in the facts and circumstances of the case as the same would amount to an arrogant violation of the mandate of Section 273A of the I.T. Act by the Commissioner which is difficult to be accepted, in the absence of any corroborative or contemporaneous material.
20. For the reasons spelt out above, I regret my inability to fall in line with the reasoning and conclusion recorded by my learned brother. I would hold that voluntariness and good faith were wholly missing in the filing of the returns by the assessee which was prompted by a sense of fear lurking in their mind to avoid the consequences of action by the Income-tax authorities and the relevant facts coming to the surface on account of the impending property deal, as detailed out above. In the facts of the case, there was no oral agreement that no penalties would be imposed on the assessee. Further, in law, in view of the provisions of Section 273A no such agreement could be entered into nor assurance given by the Commissioner unless it was proved that the returns were being filed voluntarily and in good faith, both strikingly absent in this case. I, therefore, confirm the penalties imposed and dismiss all these appeals.
REFERENCE Under Section 255(4) OF THE INCOME-TAX ACT. 1961
Since there is a difference of opinion on the following points, between two Members, appeals are placed before the President, Income-tax Appellate Tribunal, for being heard on the following points of difference by one or more of the other Members of the Tribunal:
(1) “Whether in the facts and circumstances of the case, filing of the returns by the appellant firm on 1-5-1977 could be said to be voluntary and in good faith?
(2) “Whether in the facts and circumstances of the case, could it be inferred that there was an oral agreement/understanding between the assessee and the Commissioner that no penalties would be levied or they shall be waived ?
(3) “If the answer to question No. 1 is in the negative, does not this factor alone strongly discount the ab initio absence of any agreement or assurance not to impose penalties as claimed by the assessee ?
The order proposed, the dissenting order and the relevant files are sent herewith.
ORDER
G. Krishnamurthy, President
1. This is a matter that has come before me as Third Member as there was a difference of opinion on the following points between the Members of the Hyderabad Bench of the Income-tax Appellate Tribunal, who heard this appeal at the first instance:
(a) Whether, in the facts and circumstances of the case, filing of the returns by the appellant firm on 1-5-1977 could be said to be voluntary and in good faith?
(b) Whether, in the facts and circumstances of the case, could it be inferred that there was an oral agreement/understanding between the assessee and the Commissioner that no penalties would be levied or they shall be waived ?
(c) If the answer to question No. 1 is in the negative, does not this factor alone strongly discount the ab initio absence of any agreement or assurance not to impose penalties as claimed by the assessee.
2. I have heard the learned counsel for the assessee Shri Ratnakar and the learned Departmental Representative Shri Radha Krishnamurthy at great length and I have come to the conclusion that penalties in this case are leviable. Let me now advert to the facts of the case.
3. The assessee is a registered firm, carrying on business in the manufacture and sale of sweet-meats at Rajahmundry. Returns of income for the assessment years 1972-73 to 1976-77 were filed and assessments were completed under Section 143(3) of the Income-tax Act. On 2-5-1977, the assessee filed revised returns for these very assessment years before the Commissioner of Income-tax, Andhra Pradesh, Hyderabad showing certain higher incomes than assessed and requested the Commissioner to make assessments on those returns. The following table would show the income as per original returns, the income assessed and the income as per the revised returns:
——————————————————————————–
Asst. year Income as per Income assessed Income as per
original returns revised return
--------------------------------------------------------------------------------
Rs. Rs. Rs.
1972-73 7,710 9,000 40,000
1973-74 548 11,000 50,000
1974-75 5,561 12,000 60,000
1975-76 3,567 12,000 70,000
1976-77 15,456 16,000 75,000
--------------------------------------------------------------------------------
The CIT thereafter forwarded to the ITO, Rajahmundry these returns for necessary action along with a covering letter. I will advert to it a little later. As there was a wide difference between the income assessed and the income returned in the revised returns, proceedings Under Section 147(a) were initiated. The re-assessments were, however, completed on 19-3-1982 accepting the income returned in the revised returns. Taking the difference between the income originally assessed and the revised income, as concealment of income with reference to the original returns filed and assessed to tax, penalty notices Under Section 271(1)(c) were issued, in response to which no explanation was filed but it was represented that in view of the fact that revised returns were voluntarily filed before the CIT, before the department could spot out any concealment of income and since taxes as per the revised returns were also paid, there was no question of concealment of any income and no penalty should, therefore, be levied. It was further submitted that the assessee approached the CIT for the waiver of penalty also. Without waiting for the completion of the proceedings for waiver of penalties by the CIT on account of limitation imposed by Section 275 of the IT Act, the ITO proceeded to levy the penalty holding the assessee to be guilty of concealment of income and levied minimum penalty of Rs. 12,420 for the assessment year 1972-73 by his order dated 20-3-1984. For the same reasons, a penalty of Rs. 19,560 was imposed for the assessment year 1973-74. Likewise a penalty of Rs. 26,460, Rs. 30,510 and Rs. 32,900 were imposed respectively for the assessment years 1974-75, 1975-76 and 1976-77.
4. Aggrieved by the imposition of these penalties Under Section 271(1)(c) of the Income-tax Act, the appeals were filed before the AAC, Vishakhapatnam. It was submitted before the Appellate Asstt. Commissioner that the returns were filed before the Commissioner of Income-tax after discussing with him the case from all its aspects and on agreed basis, with a view to purchase peace and, therefore, no penalty should be imposed. It was further urged that the income disclosed in the second set of returns having been accepted by the ITO, there was no case of any concealment of income. It was also pleaded that when the CIT and the assessee had agreed upon that the returns were filed with a view to purchase peace and an assurance was given by the Department that no penalty would be imposed, it would be going back upon the promise if penalties were imposed and confirmed. Reliance was placed upon a decision of the Bombay High Court in the case of Jivatlal Purtapshi v. CIT [1967] 65 ITR 261 and on the judgment of the Punjab & Haryana High Court in the case of Banta Singh Kartar Singh v. CIT [1980] 125 ITR 239. the AAC held that no evidence was produced before him to show that there was any agreement between the Department and the assessee by way of a settlement for non-imposition of penalty. The AAC also noticed that the petitions filed by the assessee for waiver of penalties before the CIT were rejected by him and that would show that there could not have been any agreement between the assessee and the Department for non-imposition of penalties. He distinguished the cases relied upon before him by pointing out that since there was no agreement or assurance between the assessee and the Department for non-levy of penalties, the decisions rendered by those High Courts based upon agreement for non-levy of penalties, could not have any relevance. Merely because the assessee had come forward voluntarily to disclose higher incomes, would not absolve him from the guilt of concealment of income in the original returns filed. On the other hand, when the assessee himself disclosed certain amounts higher than the amounts originally assessed, and requested for assessments on those figures, that would amount to admission of concealment. For this proposition, he placed reliance upon judgment of the Andhra Pradesh High Court in the case of Addl. CIT v. Burugupalli China Krishnamurthy [1980] 121 ITR 326 and another case of Addl CIT v. Bhartiya Bhandar[1980] 122 ITR 622 (MP). Lastly he referred to letter written by the assessee to the CIT Hyderabad on 1-5-1977 wherein he stated unequivocally that the reason for filing the revised returns was that the petitioners did not admit a major portion of the business income for income-tax assessment purposes, that the incomes assessed for each of the five years was far below the income earned, that the partners were feeling guilty for suppressing their incomes, they were, therefore, filing the revised returns. This was held to be a clear case of admission of concealment of income by the assessee and, therefore, he was guilty of concealment of income. Thus, having justified the levy of penalties for concealment of income, he found that for the assessment years 1972-73 to 1975-76, the penalties were not correctly calculated. Finding that the penalties should be imposed with reference to the law as it stood on the date of the filing of the original returns, he revised upwards the penalties imposed which worked out to Rs. 32,290, Rs. 49,452, Rs. 54,439 and Rs. 66,433 respectively for these four assessment years.
5. Against this commissioned order of the AAC, a further appeal was filed before the Tribunal contending that the AAC was not justified in rejecting the assessee’s contention that the returns were filed, subject to the agreement between the department and the assessee, by way of a settlement for non-imposition of penalty, that the returns filed disclosed the income as suggested by the CIT and it was, therefore, not open to the Department to go back from their understanding and levy penalties and that in any case, the AAC was not justified in enhancing the penalty in the manner he did. When this matter came up for hearing, the learned Accountant Member came to the conclusion that there was an agreement, although oral agreement, between the CIT and the assessee that the assessee would not be subjected to penalties and that the penalties imposed were against those assurances. Therefore, the penalties should be cancelled. I will come a little later as to how the learned Accountant Member arrived at the conclusion of the existence of an oral agreement for non-levy of penalties. But the learned Judicial Member came to an opposite conclusion and he held that there could not have been any agreement between the Department and the assessee for non-levy of penalties, that neither the filing of returns were voluntary nor could they be said to be in good faith, that the returns were filed prompted by a sense of fear lurking in their mind to avoid the consequences of action by the income-tax authorities, and the CIT could not have given assurance to waive penalties Under Section 273A of the IT Act on the facts of this case, particularly after he had rejected the petitions filed by the assessee. He, therefore, confirmed the imposition of penalties.
It was on account of this difference of opinion that the above points of difference were formulated and referred to me as a Third Member.
6. First I have to deal with the question as to whether in the facts and circumstances of the case, filing of the returns by the appellant firm on 1-5-1977 could be said to be voluntary and in good faith.
The starting point for the filing of the revised returns was the letter dated 1-5-1977, filed by the firm before the CIT Hyderabad, signed by all the partners.
In this letter, the partners submitted that the business of the firm was started, for the first time, during the assessment year 1972-73, that the partners wanted to file revised returns for all the completed assessment years for the reason that:
The reason for filing the revised returns is that the petitioners did not admit a major portion of their business income for income-tax assessment purposes. The income assessed for each of the five years was much far below the income earned. None of the partners were also individually assessed till now. The partners too are filing their returns for all the five years. Since the petitioners are feeling guilty for suppressing their income, they are filing the revised returns. A separate statement snowing the assessed income for each of the five years and the incomes admitted in the revised returns are submitted below:
————————————————————————
Asst. year Income assessed Income admitted in
revised return
------------------------------------------------------------------------
Rs. Rs.
1972-73 9,000 40,000
1973-74 11,000 50,000
1974-75 12,000 60,000
1975-76 12,000 70,000
1976-77 16,000 75,000
------------------------------------------------------------------------
The partners too pay the taxes and file the returns immediately. The cash available with the partners out of the suppressed profits are also being credited to their individual accounts in the firm's books.
The petitioners request the learned Commissioner to complete the assessments on the basis of the revised returns and waive the penalties leviable under the various sections of the IT Act, both in the firms and partner's cases.
This letter in most unequivocal terms disclosed an admission on the part of the partners, that they had not filed the original returns disclosing true income, that the income earned by them was far higher than the income disclosed in the original returns and as the partners were feeling guilty for suppressing their income, they were filing the revised returns and that the cash available out of the suppressed profits was being brought to books and credited to the accounts of the partners. This letter also disclosed a request made by the firm and the partners to waive the penalties leviable under the various sections of the Income-tax Act, which includes the penalty for concealment of income. Normally this admission of suppression of income should be sufficient to levy penalty for concealment of income, unless the CIT agrees to reduce or waive the penalty. It is an admitted fact in this case that no such assurance was given by the CIT in writing and the only controversy was whether there was any oral agreement and if so, whether the Department had by giving the oral agreement induced the assessee to come forward with the filing of the revised returns and went back on the undertaking.
To arrive at this conclusion about the oral agreement reliance had to be placed and in fact it was placed by both the learned Members and also by the learned Advocate for the assessee and the learned Departmental Representative before me only on circumstantial evidence. The circumstantial evidence must be such as to lead to only one conclusion, namely that there was an oral agreement excluding all references to the negative inference, and after having given the oral agreement, the Department has been resiling. As soon as the letter extracted above was filed by the assessee, the CIT forwarded the revised returns of income to the ITO with a letter which is very relevant and I reproduce it in full:
ITA Nos. 249 to 253/H/87 – K. Ramulu & Bros., Rajahmundry heard on 15-11-1988.
H. Qrs. I.26/Misc./77-78 O/o CIT A.P. Hyderabad
Dt: 2-5-1977.
To
The Income-tax Officer,
D-Ward, Rajahmundry.
Sir,
Sub: Income-tax assessment - M/s Katika Ramulu & Bros., Sweetmeat Merchants - Rajahmundry - Regarding
I am directed to forward the revised returns of income filed by the assessee-firm before the CIT today (2-5-1977) along with the explanatory note for necessary action at your end.
The details of the incomes shown in the revised returns are as follows:
Asst. year Total income
Rs.
1972-73 40,000
1973-74 50,000
1974-75 60,000
1975-76 70,000
1976-77 75,000
The above returns are filed by Sri V.M. Sarma, authorised representative of the assessee firm. It has been stated by him that the assessments in respect of the above asst. years were finalised by the Department, on estimated basis fixing the incomes between Rs. 9,000 to 16,000 per each year. He also made a claim that the revised returns are now filed voluntarily and in good faith making full and true disclosure of the assessee’s income prior to the detection of the concealment of particulars of income by the Department. It was also explained, that the Department has not earlier taken any sort of action or made any move by way of inquiry etc. to vitiate the voluntary nature of the present disclosure. The ITO is requested to consider the submissions of the assessee, and if found correct, to act immediately upon the revised returns of income submitted and send a report to the Commissioner regarding the facts of the case, action taken and assessee’s eligibility for waiver of penalties etc.
Yours faithfully,
Encl: 5 returns and copy Sd/- V. Murahari Rao
of letter. ITO (H.Qrs. I) for CIT, A.P.I.
Copy to: The IAC, Vizag. Hyderabad.
7. As nothing was heard regarding the assessment from the concerned ITO the assessee had reminded the Commissioner about the pending matters. On 30-11-1977, the ITO having jurisdiction to assess the assessee, wrote a letter asking the assessee to produce the books of account for the assessment year 1971-72 onwards and also copies of agreements entered into for purchase of property, extent of agricultural income of the partners and the source for deposits made. Even though the ITO had not made any assessment, he seemed to have made some enquiries and found that the assessee had entered into an agreement to purchase a house property for a sum of Rs. 3,25,000 under an agreement dated 12-2-1977 and it was this agreement to purchase the property for Rs. 3,25,000 that had necessitated the assessee to find resources of the purchase consideration and it was to find the resources that the assessee had thought of filing revised returns. That was how they showed the extra income for the five years which worked out to Rs. 2,95,000.
8. In the meantime the office of the CIT had put up a note to him on the matter of waiver of penalties and in paragraph 20 of the note as seen from the order of the Accountant Member, it was stated that it was premature to give any sort of assurance to the assessee before the completion of the assessment. It is also pointed out in that note that the enquiries suggested might bring into light some more facts which may ultimately lead to establishment of concealment. If no such concealment were to be found ultimately, the assessee might have a case for the waiver of the penalties Under Section 273A. With regard to the waiver of interest, the note suggested that the assessee might become eligible for reduction of interest income, though not for full waiver. Even though the returns were filed disclosing higher incomes, those returns were not valid in law. Proceedings Under Section 147 had to be initiated and in response to the proceedings initiated Under Section 147 on 24-8-1977, the assessee wrote a letter on 29-8-1977 stating that the returns already filed before the Commissioner, should be treated as the returns filed Under Section 148. There was a lull for a period of five years and eventually the assessments were completed on 19-3-1982 accepting the incomes disclosed in the revised returns. These facts would disclose to reiterate a situation where the assessee had in the first instance consciously disclosed lower incomes and later on came forward with higher incomes with a view to find resources for the purchase of a property. Had it not been for the agreement to purchase the property for Rs. 3,25,000 as per agreement dated 12-2-1977, the assessee would not have come forward to file the relised returns at all An argument was addressed before the Bench on behalf of the assessee that the returns were filed admitting additional income only as a gesture to buy peace from the Department and that it did not represent the assessee’s income. The learned Accountant Member rejected this contention outright by observing that the original assessments had been completed and there was no investigation going on in the assessee’s case regarding the business activities, that there was no war going on between the assessee and the department at that time so that the assessee could be said to buy peace, by these gestures and eventually concluded that the facts in this case clearly showed that there was concealment of income. He observed:
If this is not concealment, we would like to know what would be the concealment. We have no doubt at all that there is concealment involved in these appeals.
Thereafter he addressed himself to the question as to whether there could be any agreement either written or oral, not to levy penalties. About the written agreement, the learned Accountant Member rejected it outright as there was no evidence and considered the surrounding circumstances and the conduct of the parties. Relying upon the letter written by the ITO, forwarding the revised returns to the CIT Rajahmundry, the learned Accountant Member pointed out that this indicated that there could have been an agreement or an assurance that no penalty would be imposed, if there was no investigation going on on any part. The learned Accountant Member pointed out that the CIT Hyderabad might not know whether the ITO had already started any investigations in this case and whether the returns were filed as a consequence of that investigation. In order to find out specific details about this point, the matter was referred to the ITO for report. Since there was no investigation going on at the relevant point of time namely at the time when the revised returns were filed, it could not be said that the returns were filed as a consequence of any investigation. The learned Accountant Member was not prepared to accept that what necessitated the filing of the revised returns on l-5-1977 was the agreement entered into for the purchase of a property for Rs. 3,25,000 on 12-2-1977, although he accepted that that was a fact. According to him on 1-5-1977 when the revised returns were filed, there was no investigation going on and, therefore, the returns could not be attributed to anything other than a pure voluntary act on the part of the partners. 9. In the letter forwarding the revised returns, the Commissioner had specifically asked the ITO to report to him about the action taken on the returns and the assessee’s eligibility for waiver of penalties even though the ITO had completed the assessments, had not sent the report to the Commissioner and it was only when the assessee insisted before the ITO that there was an understanding that no penalty would be imposed, he was instead of taking instructions from the Commissioner on that point, straightaway imposed penalties and this shows a sort of going back on the promise given by the CIT. While blaming the ITO for not taking instructions from the CIT on this point and for levying penalties straightaway, the learned Accountant Member pointed out that the assessee had also a share of blame because on 15-2-1984, he filed a waiver petition before the CIT. The ITO could not wait till the disposal of this petition as the proceedings for levy of penalty were getting time barred. He, therefore, levied penalties. From this piece of evidence, the learned Accountant Member drew the inference that there must have been some understanding between the Commissioner and the assessee and that it was clear that the Commissioner of Income-tax was willing to waive penalty provided there was no ongoing investigation and ITO had managed to thwart the waiver proceedings by simply delaying the sending of the report and instead levied the penalty making it a fit case. What I understand from the learned Accountant Member’s order, which was highlighted before me by the learned counsel for the assessee is that the ITO had manipulated the proceedings in such a way by delaying the sending of the report to the Commissioner and by issuing penalty notices straightaway and levying penalties that the CIT would have no other option except deny any oral agreement or reject the waiver petition. This I think is little difficult to accept. Even if the ITO had engineered such a machination by pre-empting the acts of the Commissioner by imposing penalties, it is still open to the CIT to cancel the penalties under the powers vested in him. It is not as if the CIT was powerless to waive or reduce the penalties, if he had given an oral understanding. Therefore, from this fact of the levy of penalty by the ITO without sending a report to the CIT, it is in my opinion, impossible to draw a conclusion that the CIT had agreed orally not to levy any penalties for concealment of income, if only there was no investigation going on at that point of time. On the facts of this case, there could not be any investigation going on at that point of time because the agreement to purchase the property was on 12-2-1977 by when there was not sufficient cash available in the books and the partners have thought of bringing the cash into the books with a view to meet the purchase consideration and the only way to bring the cash into the books without attracting the penal provisions of the Income-tax Act as well as the prosecution proceedings in its wake is only by filing revised returns and asking for an agreement not to levy penalty. Had the property been purchased then the ITO would have started investigation into the resources and if the partners had then come forward with the revised returns, it would then be possible to say that the revised returns were filed only as a consequence of investigation. It is precisely to avoid such a situation that the partners had filed returns on 1-5-1977 by when there could not be any investigation into the purchase of the property. In fact the fact that the property was going to be purchased by then was only within the knowledge of the partners. It is only when the partners go to the CIT for a certificate, the question of source would arise. To avoid the situation, the partners came forward with the filing of revised returns admitting in unequivocal terms that they have concealed income in the original returns and as their conscience was pricking, they came forward to file revised returns for the disclosure of concealed income, and no more was needed to prove concealment of income and, therefore, the learned Accountant Member rightly said that this was a clear case of concealment of income. Thus when the CIT wanted a report from the ITO about the action to be taken on the revised returns and the eligibility for waiver of penalties, it is difficult to appreciate that at the point of time, the CIT would be giving an assurance even orally to waive the penalties. The assessee no doubt made a request for the waiver of penalties in the letter of 1-5-1977 and the CIT was only enquiring into and at that point of time could not have given any assurance or undertaking or even a promise except stating that he would look into the matter, he might have felt sympathy for the assessee and only with a view to get at the bottom of the facts, he wanted a report from the ITO and calling for a report from the ITO about the eligibility for the waiver of the penalties, could not, therefore, be construed as an oral assurance given by the Commissioner to waive the penalties. At best it could be an assurance for a sympathetic consideration. The returns filed on 1-5-1977 were no doubt voluntary but could they be said to be in good faith. As pointed out by the learned D.R., they could not be in good faith because the assessee had a purpose to serve, namely to explain the source for the intended purchase of the house. The matter was so urgent for the assessees that even before the assessments were completed and even before an assurance was given by the CIT, they have straightaway credited the amount in the accounts of the partners in the books of the firm. It would show the urgency behind the filing of the revised returns on 1-5-1977. It is this urgency that had driven the assessee to file returns on l-5-1977 and brought the cash into the books of the firm admitting concealment of income. Since there is a purpose to be served by filing the revised returns, I do not think that the filing of the revised returns, though voluntary, could be said to be in good faith.
10. Section 273A permits the CIT, whether on his own motion or otherwise to reduce or waive the penalties imposed, if he is satisfied that:
Prior to the detection by the ITO, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars;
[(273A(1)(b)].
This shows that there are three important requirements of law to be satisfied before the CIT could assume jurisdiction to waive penalty or to reduce it. First the disclosure must be prior to the detection by the ITO of the concealment of particulars of income or of the inaccuracy of particulars furnished. Secondly, the filing of the return must be voluntary and in good faith, and lastly the disclosure of facts is full and true. While, it can be said that the last is fully satisfied namely full and true disclosure of income because the income returned was accepted and even though it could be said that returns were voluntary, could it be said that they were in good faith. ‘Good faith’ as judicially noticed imports the exercise of due care and attention, that there was no negligence on his part, according to reasonable standards. The standard that is required is that of a reasonably prudent man who acts with the care and caution required of a person in his position dealing with a matter of similar importance. ‘Good faith’ also imports the idea of doing an act honestly. Anything done without due care and attention is not an act done in good faith, according to Civil Law. Good faith means, not only an upright mental attitude, and clear conscience of a person, but also the doing of an act, showing that ordinary prudence has been exercised according to the standards of a reasonable person. ‘Good faith’ precludes pretence or deceit and also negligence and recklessness. These are some of the observations made by the High Courts, particularly in Kailas Sizing Works v. Municipality of Bhivandi and Nizampur AIR 1969 Bom. 127. The words “good faith” for the purpose of Wealth-tax Act was taken to mean an act done with due care and caution-Shankara Apaya Swami v. WTO 1976 Tax LR 248 (Kar.). But “good faith” in Criminal Law is different from “good faith” in Civil Law. If an act is done with due care and attention, it cannot be said to be done in “good faith” as far as Criminal Law is concerned. In the case of Jakhodia Bros. v. CIT [1978] 115 ITR 61, the Allahabad High Court pointed out that “good faith” which is required to be established for invoking the provisions of the Income-tax Act, 1961, is that in making the disclosure, the petitioner must have acted honestly. In other words, he should not have been guilty of having acted dishonestly in making the disclosure. Having regard to the meaning of the words “good faith”, can it be said that the assessee in this case has filed the returns in good faith on 1-5-1977. I think, it is only because the assessee had a motive and purpose to serve namely to bring the concealed income into books by avoiding the penal provisions as well as prosecution proceedings. I do not think that a return filed in those circumstances could be said to be a return filed in good faith. It is also difficult to agree that the returns filed could be termed even “voluntary”. In the case of Hakam Singh (supra), the Allahabad High Court has explained the meaning of the word “voluntary” used in Section 273A as under:
The term ‘voluntary’ in Section 273A of the IT Act, 1961, has been used to indicate an action free of any constraint. A return filed under the constraint of exposure to adverse action by the IT Department will not be voluntary within the meaning of Section 273A. The action of an assessee in filing a return after the books of account had been seized at the raid would be impelled by the compelling circumstances that the assessee was likely to be dealt with under the penal provisions of the IT Act. The action of an assessee in filing a return under such a constraint cannot be said to be voluntary.
It is seen in this case that the Allahabad High Court has pointed out that for the purposes of Section 273A, a return filed under the constraint of exposure to adverse action by the Income-tax department, would not be voluntary. If this definition of the word ‘voluntary’ is applied to the facts of the case before me, it would even be difficult to agree with the assessee’s contention that the filing of the returns were voluntary because there was a constraint of exposure to adverse action by the Department, had the property been purchased by the assessee for Rs. 3,25,000 as agreed upon on 12-2-1977 when there was no sufficient cash in the books. The learned Judicial Member had adverted to this meaning of the word ‘voluntary’ and held that the filing of the returns on 1-5-1977 could not be voluntary. I am inclined to agree with that view. While disposing of the petition, filed by the assessee for waiver of penalties, the Commissioner made the following observations which are very pertinent:
Three of the assessments, namely 1974-75,1975-76 and 1976-77 were completed on 30-11 -1976, 31-12-1976 and 31 -12-1976 respectively by which time the assessee must have already been on the look out for investment in purchase of a house and yet it did not choose to place the same facts before the ITO. After the investment was made, the assessee became aware that the department would have knowledge of the transactions as under the provision of Section 230A of the IT Act, 1961, the seller who would be presenting the sale deed for registration had to obtain a tax clearance certificate from the Income-tax Officer. Also under Section 269P of the IT Act, 1961 the registering officer has necessarily to forward a statement of the transaction in the prescribed form setting out certain particulars which include the names of the transferee and the purchase consideration. Therefore, the assessee came forward by filing the so-called revised returns spreading the investment over the assessment years under consideration after the assessments had already been completed on the basis of the returns filed by the assessee.
These facts would show that neither the returns filed on 1 -5-1977 could be said to be voluntary nor in good faith. It is also very pertinent to note that even though serveral letters written by the assessee to the CIT to complete the proceedings, nowhere a mention was made about an agreement or an assurance claimed to have been given by the CIT for waiving the penalties. Had such an assurance been given by the CIT as claimed by the assessee, at least in one of those letters a mention could have been made. Excepting the covering letter filed on 1-5-1977, along with the revised returns, in no other letters written thereafter reminding the CIT to complete the proceedings, a mention was made about the waiver of penalties. This also speaks of the justification of the stand taken by the Department that there was no such assurance given by the CIT. As I have already pointed out at the beginning of the discussion, the CIT, on the facts of this case, could not have given an assurance to waive the penalty unless he was satisfied that the filing of the returns was voluntary and in good faith making full and true disclosure of the income. The conclusion on these aspects can be arrived at only on receiving a report from the concerned ITO without the report of the concerned ITO, the CIT would not be justified in law to agree to waive the penalties. I can even go to the extent of saying that, had assurance been given at that point of time without making any enquiry, it could even be said to be an assurance given not in good faith. It is no doubt true that the assessee approached the CIT with the revised returns, the CIT, as head of the Department of the Revenue collecting agency, might have welcomed the idea of the filing of the revised returns showing higher income, he might have assured the assessee for a sympathetic consideration. That does not mean that the assessee was exonerated from the guilty of concealment of income, by what was described by the learned Accountant Member as a positive assurance, though oral, not to levy penalties. This is a case where an assurance is being spelt out from the conduct of the CIT when they categorically deny having given any such assurance and even reject the petition filed Under Section 273A for the waiver of penalties. Had such an assurance been given by the CIT, one would expect the assessee to take up the matter to the High Court on the refusal of the CIT to waive the penalties Under Section 273A. I do not think, I have not heard the learned counsel for the assessee stating that the matter was taken to the High Court. I am also unable to bring myself to bear to agree with the view expressed by the learned Accountant Member that from the repeated reminders given by the assessee to the CIT to complete the assessment proceedings, an understanding for not levying penalty could be spelt out particularly when there was no mention about it at all as I said earlier in any one of those letters. It may be that the assessee had a good case for the waiver of penalty and if the CIT had acted objectively, he could have come to the conclusion that the assessee even though with a view to bring into books certain concealed income had done it voluntarily and in good faith making true disclosure of his income and, therefore, waive the penalties but that is not the issue before me. The issue before me is whether on the facts and in the circumstances of the case, filing of the returns by the appellant firm on 1-5-1977 could be said to be voluntary and in good faith. In my view, neither the filing of the returns on 1-5-1977 can be said to be voluntary nor in good faith.
11. For the reasons I endeavoured to come to as above, I am unable to agree that there could be even an oral agreement or understanding between the assessee and the CIT that no penalties would be levied or they should be waived. Except for the power granted to the CIT Under Section 273A to waive penalties, there is no other section which empowers the CIT to waive the penalties arid even this power conferred upon him has to be exercised on the fulfilment of the essential requirements of law Before ascertaining whether these requirements of law were satisfied or not, it is incredible that a CIT would give an assurance not to levy penalties except stating that he would look into the matter. Both the Members agree that there was concealment of income. While the learned Accountant Member says that there must have been an assurance from the CIT for non-levy of penalty inferred from the facts that the ITO had not sent the report for long period, the Judicial Member says that such an inference was not possible. Thus both the Members agreed that there was concealment of income and the difference of opinion centres round as to whether there was an agreement or not. In my opinion, there is no such agreement nor could there be such an agreement.
12. Lastly since I came to the conclusion that the filing of the returns were neither voluntary nor in good faith, there could not be any agreement or assurance for non-imposition of penalties as claimed by the assessee.
13. The learned counsel for the assessee, after taking into the entire facts of the case, relied particularly on the following decisions of the High Court:
1. Addl. CIT v. Kishan Singh Chand [1977] 106 ITR 534 (All.)
2. CIT v. Bombay Automobiles [1980] 123 ITR 582 (AP)
3. CIT v. Mansa Ram & Sons [1977] 106 ITR 307 (All.)
4. S.R. Jadav Desai v. Sixth WTO [1980] 121 ITR 531 (Kar.)
5. R.P. Ramaswamy Chettiar v. CWT [1983] 144 ITR 87 (Mad.)
6. Madhukar Manilal Modi v. CWT [1978] 113 ITR 318 (Guj.)
7. CIT v. Hill Goods Truck Owners Union [1980] 124 ITR 224 (Punj. & Har.).
I felt no need to refer to any of these decisions as I found that the principles laid down in those cases, though unexceptional and should be respectfully applied by me, but on the facts of this case, I come to the conclusion that the filing of the returns could not be said to be voluntary as there was a lurking fear in the minds of the assessee for detection of the concealment of income, and there was an admission in unmistakable terms that there was concealment of income and so was the unanimous finding of both the Members and more emphatically by the learned Accountant Member.
14. The matter will now go before the regular Bench for disposal of the appeals, in accordance with the opinion of majority.