1 hvn IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 428 OF 1996 1. Shardadevi P.Jhunjhunwala, 2. Nirmaladevi N. Jhunjhunwala, 3. Shashikala N. Jhunjhunwala, 4. Sandhayadevi N. Jhunjhunwala, 5. Fatechand Paliram, Karta of Fatechand Paliram H.U.F. 6. Purshottamdas F. Jhunjhunwala, Karta of Purshottamdas F. Jhunjhunwala,H.U.F. 7. Kishorilal F. Jhunjhunwala, Karta of Kishorilal F. Jhunjhunwala, H.U.F. 8. Nirmalkumar P. Jhunjhunwala, Karta of Nirmalkumar P. Jhunjhunwala H.U.F. 9. Niranjankumar P. Jhunjhunwala, Karta of Niranjankumar P. Jhunjhunwala, H.U.F. 10. M/s. Nirmal Udyog Co. all having address at 45, Maker Chambers III, 223, Nariman Point, Bombay 400 021 ... Petitioners Versus 1. Commissioner of Income Tax, Bombay City VIII Bombay, having office at Earnest House, Nariman Point, Bombay 400 021. 2. Union of India, having its office at Aayakar Bhavan, 2nd Floor, M.K. Marg, New Marine Lines, Bombay 400 020. ... Respondents Mr. P.S. Jetly with Mr. G.S. Jetly, Sr. Advocate and Mr. A.S. Tungare for Petitioners. Mr. P.S. Sahadevan for Respondents. CORAM : FERDINO. I. REBELLO & D.G. KARNIK, JJ. DATED : SEPTEMBER 14, 2009 2 ORAL JUDGMENT (Per Ferdino I. Rebello,J.): The Petitioner by the present petition seeks to impugn the order dated 21.6.1993 under section 273A(4) of the Income Tax Act and order dated 31.10.1994 under section 273A(i) of the Income Tax Act. 2. Search operations were carried out in the premises of the Petitioners and of their associates on 22.8.1986. In the search carried out, shares/debentures/units valued at Rs.82,00,000/-, cash of Rs.7,25,000/-, ornaments and jeweleries valued at Rs.11,34,280/- and silver utensils valued at Rs.2,70,000/- were seized. Various incriminating documents including one diary called “Boston diary” was also seized. Copies of the documents and seized material were supplied to the Petitioners. Between 13.09.1986 and 18.12.1986 various steps were taken. On 18.12.1986 order was passed under section 132(5). On 14.1.1987 an application was moved under section 132(11), but it appears no action was taken due to further developments. An application under section 273A was made on 27.1.1987. On 27.1.1987 the Petitioners in this petition disclosed additional income of Rs. 2.29 Crores. On 3.3.1987 the group filed revised returns. On 31.3.1987 according to Petitioners, the group paid annual tax of Rs.1,06,00,000/- on additional income disclosed in the revised returns for the assessment years 1970-71 to 1987-88. The assessment pursuant to revised returns were finalized by the department by accepting the disclosed income. 3. Petitioners have approached this court contending that Petitioner Nos. 1 to 9 are nationals and citizens of India. Petitioner No. 10 is the partnership firm. 3 Petitioner Nos. 1 to 4 are assessees on their own. The Petitioners Nos. 5 to 9 represent their respective HUFs. The Petitioners are required to be assessed to tax under the provisions of Income Tax Act (which hereinafter shall be referred to as Act) as also under the provisions of the Wealth Tax Act, 1957 (which hereinafter shall be referred to as “Wealth Tax Act” wherever applicable). 4. Though on 22.8.1986 search and seizure action was carried out on some of the members of the Jhunjhunwala Group, there was no search warrant or search action in the case of the Petitioners. In the course of search action, a statement was made under section 132(4) that income will be voluntarily offered by the members of the Jhunjhunwala group. Pursuant to the said statement, the members of the group worked out figures for offer and voluntarily made written offer on 27.1.1987 for the total amount of Rs. 2.29 Crores in the hands of the different members of the group for different years. The Petitioners are the members of Jhunjhujwala group. 5. According to Petitioners, the disclosure was made on the clear understanding from the concerned authorities that there will be no penal liability and penal interest if any will be waived. On the basis of such assurance by the authorities concerned and with a view to avoid litigation and to buy peace of mind, the offer was made at the much higher figure. The offer made has been accepted without any investigation or verification and the assessments have been completed accordingly. In the course of search, a diary called “Boston diary” was found which was the main item in question. The notings in the Boston diary could not have been deciphered by anyone except one or two persons from Jhunjhunwala group. Without their 4 initiative, help and assistance nothing could have been found by the department authorities from the said Boston diary. According to Petitioners this has been confirmed by the first respondent in his order dated 31.10.1994. Further, it is not in dispute and confirmed by the respondent that the members of the Jhunjhunwala group have voluntarily assisted and cooperated in deciphering the said diary and had voluntarily offered the amount for taxation. So far as Assessment Year 1987-88 is concerned, the offer was made even before the due date of the filing of the return was over and in the original return of income itself additional amount was offered. In these circumstances, no penalty could have been levied for the assessment year 1987-88 since the offer was same in the original return of the Income itself. However, certain penalty and interests were levied. 6. The total amount under different provisions totalled to Rs. 1.,44 Crores. Out of this, an amount of Rs. 49 lacs. had already been paid and the balance amount of penalty remaining unpaid was Rs. 95 lacs. The interest and penalty imposed was as under : Interest under sections 139(8)215/217 : Rs. 13 lacs. Penalty under section 273 : Rs. 4 lacs. Penalty under Section 271(1)(c) : Rs. 1.27 Crores ------------------- Total : Rs.1.44 Crores =========== 5 7. We may now reproduce the relevant provisions of Section 273A as it then stood : Section 273A - Power to reduce or waive penalty, etc., in certain cases (1) Notwithstanding anything contained in this Act, the Commissioner may, in his discretion, whether on his own motion or otherwise, – (i) reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of sub section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub section (1) of section 139; or (ii) reduce or waive the amount of penalty imposed or imposable on a person under clause (iii) of sub-section (1) of section 271 ; *or (iii) reduce or waive the amount of interest paid or payable under sub section (8) of Section 139 or section 215 or section 217 or hte penalty imposed or imposable under section 273 if he is satisfied that such person – (a) in case referred to in clause (i), has, prior to the issue of a notice to him under sub section (2) of section 139, voluntarily and in good faith made full and true disclosure of his income; 6 (b) in the case referred to in clause (ii), has, prior to the detection by the Assessing Officer, 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, (c) in the cases referred to in clause (iii), has, prior to the issue of a notice to him under sub section (2) of section 139, or where no such notice has been issued and the period for the issue of such notice has expired, prior to the issue of notice to him under section 148, voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed, and also has, in the case referred to in clauses (a), (b) and (c), co- operated in any inquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act, in respect of the relevant assessment year. Explanation : For the purposes of this sub-section, a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract the provisions of clause (c) of sub-section (1) of section 271. (2) Notwithstanding anything contained in sub-section (1), – (a) if in a case the penalty imposed or imposable under clause (i) of 7 sub section (1) of section 271 or the minimum penalty imposable under section 273 for the relevant assessment year or, where such disclosure relates to more than one assessment year, the aggregate of the penalty imposed of imposable under the said clause or of the minimum penalty imposable under the said section for those years, exceeds a sum of one hundred thousand rupees, or ; (b) if in a case falling under clause (c) of sub-section (1) of section 271, the amount of income in respect of which the penalty is imposed or imposable for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate amount of such income for those years, exceeds a sum of five hundred thousand rupees, no order reducing or waiving the penalty under sub-section (1) shall be made by the Commissioner except with the previous approval of the Board. (3) Where an order has been made under sub-section (1) in favour of any person, whether such order relates to one or more assessment years, he shall not be entitled to any relief under this section in relation to any other assessment year at any time after the making of such order : (4) Without prejudice to the powers conferred on him by any other provision of this Act, the Commissioner may, on an application made in this behalf by an assessee, and after recording his reasons for so doing, reduce or waive the amount of any penalty payable by 8 the assessee under this Act, or stay or compound any proceeding for the recovery of any such amount, if he is satisfied that – (i) to do otherwise would cause genuine hardship to the assessee, having regard to the circumstances of the case ; and (ii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him : Provided that where the amount of any penalty payable under this Act or, where such application relates to more than one penalty, the aggregate amount of such penalties exceeds one hundred thousand rupees, no order reducing or waiving the amount or compounding any proceeding for its recovery under this sub-section shall be made by the Commissioner except with the previous approval of the Board. (5) Every order made under this section shall be final and shall not be called into question by any court or any other authority. (6) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989) shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April 1988, or any earlier assessment year, and references in this section to the other provisions of this Act, shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. 9 This sub section was inserted to by direct tax laws (Amendment) Act, 1987 with effect from 1.4.1989. The following explanation below sub section (1) was omitted by Finance Act, 1985 with effect from 24.5.1985. “Explanation 2 : Where any books of account, other documents, money, bullion, jewelery or other valuable article or thing belonging to a person are seized under section 132 and within fifteen days of such seizure, the person makes a full and true disclosure of his income to the Commissioner, such person shall, for the purposes of clause (b) of sub section, be deemed to have made, prior to the detection by the Income Tax Officer of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, a disclosure of such particulars”. 8. An application under Section 273A was jointly made on behalf of the Petitioners by their application of 27.1.1987. This was further elaborated by communication of March 22, 1991. 9. In so far as the application under section 273A(i) is concerned, the Commissioner was pleased to hold that the Petitioners had not satisfied the requirement that the disclosure was “voluntary”. The Petitioner had offered, complied with all the other conditions in as much as they had cooperated in the investigation, relating to assessment of income tax. They had also either paid or 10 made satisfactory arrangements for payment of taxes or interests. The assessments were also made on the basis of the disclosures made by the assessees. As the Commissioner recorded a finding that the disclosure was not made voluntary, he rejected the application under Section 273A(i) which provides for waiver of penalty and interest. 10. Similarly in respect of the application under Section 273A(4) the Commissioner recorded a finding that the Petitioners herein had not made out a case of genuine hardship and accordingly dismissed the said application 11. At the hearing of this application, on behalf of the Petitioners it is submitted by their learned counsel that respondent No.1 misdirected himself in law in relying on the judgment in the case of Tribhuvandas Zaveri Vs. Union of India (1993) 204 ITR 368 (SC). It is submitted that the judgment in the case of Tribhuvandas was in the context of section 3 of the Voluntary Disclosure of Income and Wealth Tax 1976 (VDIS). It is therefore, submitted that the ratio of the said judgment could not have been attracted while considering the provisions of Section 273A. On this count alone, it is submitted that the order is liable to be set aside. The learned counsel submits that the Petitioner in respect of Section 273A(i)(a)(iii) had made disclosure prior to issuance of notice and further voluntarily and in good faith made true and full disclosures of the income and paid the full tax as also cooperated in the inquiry relating to the assessment of his income and either paid or made satisfactory arrangements for the payment of the tax or interest payable in consequence of the order passed under this Act. It is further submitted that in so far 11 as Section 273A(i)(ii) is concerned, the application was made prior to detection by the I.T.O. /Assessing Officer and as such also complied with the requirements. The Respondent No. 1 has not addressed himself to the said contention and consequently the order made under Section 273A(i) is liable to be set aside and the matter be remanded back to Respondent No. 1 for reconsideration. In so far as the order passed under section 273A(4) it is submitted that the application was only rejected on the ground that the Petitioners had failed to make out the case of genuine hardship. In so far as the hardship is concerned, the Respondent No. 1 did not take into consideration that the Petitioners themselves had directed the Unit Trust of India to dispose of the shares at any available price and to pay the sale proceeds directly to the Income Tax Department. It is therefore, submitted that the order is liable to be set aside and consequently the matter be remanded back to Respondent No. 1 for de novo consideration. The learned counsel has placed reliance on several judgments in support of the contentions, to which we shall subsequently advert to in the course of deciding the controversy. 12. In so far as section 273A is concerned, the condition precedent before exercise of powers to reduce or waive penalty or interest by the Commissioner as per the law as settled are : (a) there must be voluntary disclosure of income before the issue of notice under section 139(2); (b) the assessee must have made true and full disclosure of income in good faith prior to detection by the A.O. (c) the Assessee must have cooperated in the conduct of the assessment proceedings 12 and (d) the assessee must have paid or made satisfactory arrangements for payment of tax or interest payable in consequence of the order passed under the Act with respect to the relevant assessment year. In so far as section 273A(4) is concerned, the predicates required to be satisfied are : (1) On the facts of the case there would be genuine hardship to the assessee if the relief is not granted. (2) The assessee has cooperated in the inquiry relating to the assessment or in proceedings for recovery of any amount due from him. 13. Considering these provisions, let us first consider the judgments relied upon on behalf of the Petitioners. The learned counsel has placed reliance in the judgment in the case of Full Bench of Allahabad High Court in the case of Bhairavlal Verma Versus Union of India (1998) 230 ITR 855 (All)(FB). The court there was considering the case under the provisions of Section 273A(i) of the Income Tax Act. The learned Full Bench after considering various judgments including the case of Tribhuvandas Bhimji Zaveri Versus Union of India and Ors. (1993) 204 ITR 368 (SC) to which we shall advert subsequently, was pleased to hold that disclosure of concealed income after the Department has seized incriminating material disclosed, cannot be voluntary disclosure, because it is made under the constraint of exposure to adverse action by the Department. The court then observed that it cannot be held as a principle of law that the disclosure of income made after the search/raid cannot be 13 voluntary. It is a question which has to be decided by the Department in each case on the basis of the material on record. If on record there is incriminating material with regard to the disclosed income, disclosure cannot be voluntary. But if the department has no incriminating material with regard to the income disclosed, the disclosure will have to be treated as voluntary. 14. Reliance then was placed on the judgment of the learned Single Judge of Madras High Court in K.M. Radha Krishna Chettiar and Company Versus Commissioner of Income Tax and another, (2000) 244 ITR 3274 (Mad). The learned Judge was pleased to set aside the order impugned there on the ground that the commissioner there had not applied his mind as there was no finding as to the compliance or otherwise of the conditions imposed under section 273A nor the first respondent had assigned any reason whatsoever for refusing the relief sought for by the petitioner under section 273A while exercising his discretion nor the first respondent had applied his mind or satisfied himself whether the petitioner made the disclosure with a fear relating to the imminent and proximate exposure to penal action. 15. Reliance is also placed in the judgment of the Andhra Pradesh High Court in K.S.N. Murthy Versus Chairman, C.B.D.T. (A.P.) (2001) 252 ITR 269 (AP). In that case the learned Judge on the facts there found that the order does not reflect due application of mind on the part of the commissioner to the facts of the case. As exercise under section 273A is quasi judicial, it is incumbent on the commissioner to apply his mind to all the relevant facts to satisfy himself whether the return has been 14 filed voluntarily and in good faith making full land true disclosure and whether the assessee has cooperated with the department in concluding the assessment and whether he has paid the tax or made satisfactory arrangements for payment thereof or in other words to satisfy himself as to the existence of the ingredients of the provisions and that the commissioner can not take into consideration the facts extraneous to the provisions or factors not germane to the decision making. Reliance was also placed on the judgment of the learned Single Judge of this court in Rohitkumar and Co. and Others Vs. F.J. Bahadur, C.I.T. and Ors. 190 ITR 93. The issue before the learned Single Judge was a case of seizure made on 30.4.1981. Six days thereafter Petitioner brought to the notice of the Deputy Director of Inspection (Intelligence) as well as the Commissioner that that amount belonged to them and should be treated as its income for the assessment year 1981-82. The previous year for the relevant assessment year had not ended. On these facts the learned Court came to the conclusion that there is no question of concealment at the hands of the assessee far less a case of detection and the returns filed cannot but be held to be voluntary and in good faith. 16. Reliance was also placed in the case of Division Bench of this court in Dr. Mrs. Sudha Kankariya Versus Commissioner of Income Tax and Others, (2004) 270 ITR 296 (Bom). On the facts there, there was no search. The assessee husband of his own free will approached the I.T.O. And made a voluntary disclosure before the Assessing Officer and offered for taxation amounts which were deposited by him and the assessee in Andhra Bank. The Commissioner declined to consider the 15 application of the Petitioner under Section 273A on the ground that there was no voluntary disclosure. It is on these facts that the learned Bench was pleased to hold that, the disclosure was voluntary. The learned Bench observed that what is required to be seen is whether the voluntary disclosure is prior to the detection by the Assessing Officer and in that case that condition is fulfilled by the assessee. The order was accordingly set aside and the matter remanded back to the commissioner. 17. We may now consider the judgment of the Supreme Court in Tribhuvandas Zaveri (supra). It is true that the said judgment was under the provisions of the V.D.I.S. Act. What came up for consideration was applicability of section 3 or section 14 of the Act. The court observed that the object of the Act is to motivate the voluntary declaration of concealed income and with that object in mind the Schedule to the Act prescribes concessional rates of tax. It was then observed as under : “A declaration of concealed income made after books of account or other documents or valuable assets have been seized cannot be said to be a voluntary disclosure; it is made because the books, documents and assets seized would disclose to the assessing authority the concealment of income.” A Division Bench of this Court in Natwarlal Raval Versus Commissioner of Income Tax and Ors. (1993) 115 CTR (Bom) 518 was pleased to observed as under : 16 “We are inclined to agree with the Kerala High Court that in every case the CIT must, having regard to the search, seizure or statements, determine whether or not the disclosure subsequently made is or is not voluntary, but, we are also inclined to agree with the Allahabad High Court that where a disclosure is made consequent upon seizure of incriminating material relevant to the particular assessment year, the disclosure is made because adverse consequences under the Act are attracted. Such a disclosure is not voluntary.” It will be clear that in so far as Division Bench of this court is concerned, it was clearly of the opinion that when the disclosure is made subsequently to the seizure of incriminating material, the disclosure is made because of adverse consequences and such disclosure is not voluntary. On the facts of our case, the disclosure was made pursuant to search and seizure of incriminating material which includes the “Boston Diary”. The issue whether the authorities could have deciphered the documents on their own without Petitioner cooperating, in our opinion is immaterial. There is nothing on record to state that in