JASWANT RAI AND ANR. versus CENTRAL BOARD OF DIRECT TAXES AND REVENUE AND ORS.

Citation: [1998] 3 S.C.R. 139 · Decided: 04-05-1998 · Supreme Court of India · Bench: SUJATA V. MANOHAR · Disposal: Appeal(s) allowed

Judgment (excerpt)

JASW ANT RAJ AND ANR. 
A 
·-
v. 
CENTRAL BOARD OF DIRECT TAXES AND REVENUE AND ORS. 
MAY 4, 1998 
[SUJATA V. MANOHAR ANDS. RAJENDRA BABU, JJ.] 
B 
Income Tax Act, 1961 : 
Sections 271(J)(c) and 271(4A)-Power of Commissioner of Income 
Tax to reduce or waive penalty-Commissioner sending report to Central c 
Board of Direct Taxes to reduce penalty-Board declining to reduce penalty-
Held, in view qf the finding recorded by the Income Tax Appellate Tribunal 
and the circumstances explained by the Commissioner further scrutiny of the 
matter is required-Order of the Board quashed-Board would restore the 
proceedings to its file and would re-examine the matter. 
D 
' 
The second appellant Firm made an application on 12.2.1965 that it 
t 
would place before the Income Tax Officer a true statement of its financial 
assets, transactions etc. and would file a statement of affairs. The statement 
of affairs was filed disclosing certain amount as income from 1958-59 upto 
31.3.1965. The Inspecting Assistant Commissioner issued notices to the E 
appellants with a view to initiate proceedings under s.271(1)(c) of the Income 
Tax Act, 1961 for non -disclosure of the income relating to the relevant 
periods. A penalty of Rs. 4,90,365 was imposed on the appellants for the 
years 1958-59 to 1964-65. The appeal filed by the assessee was dismissed 
by the Income Tax Appellate Tribunal. 
J 
F 
During the pendency of the penalty proceedings the assesee filed an 
application under s.271(4A) of the Act for waiver of the penalty; and the 
Commissioner of Income Tax sent a report to the Central Board of Direct 
Taxes to reduce the penalty as according to him the assessee was entitled 
to the benefit ofs.271(4A). The Board refused to reduce the penalty. 
G 
The assessee filed a writ petition before the High Court contending 
-~ 
that the imposition of the penalty was premature inasmuch as the application 
under s.271(4A) was still pending and that the condition precedent for the 
satisfaction of the Income Ti:x Officer that the assessees had concealed the 
income was not satisfied as the assessee had made the voluntary disclosure. H 
139 
140 
SUPREME COURT REPORTS 
(1998] 3 S.C.R. 
A The High Court dismissed the writ petition. Aggrieved the assessee filed the 
present appeals. 
It was contended for the assessee that imposition of penalty under · · 
s.27l(l)(c) would not take away the discretion of the Commissioner of Income 
Tax if certain conditions for waiver under s.271(4A) were satisfied to which 
B the Commissioner had adverted to in his report sent to the Board for prior 
approval for waiver or reduction of the penalty; that the Board did not 
consider the matter in the manner required under the law. 
c 
Allowing the appeal, this Court. 
HELD: 1.1. The provisions ofs.271(4A) of the Income Tax Act, 1961 
indicate that it is a power coupled with a duty to do justice and the 
Commissioner of Income Tax is under statutory obligation to exercise the 
power in favour of an assessee who has fulfilled all the conditions of the 
provisions, the principal condition being that the assessee should have 
D voluntarily and in good faith made full disclosure of his income prior to the 
detection of the same and such disclosure could be made even otherwise than 
in the course of a return by submitting a petition to the Commissioner of 
Income Tax. (145-C-E] 
1.2. In the present case the assessee had made the disclosure prior to 
E the coming into force of the voluntary disclosure scheme and long before the 
Revenue could initiate any action in respect of the concealed income. The 
levy of penalty under section 27l(l)(c) by itself will not be a circumstance 
to take him out of the purview ofs. 271(4A) of the Act. [145-E-F] 
2.1. In view of the findings recorded by the Tribunal it cannot be said 
p 
that the assessee hau not disclosed its income at all before scrutiny by 
assessing officer. The assessee on 12.2.1965 filed a declaration as to the 
correct position which may be seen from the statement of financial affairs 
as on 31.3.1965. This declaration had been made by the assessee before the 
provisions of the Finance Bill 1965 regarding voluntary disclosure scheme 
G 
were introduced and it was also true that the assessee acted voluntarily in 
coming forward with this declaration. Besides, it was also noticed by the 
Tribunal that there was a confession made by the assessee voluntarily and 
earnestly that it had not returned the full income earned by

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