JASWANT RAI Vs. CENTRAL BOARD OF DIRECT TAXES

JUDGEMENT

(1.) BY this writ petition, under Arts. 226 and 227 of the Constitution, the petitioners seek a declaration that various penalty proceedings initiated and completed by respondent No. 3 (IAC, Delhi Range IV, New Delhi) and confirmed in appeal by respondent No. 5 (Tribunal, Delhi Bench "C") were illegal, void and/or ultra vires the Constitution ; writ of certiorari or any other appropriate writ, order or direction calling for the records of the said respondents Nos. 3 and 5 and quashing the various orders of penalties and various notices of demand issued by respondent No. 4 (ITO, Companies Circle, New Delhi) and the order of the Tribunal ; writ of mandamus or any other appropriate writ restraining the respondents from imposing any penalties under the provisions of s. 271 or any other provisions of the IT Act in respect of the income voluntarily disclosed by the petitioners and a writ of mandamus or any other appropriate writ directing respondent No. 1 (CBDT and Revenue) and/or respondent No. 2 (CIT, Delhi), waiving and/or reducing the minimum amount of penalty by way of an appropriate order in respect of the petitioner's application dated February 12, 1965. Petitioner No. 2 is a partnership firm known as M/s Ram Krishan Kulwant Rai (hereinafter referred to as "the Firm"). Petitioner No. 1, Shri Jaswant Rai, is one of its partners. The firm has been carrying on business in steel and other allied material, including imported material. Its accounting year is from 1st April to 31st March. It is assessed to income -tax.

(2.) IN or about January, 1965, an Ordinance was promulgated to incorporate the scheme of voluntary disclosure. The said Ordinance was subsequently replaced by IT (Amend.) Act, 1965, and, inter alia, a new section, S. 271(4A), was added to the IT Act. In pursuance of this scheme of voluntary disclosure, the firm made an application dated February 12, 1965 (annex. "A"), intimating that they would place before the ITO a true statement of their financial affairs and transactions and that they were preparing the statement of affairs of the firm as on March 31, 1965, which they would file later on. The firm filed the said statement of affairs on May 20, 1965, voluntarily disclosing an income of about Rs. 28,00,000 as the total accretion to its wealth over the eight years up to March 31, 1965. Thereafter, some negotiations took place between the firm and the CIT and ultimately the petitioners agreed to be assessed at Rs. 66,56,000 subject to usual allowances for depreciation, etc. This amount was to be spread over eight assessment years, i.e., from 1958 -59 to 1965 -66. At that time assessments up to 1959 -60 were complete. Thus, assessments for two years, 1958 -59 and 1959 -60, were reopened for the purposes of spreading over of the income disclosed. Admittedly, the disclosed income was spread over as agreed.

(3.) THE petitioners challenge the penalty proceedings on various grounds, namely, (i) initiation of penalty proceedings by the ITO under S. 271(1)(c) was illegal, without authority of law and/or premature inasmuch as the petitioners' application under S. 271(4A) was pending before the CBDT and/ or the CIT ; (ii) that the said CBDT and the CIT were bound to pass orders on the petitioners' application under S. 271(4A) ; (iii) the petitioners made a voluntary disclosure relying on the promises and/or representations made by the respondents through the provisions of S. 271(4A) and/or at the time of discussion with the CIT to the effect that the petitioners would not be subjected to any penalty and in view of these promises and representations no penalty could be levied and the respondents could not go back on their assurances ; (iv) the penalty notices were issued after the completion of the assessment proceedings and were, therefore, without jurisdiction ; (v) there was no concealment and, therefore, no penalty could be levied ; and (vi) the penalty proceedings were arbitrary, illegal and invalid.