By C. N. Vaze, Chartered Accountant
Is It Fair
1. Introduction :
The Income-tax Act, 1961 prescribes a variety of consequences
for default in complying with various requirements of the Act. The common
consequences are interest and penalties; and in extreme situations, prosecution
as well. The other consequences could be denial of exemptions or deductions,
denial of carry forward of losses, etc. It is now a fairly settled position that
interest is mandatory while penalty is discretionary. Unfortunately, the present
attitude of the administration is to levy penalty in a routine manner and seldom
use discretion in favour of the assessees — howsoever genuine the case may be.
Penalties are also perceived as a source of revenue — although its main
objective is to have a deterrent effect. Even the First Appellate authorities
are often reluctant to interfere. Invariably, one has to approach the Tribunals.
S. 273B provides some cushion to argue that there was reasonable cause behind
the default. In practice, however, it is hardly effective. The main penalty
which is the subject matter of this write-up is penalty u/s.271(1)(c)
vis-à-vis its waiver u/s.273A.
2. S. 271(1)(c) :
Concealment of income or inaccurate particulars :
2.1 Readers are aware that in terms of sub-clause (iii) of
Ss.(1) of S. 271(1), if there is concealment of Income or furnishing of
inaccurate particulars, as envisaged in clause (c) of S. 271(1), the penalty
imposable may be not less than, but not exceeding three times the tax sought to
be evaded. Apart from the harshness in terms of quantum, it is also a stigma on
the assessee’s tax records. Since, it is very serious, there is good amount of
litigation on this particular issue.
2.2 Disallowances u/s.40(a)(ia) or S. 43B are in most of the
cases merely in the nature of deferment of allowability. These disallowances can
hardly be called as ‘concealment’. Still, penalty provision of 271(1)(c) is
routinely invoked and penalty levied. This adds to the misery created by the
already illogical provision of S. 40(a)(ia).
3. S. 273A waiver or reduction of penalty :
3.1 Theoretically, S. 273A seeks to provide some remedy.
However, its wording is peculiar. The relevant provisions read as follows :
“S. 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
–
(ii) reduce or waive the amount of penalty imposed or
imposable on a person under clause (iii) of Ss.(1) of S. 271;
If he is satisfied that such person :
(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;
and also has, in the case referred to in clause (b),
co-operated in any enquiry 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 Ss.(1) of S. 271.”
3.2 Now, the question arises that if it is a pre-condition
that prior to the detection by the AO, the full particulars had been disclosed,
then in the first place, the penalty would not have been leviable at all. In
such case, it should be deleted as a matter of right to the assessee and it
would be a fit case to succeed in appeal. S. 273A is like a mercy petition where
the legal merit is not too strong. Question of mercy or waiver would arise only
where the penalty was legitimately leviable and the assessee has in fact
committed a default.
3.3 A safeguard is also provided in Ss.(3) to the Revenue
that such waiver can be granted only once in the lifetime of an assessee. It
cannot be resorted to again and again. Therefore, it is reasonable to expect
that the conditions should not be so rigid as to make the waiver almost
impossible. Thus, under the present law, even if a Commissioner wants to use his
discretion in favour of the assessee, it would be difficult for him to do so.
3.4 The situation is further aggravated by the recent
retrospective amendment introduced by the Finance Act, 2008. viz.
dispensing with the requirement of ‘satisfaction’ on the part of the Assessing
Officer before initiating the penalty proceedings. Refer Ss.(1B) of S. 271.
4. Suggestion :
The procedure and conditions for waiver should be made
liberal so as to make the law equitable. The present rigidity which, in fact, is
inherently self-contradictory should be removed.
