N.K. Agrawal, J.
1. This is petition under Arts. 226 and 227 of the Constitution for quashing the orders dt. 25th March, 1996, and 27th December, 1996, passed by the CIT under ss. 273A and 154 of the IT Act, 1961 (for short, 'the Act') respectively.
2. Petitioner owned certain agricultural land, he received compensation from the Haryana Government on 13th February, 1991, consequent upon the acquisition of his land. He also received interest for several years on the amount of compensation. He was liable to pay income-tax on the interest income received by him for different years. The petitioner filed returns for different assessment years showing income from interest. The AO completed assessments on 31st August, 1992, under s. 143(1) of the Act for the asst. yrs. 1982-83 to 1988-89. The AO also charged interest under ss. 138(8) and 217 of the Act for the aforesaid assessment year as aggregating to Rs. 2,30,881. The AO levied penalty also for failure to furnish returns, without reasonable cause, under s. 271(1)(a) of the Act.
3. The petitioner filed an application under s. 273A of the Act before the CIT seeking waiver of interest and penalty charged and levied for the aforesaid assessment years, the CIT granted relief to the extent of 50% only.
4. Shri A. K. Mittal, learned counsel for the petitioner, has argued that the petitioner had voluntarily filed returns and had also paid tax on the returned income by way of self-assessment, for all the assessment years. Therefore, there was no justification for charging interest and for the levy of penalty. The petitioner also moved an application before the CIT under s. 154 of the Act, seeking complete relief. That application was, however, rejected by the CIT.
The argument of Shri A. K. Mittal, learned counsel for the petitioner is that the petitioner fulfilled all the conditions specified in s. 273A of the Act and was, therefore, entitled to complete waiver of interest and penalty. Once the conditions were satisfied, exercise of discretion by the CIT could not be arbitrary but should be just and fair. Power conferred by s. 273A was to be exercised correctly and properly. There was no justification in not waiving interest and penalty fully when all the requirements stood fulfilled. No good reasons were given by the CIT while reducing interest and penalty to 50% only. Since the petitioner had filed the returns voluntarily before the issuance of any notice to him, he was entitled to the benefit of waiver. He had made a full and true disclosure of his interest income received for different years. Compensation, enhanced compensation and interest were awarded on 13th February, 1991. Returns were filed on 31st March, 1992. The petitioner paid tax on the assessee income. Assessments were made by the AO under s. 143(1) of the Act, thus, accepting the interest income shown by the petitioner.
Shri A. K. Mittal, learned counsel for the petitioner, has further argued that the petitioner could not have imagined, prior to the receipt of compensation, that advance tax should be paid and returns must be filed in the earlier assessment years. Neither the amount of interest was anticipated nor received in the earlier relevant years. The petitioner could not, therefore, show the amount of interest as income earlier. Provisions of ss. 139(8) and 217 were not attracted for the purposes of charging interest. Shri Mittal has further contended that penalty was also not leviable as the petitioner did not file the returns earlier as interest had not been received.
Shri Mittal has also drawn our attention to Circular [sic-Order under s. 119(2)(a)] No. F. No. 212/495/92-ITA-II. dt. 2nd May, 1994 issued by the CBDT. The circular lays down that interest, under ss. 234A, 234B and 234C of the Act shall be reduced or waived by the Chief CIT or Director General if any income had accrued or arisen for any previous year due to operation of any order of a Court, statutory authority or Government passed after the close of that previous year. It is, however, necessary that the relevant income is disclosed in the return of income for the relevant year and tax thereon is paid. Sec. 234A is similar to s. 139(8) and s. 243B is akin to s. 217 of the Act. Shri Mittal has, therefore, submitted that the guidelines laid down in the aforesaid circular regarding the waiver of interest should be followed by the authorities under the Act while considering the question of charging of interest under ss. 139(8) and 217 of the Act. Shri Mittal has also submitted that interest for one year (1st April, 1991 to 31st March, 1992) could best be charged. The petitioner was not a regular assessee and the amount of compensation received by the petitioner was not taxable, being compensation received on the acquisition of agricultural land.
5. Shri R. P. Sawhney, learned senior counsel for the respondents, has on the other hand, argued that the petitioner was under a legal obligation to file returns of income for different years. He filed returns on 31st March, 1992 though he had received compensation and interest from the State of Haryana on 13th February, 1991. Thus, the petitioner took unduly long time for filing the returns. The CIT while deciding the petitioner's application under s. 273A of the Act, gave reasons for reducing the amounts of interest and penalty to 50% of the amount determined by the AO. Power under s. 273A was to be exercised by the CIT in such a manner as he deemed just and proper. It was a discretionary power. The CIT rightly reduced interest and penalty to the extent of 50% only. He gave reasons in his order. It was not a case of total waiver as the petitioner paid tax after more than one year from the receipt of interest. Application filed by the petitioner before the CIT, under s. 154 of the Act, did not lie as there was no apparent mistake in the CIT's order, Shri Sawhney has also argued that the circular of the Board, relied upon by the petitioner, was not attracted as it is related to the waiver of interest charged under ss. 234A, 234B and 234C of the Act.
6. The controversy, which emerged from the rival contentions, is regarding the scope of s. 273A of the Act. The said section empowers the CIT to reduce or waive interest and penalty. There is no doubt that the power given to the CIT under s. 273A is discretionary. The CIT is given the discretion, when the requisite conditions envisaged by that section are satisfied, that he may waive or reduce the penalty or the interest imposable under the Act. However, the exercise of discretion cannot be either arbitrary or capricious and has to be judicious and objective. If the conditions required for the exercise of discretion are satisfied, the discretion must be exercised judiciously by taking into consideration all the relevant facts. Satisfaction for the exercise of discretionary power must be an objective satisfaction and not a subjective satisfaction. Sec. 273A does not confer absolute discretion upon the CIT to pass any order which he pleases to make. He is required to consider the application on merits. If the conditions for the exercise of the power are fulfilled, he is obliged to exercise the discretion in favour of the assessee.
7. Allahabad High Court in Naresh Kumar Gupta vs . CIT & Anr. : [1983]144ITR556(All) examined a matter under s. 273A of the Act. It was noticed that the CIT had not recorded any reasons for refusing the relief to the petitioner for the total amount of interest. The order of the CIT was quashed and he was required to decide the claim for waiver of interest afresh on merits.
8. A similar matter has been examined by the Bombay High Court also in Rohit Kumar & Co. & Ors. vs . F. J. Bahadur, CIT & Ors. : [1991]190ITR93(Bom) . It has been observed that s. 273A conferred a discretion on the CIT to waive or reduce penalty or interest. The conditions necessary are referred to in cls. (b) and (c) of that section. In both the clauses, the common factor is the making of full and true disclosure of income voluntarily and in good faith.
9. This Court had also an occasion to examine a matter under s. 18B of the WT Act, 1957 in Smt. Parkash Devi vs. CWT TC 66R.933. Provisions in s. 18B of the WT Act are similar to those in s. 273A of the Act. It was held that under s. 18B of the WT Act, the following 5 conditions are required to be fulfilled :
'(1) that the returns filed by the petitioner prior to the issuance of a notice to her under sub-s. (2) of s. 14 of the Act;
(2) that these were filed voluntarily and in good faith;
(3) that the petitioner had made full and true disclosure of her net wealth;
(4) that she had co-operated in the inquiry relating to the assessment of her net wealth; and
(5) that she had paid or made satisfactory arrangements for the payment of the tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment years.'
It is, thus, clear that an assessee, while seeking waiver of interest and penalty, must show that he fulfilled all the conditions. These conditions are relevant for the exercise of discretion.
10. The Supreme Court in Smt. Harbans Kaur vs . CWT : [1997]224ITR418(SC) had an occasion to examine a matter regarding waiver of penalty under s. 18B of the WT Act, which is analogous to s. 273A of the Act, whereunder also a similar discretion has been conferred on the CIT for either reducing the penalty or granting waiver of the entire penalty. The direction is to be exercised in a reasonable and fair manner. It was noticed that the CIT had, in that case indicated his own reasons for resorting to the power of reduction of the penalty instead of granting full waiver of the penalty. In these circumstances, it was held that the reasons indicated in the orders were not unjust and irrelevant.
11. The Supreme Court had again an occasion to examine a similar matter in Prithipal Singh (Decd.) vs . CWT : [1998]234ITR45(SC) . That was a case where penalty had been imposed under s. 18(1)(a) of the WT Act on account of the appellant's failure to furnish the return of wealth within the time allowed in the relevant assessment year. The delay ranged from 10 months to 34 months. It was contended by the assessee that penalty should be waived because he had voluntarily and in good faith made full disclosure of his net wealth by filing the wealth-tax returns for the relevant assessment years prior to issuance of any notice. He had also co-operated in the enquiry relating to the assessment proceedings. The CIT had observed that the assessee had obtained several adjournments on various grounds, some of which related to obtaining a valuation report. Looking to the series of adjournments, the CIT felt that the assessee had failed to co-operate with the Department. The Court was of the view that the CIT was perhaps a little harsh in not reducing the amount of penalty, especially when the total tax, involved in all the assessment years, was only about Rs. 7,000. The assessee had voluntarily filed the wealth-tax returns before the issuance of any notice. The Court, therefore, reduced penalty to 50% of what had been levied.
12. On a consideration of the matter, emerging from the petitioner's pleas, it is found that the petitioner had received compensation and interest on 13th February, 1991. He filed returns of income for the relevant earlier years on 31st March, 1992. He, thus, took about a year for filing the returns. He was not a regular assessee under the Act. He was also not liable to pay income-tax on the amount of compensation. There is considerable force in the petitioner's plea that he could not anticipate the receipt of interest unless it was finally determined by the competent authority. Therefore, the petitioner was not supposed to pay advance tax in the assessment year in which the interest accrued. In these circumstances, the petitioner cannot be held liable for penalty for failure to file the returns of income in the earlier years. The petitioner fulfilled all the conditions specified in s. 273A of the Act. He filed the returns prior to the issuance of notices to him by the AO. He filed the returns voluntarily and in good faith. He also made full and true disclosure of his income assessable to tax. He co-operated during assessment and the disclosed income was accepted by the AO. The amount of tax was paid by the petitioner. It would be, therefore, manifest that the petitioner did fulfil all the conditions under s. 273A of the Act. In this light, the levy of penalty is found to be not justified. The CIT failed to exercise discretion in a fair, just and judicious manner.
13. Since the petitioner had received compensation in February, 1991 and he filed returns on 31st March, 1992, he is held liable to pay interest from 1st April, 1991 to 31st March, 1992. There is no justification in charging interest for the earlier period inasmuch as the petitioner fulfilled all the conditions laid down in s. 273A of the Act except for the delay in filing the return for a period of one year.
14. In the result, the writ petition is partly allowed. Order, charging interest under ss. 139(8) and 217 of the Act, is partly quashed with the direction that interest shall be charged under the aforesaid sections for one year from 1st April, 1991 to 31st March, 1992. Order levying penalty under s. 271(1)(a) of the Act is quashed.
15. No order as to costs.