Hon'ble Dr. Satish Chandra, J.
(Per: Tarun Agarwala,J.) (Delivered on: 30th May, 2014) The petitioner is engaged in the business of liquor, share from funds and earning income from plying mini trucks. For the assessment year 2001-02, the petitioner filed his return of income declaring his income at Rs.97,20,328/-. In this income, the petitioner disclosed an income from business from trading and country liquor and also disclosed an income of Rs.22,55,800/- from long term capital gains arising out of the sales of shares. On this capital gains, the petitioner also deposited the tax @ 10% on the income of Rs.22,55,800/-.
Similarly, for the assessment year 2002-03, the petitioner declared his income at Rs.40,49,093/- which also included long term capital gains arising out of sales of shares of Rs.40,40,600/- in which the petitioner deposited the tax @ 10%.
During the course of assessment proceedings, the assessing officer required the assessee to furnish various details of the share transaction and also to prove its genuineness. The assessing officer, upon examining the matter, found that no purchase and sale of shares ever took place in the assessment year 2001-2002 or in the assessment year 2002-03. Consequently, the assessing officer made an addition of Rs.24,80,358/- for the assessment year 2001-02 and Rs.40,90,600/- for the assessment year 2002-03 as undisclosed income and imposed tax @ 30% on such amount.
Subsequently, the petitioner filed a settlement application under Section 245-C(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") before the Settlement Commission for the aforesaid two assessment years. The Settlement Commission computed the total income of the petitioner for the assessment year 2001-02 at Rs.97,89,530/- and for the assessment year 2002-03 at Rs.41,83,494/-. The Commission found that since the petitioner had committed a default and did not truly disclose his income, the penalty could not be waived. The Commission held, that since the default had been established, the petitioner could not go scot-free with complete waiver of penalty under Section 271(1)(c) of the Act. The Commission accordingly calculated the minimum penalty under Section 271(1)(c) of the Act at Rs.7,91,785/- for the assessment year 2001-02 and Rs.12,35,699/- for the assessment year 2002-03.
The Commission, however, deemed it fit to impose a penalty of 50% of the penalty so computed and accordingly levied a penalty of Rs.3,95,000/- and Rs.6,10,000/- for the assessment years 2001-02 and 2002-03 respectively. The petitioner found that the calculation of penalty made by the Commission was not in accordance with the provision of Section 271(1)(c) of the Act read with explanation 4(c) and accordingly filed an application for rectification of the mistake before the Settlement Commission, praying that the Commission may rectify the mistake in calculating the minimum penalty amount. The Settlement Commission dismissed the rectification application. The petitioner, being aggrieved by the orders of the Settlement Commission as well as the consequential orders passed by the assessing officer, has filed the writ petition praying for the quashing of the orders.
We have heard at length Sri Subham Agarwal, the learned counsel for the petitioner and Sri Govind Krishna, the learned counsel for the Income Tax Department.
The learned counsel for the petitioner submitted that under explanation 4(c) of Section 271(1)(c) of the Act, the expression "the amount of tax sought to be evaded" means the difference between the tax assessed in the assessment proceedings and the tax which would have been assessed if the return filed by the assessee had been accepted. This would determine the amount of tax which would have been avoided for the purpose of clause (iii) of Section 271(1)(c) of the Act.
The learned counsel submitted that the tax, which would have been avoided is to be found by deducting from the tax actually assessed, the tax which would have been assessed had the return been accepted. The learned counsel consequently, submitted that the assessing officer had imposed tax @ 30% for the undisclosed income, whereas the petitioner had already paid 10% on that undisclosed income and consequently, the difference of the tax was only 20%, which should have been taken into consideration for the purpose of calculating the minimum penalty under sub clause (iii) of Section 271(1)(c) of the Act.
In support of his submission, the learned counsel has placed reliance upon a decision in Additional Commissioner of Income Tax, M.P. vs. Dr. V.V. Srivastava, (1980) 122 ITR 908.
In order to appreciate the submissions of the learned counsel for the petitioner, it would be appropriate to extract the relevant provision of Section 271(1)(c)(iii) explanation 4(c) of the Act, which is extracted hereunder:-
"271. (1) If the [Assessing] Officer or the [***][Commissioner (Appeals)] [or the Commissioner] in the course of any proceedings under this Act, is satisfied that any person--
(a) ......
(b)...........
(iii)in the cases referred to in clause (c) [or clause (d) [in addition to tax, if any, payable] by him, a sum which shall not be less than, but which shall not exceed [three times], the amount of tax sought to be evaded by reason of the concealment of particulars of his income [or fringe benefits] or the furnishing of inaccurate particulars of such income [or fringe benefits].
Explanation 4.--For the purposes of clause (iii) of this sub-section, the expression "the amount of tax sought to be evaded",--
[(a) ..... (b) .....
(c)in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished.]"
From a perusal of sub-clause (iii) of Section 271(1)(c) of the Act, it is clear, that a person shall pay by way of penalty, a sum, but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of particulars of his income. The amount of tax sought to be evaded has been explained in Explanation 4(c) of the Act, which means the difference between the tax on the total income assessed and the tax which would have been chargeable, had such total income been reduced by the amount of income in respect of which particulars have been concealed. Explanation 4(c) clearly indicates the difference of the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed. Assuming for a moment, that the petitioner having paid only 10% as tax on capital gains which was eventually assessed as undisclosed income @ 30% and, consequently, the evasion of tax comes to 20%, nonetheless the petitioner is not entitled for any relief. The reason is not far to see.
Under Clause (iii) of Section 271(1)(c) of the Act, the penalty payable is the minimum amount calculated which shall not exceed three times. In the instant case, the Settlement Commission, after calculating the minimum amount of penalty further reduced it by 50%, that means, half of the amount of minimum penalty payable, whereas the penalty payable ranges from minimum to a maximum of three times. The penalty could not be reduced below the minimum penalty. In the instant case, the Settlement Commission has exercised its discretion by reducing the penalty amount by 50%.
Consequently, even if we have to proceed on the basis of the calculation as preferred by the petitioner under explanation 4(c) of Section 271(1)(c)(iii) of the Act, the amount of penalty so reduced would still be far more than the penalty imposed by the Settlement Commission.
The Court is of the opinion, that even if there is an error of law or fact in calculating the penalty, the Court is of the opinion, that where the petitioner volunteered to appear before the Settlement Commission for settlement of his matter, the discretion exercised by the Settlement Commission requires no interference unless the exercise of power made by the Settlement Commission was perverse requiring interference under Article 226 of the Constitution. The Writ Court, under Article 226 of the Constitution is not bound to interfere in its discretionary remedy even if there was an error of law or fact. Article 226 merely vest a discretion to the Court to interfere in exceptional cases and even if the impugned order was not in conformity with law, the Court was not bound to set aside the order.
In Chandra Singh vs. State of Rajasthan and anohter, JT 2003(6) SC 20, Ramniklal N. Bhutta and another vs. State of Maharastra and another, 1997(1)SCC 134, Union Public Service Commission vs. Rajeshwar Singh and another, 2002 (3) UPLBEC 2393, the Court held that even if there was an error of law, the Court was not bound to interfere. The Court further held that the petitioner must show not only violation of law, but, must also show equity in his favour.
In Ritesh Tewari and another vs. State of U.P. and others, 2010 (10)SCC 677, the Supreme Court held:-
"The power under Article 226 of the Constitution is discretionary and supervisory in nature. It is not issued merely because it is lawful to do so. The extraordinary power in writ jurisdiction does not exist to set right mere errors of law which do not occasion any substantial injustice. A writ can be issued only in case of a grave miscarriage of justice or where there has been a flagrant violation of law. The writ court has not only to protect a person from being subjected to a violation of law but also to advance justice and not to thwart it. The Constitution does not place any fetter on the power of the extraordinary jurisdiction but leaves it to the discretion of the court.
However, being that the power is discretionary, the court has to balance competing interests, keeping in mind that the interests of justice and public interest are coalesce generally. A court of equity, when exercising its equitable jurisdiction must act so as to prevent perpetration of a legal fraud and promote good faith and equity. An order in equity is one which is equitable to all the parties concerned."
In the instant case, the Court does not find any equity existing in favour of the petitioner. Further, the Court finds that an order passed by the Settlement Commission attains finality under Section 245(i) of the Act.
In the light of the aforesaid, the Court is not inclined to exercise its discretionary jurisdiction under Article 226 of the Constitution to interfere in the impugned orders passed by the Settlement Commission.
The writ petition fails and is dismissed.
Dated:30.5.2014.
AKJ.
(Dr. Satish Chandra, J.) (Tarun Agarwala, J.)