Introduction:
Promissory Estoppel is a doctrine based on equity enunciated in the English case in Central London Property Trust Ltd. v. High Trees House Ltd. (1956) 1 All ER 256, better known as “High Trees Case”, which was understood as a species of estoppel which could be recognized in law to render justice. The rule of estoppel normally forbids a person from denying what he has already by word or promise committed to and the other person has taken some action on the basis of such word or promise. Promissory Estoppel is however different or something more than ordinary principle of estoppel in that it is understood as mitigating the rigours of strict law. It may be applicable even against the government in the exercise of its executive functions.
Analysis of applicability of ‘Rule of Estoppel’ with penal provisions enunciated in Chapter XXI of the Income Tax Act, 1961:
In this article, the author has tried to analyze the applicability of Estoppel Rule, with the penalty on agreed additions by the assessee. Now, at the outset, practically it is not uncommon for an assessee to agree to additions, if he were to be spared from penalty consequent on such admission. But it is not open to the assessee to impose a condition of non-levy of penalty and bind the Ld. Assessing Officer unless the AO has also agreed that the penalty is not proposed to be levied. It true that the Hon’ble Apex Court, in Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705 did hold that mere agreement for the admission does not mean that there has been an admission that the offered income is concealed income. There may be many other reasons for such admission, as noted by the Supreme Court. But that does not mean that in case of every admission, the assessee is entitled to the opposite inference, that there is no case for concealment. The inference has necessarily to stand by reference to the facts of the case. The qualifications that is relevant in case of penalties on agreed additions, poses the following two questions i.e., where a statute confers on the court, or a public officer discretionary power;
i) First, can he fetter the future exercise of his discretionary power?
ii) Second, can he contend that the power of discretion enables him to act in the public interest, and as long as he acts in good faith his actions are unreviewable by a court?
Further, an interesting issue was raised by the assessee where the penalty was on agreed additions in the case of CIT v. DKB & Co. (2000) 243 ITR 618 (Ker.) on the ground of promissory estoppel. Such a ground could have been easily dismissed, because imposition of a condition by the assessee unilaterally cannot be considered as a promise by the AO not to levy any penalty. But the Hon’ble High Court had dealt with the issue and concluded that the AO had no such authority to promise non-levy of penalty and that there could be no estoppel against the statute. Since the AO is the person who can levy the penalty, if he had promised that there would be no penalty in case income is admitted, one would imagine that apart from merits of the case, the principles should bind him.
As for the position of law as to whether there could be estoppel against the statute, the HC relied upon UOI v. Banwari Lal Aggarwal (1999) 238 ITR 461. The doctrine was found incapable in this case, because there was nothing on the record to show that there was any prior understanding, not to initiate the penal action in the context of absence of a provision from compromise assessment. It cannot be said that this decision waters down the principle in the locus classicus on the subject of promissory estoppel.
Conclusion:
In the light of the above provisions of Promissory Estoppel, it could probably be said that the decision of DKB & Co. (Supra) to restore penalty on agreed additions rests more on the fact that the assessee came up with the admission of concealed income after incriminating materials were found during search, especially when such admission came up for further investigation by the department and several rounds of discussions. Further, the admission itself was unilateral, so that there could have been no estoppel in such cases. The decision therefore is finally one on the facts and not on any universal principle of estoppel, which should ordinarily be applicable where there is an express or implied assurance the authority to dispense with the penalty, where there is an agreement for the addition. Any other view, would not only be unequitable but would run counter to the well-established principle of promissory estoppel. Hence, an assurance not honored would undermine the credibility of the department.
The author can be reached at: advashishparashar@gmail.com
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