The classic decision of the Supreme Court of India on the doctrine of estoppel is in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh (118 ITR 326). In this case, the doctrine of promissory estoppel was applied to the executive action of the state government and the doctrine of executive necessity was denied to the state as a valid defence. It was held that in a republic governed by rule of law, no one high or low, is above the law. Every one is subject to the law as fully and completely as any other and the Government is no exception. Equity will, in a given case where justice and fairness demands, prevent a person from exercising strict legal rights even where they arise not in contract, but on his own title deed or in statute. It is not necessary that there should be some pre-existing contractual relationship between the parties. The parties need not be in any kind of legal relationship before the transaction from which the promissory estoppel takes its orgin.

In CIT v. DKB & Co. (243 ITR 618), the Kerala High Court held that since the doctrine of promissory estoppel is an equitable doctrine, it must yield where equity so requires. If it can be shown by the Government that having regard to the facts as they had transpired, it would be inequitable to hold the Government or public authority to the promise of representation made by it, the Court would not raise an equity in favour of the promisee and enforce the promise against the Government.

The doctrine of promissory estoppel would be displaced in such a case because , on the facts, equity would not require that the Government should be held bound by the promise made by it. However, the Government must be able to show that in view of the facts as had transpired, public interest would not be prejudiced.

It is settled law that the promissory estoppel cannot be used for compelling the government or a public authority to carry out a representation or promise which is prohibited by law or which was devoid of the authority or power of the officer of the government or the public authority to make. The doctrine of promissory estoppel being an equitable doctrine, it must yield place to equity, if the larger public interest so requires and if it can be shown by the Government or public authority, having regard to the facts as they had transpired, that it would be inequitable to hold the government or public authority to the promise or representation made by it.

These aspects were highlighted by the apex Court in Vasantkumar Radhakishan Vora v. Board of Trustees of Port of Bombay [(1991) AIR 1991 SC 14] ; STO v. Shree Durga Oil Mills (108 STC 274); and Dr Ashok Kumar Maheshwari v. State of U.P. ((1998) 2 Supreme 100). The facts in the case of DKB & Co. were that the assessee was a partnership firm, which during the relevant period, i.e., assessment year 1983-84, was having abkari contracts in an around Quilon. The premises of the firm, and the residence of its partners were searched by the Departmental authorities on February 14, 1984. Certain incriminating materials were found, on the basis of which further investigations were carried out.Since the materials found by the departmental authorities disclosed suppressions, the assessee approached the department for a settlement of the income-tax liability of the firm and its partners.

Several rounds of discussions were held. By the time of the search, the return for the concerned assessment year 1983-84 had been filed. On March 29, 1985, four of the partners wrote a letter to the assessing officer agreeing to an addition of Rs 41 lakh, but indicated that they were agreeable for such addition only if the penal provisions were not applied.

On a reference, the Kerala High Court held that the foundation for the claim based on the principle of promissory estoppel in public law was laid down by Lord Denning in 1948 in Robertson v. Minister of Pensions( (1949) 1 KB 227). Prof. De Smith in his Judicial Review of Administrative Action (Fourth edition at page 103) observed that "the citizen is entitled to rely on their having the authority that they have asserted."

The doctrine of promissory estoppel has been evolved by the Courts, on the principles of equity, to avoid injustice. "Estoppel" in Black's Law Dictionary, is indicated to mean that a party is prevented by his own acts from claiming a right to the detriment of other party who was entitled to rely on such conduct and has acted accordingly. Section 115 of the Indian Evidence Act is also, more or less, couched in a language which conveys the same expression.

"Promissory estoppel" is defined in Black's Law Dictionary as "an estoppel which arises when there is a promise which promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of promisee, and which does induce such action or forbearance, and such promise is binding if injustice can be avoided only by enforcement of promise."

These definitions in Black's Law Dictionary which are based on decided cases, indicate that before the rule of promissory estoppel can be invoked, it has to be shown that there was a declaration or promise made which induced the party to whom the promise was made to alter its position to its disadvantage. The Kerala High Court concluded that it is a settled position in law that there cannot be estoppel against a statute.

There is no provision in the statute which permits a compromise assessment. The above position was indicated by the apex Court in Union of India v. Banwari Lal Agarwal (238 ITR 461). It cannot be laid down as a principle of universal application that whenever an assessment has been completed by accepting the offer of an assessee, no penalty can be imposed.

The aforesaid decision of the Kerala High Court will adversely affect cases where assessees have agreed to additions which an assessing officer has made, perhaps on the assumption that such acceptance will bring immunity from penalty and prosecution. The Kerala High Court's decision makes it clear that there is no immunity scheme under the tax law.

Even if an assessee accepts the addition and pays the tax, penalty can still be imposed under section 271(1)(c) if he is guilty of concealment of income. Thus, mere acceptance of additions made by an assessing officer would avoid protracted and costly litigation with the tax department - it would bring no immunity from the penal consequences of tax evasion.