2013 (10) TMI 827 - AT - Income Tax

Tribunal confirms VDIS 1997 immunity, invalidates Section 148 notice, cites Section 68(2) precedent

ITO 1(1) (2), Mumbai-20 Versus City Walk Shoes Pvt. Ltd.

The Tribunal upheld the CIT(A)'s findings, confirming the validity of the immunity under VDIS 1997 as no prosecution was pending against the assessee at ... Notice under section 148 - Voluntary Disclosure of Income as per section 78 (b) - the Assessee applied under the Voluntary Disclosure of Income Scheme, and that the concerned authority after holding that he was eligible under the said Scheme and that section 78 of the said Scheme was not attracted, granted the benefit of the said Scheme and a certificate was issued by the Commissioner under section 68(2) – Held that:- Following Uma Corporation Versus Krishna Prabhakar, Assistant Commissioner of Income-tax And Others [2006 (3) TMI 82 - BOMBAY High Court] and Rafique A. Mallik Vs. DCIT [2006 (8) TMI 147 - BOMBAY High Court] - Once certificate under Section 68(2) has been issued by the appropriate authority, then the AO has no power to cancel the same – in this case also the certificate under Section 68(2) was issued by the CIT and the same was not cancelled or withdrawn by the competent authority, who issued the certificate - There is no provision of law that once the certificate under Section 68(2) is issued then the AO can withdraw or cancel the same - By drawing adverse inference against the assessee, the AO has brought the amount to tax under normal provision of law, which was declared under VDIS Scheme - The AO has no power to hold that the declaration made by the assessee is void ab initio or liable to be cancelled. The certificate granted by the Commissioner under section 68(2) of the Voluntary Disclosure of Income Scheme, 1997 is still holding the field - Revenue also admits that the amount of voluntarily disclosed income cannot be included in the total income of the declarant for any assessment year – there was no justification for the notice under section 148 - issuance of notice under section 148 of the Income-tax Act, 1961 is an abuse of the power by Department – Decided against Revenue. Issues Involved:1. Validity of immunity under the Voluntary Disclosure of Income Scheme (VDIS) 1997.2. Legitimacy of the notice issued under Section 148 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of Immunity under VDIS 1997:The primary issue was whether the immunity under VDIS 1997 was available to the assessee within the meaning of Section 78(b) of the scheme. The assessee had made a declaration under VDIS for Rs. 1,49,12,000/- and paid the tax. However, the AO contended that the immunity was not available due to the assessee's involvement in criminal cases registered by the Economic Offences Wing, Crime Branch of Mumbai Police under various sections of the Indian Penal Code (IPC). The AO argued that the benefit of VDIS-97 is not available to persons involved in prosecution for any offence punishable under Chapter IX or Chapter XVII of IPC. The AO's stance was that the prosecution commenced on the date of registration of the CR Case No. 95/96 on 10-9-1996, making the declaration void ab initio.The CIT(A) found that the AO was not justified in denying the immunity. The CIT(A) noted that the declaration was made on 31-12-1997, and the certificate under Section 68(2) was issued on 19-3-1998, while the charge sheet was filed on 9-6-1998. Thus, no prosecution was pending against the assessee at the time of the declaration. The CIT(A) held that Section 78(b) did not apply as the prosecution under IPC commenced after the declaration was made and accepted.2. Legitimacy of the Notice Issued under Section 148:The second issue was the legitimacy of the notice issued under Section 148 of the Income Tax Act, 1961. The AO issued the notice on the grounds that the assessee had not filed a return of income for the assessment year 1998-99 and believed that income chargeable to tax had escaped assessment. The assessee challenged the reopening of the assessment, arguing that the notice under Section 148 was bad in law, as upheld by the Hon'ble Bombay High Court in similar cases (M/s Uma Corporation and Rafique A. Mallik).The CIT(A) agreed with the assessee, stating that the AO had no specific item of escaped income in mind when issuing the notice. The reasons recorded for reopening the assessment were based on presumptions rather than concrete evidence. The CIT(A) emphasized that the certificate issued under Section 68(2) of VDIS was still in operation and had not been withdrawn or declared void by any authority. Thus, the reopening of the assessment and the addition made by the AO were not justified.Conclusion:The Tribunal upheld the CIT(A)'s findings, confirming that the immunity under VDIS 1997 was valid as no prosecution was pending against the assessee at the time of the declaration. It also affirmed that the notice issued under Section 148 was invalid due to the lack of specific evidence of escaped income. The Tribunal dismissed the department's appeal, reinforcing the principle that once a certificate under Section 68(2) is issued, the AO has no power to cancel it or bring the declared amount to tax under normal provisions. The decision was supported by precedents from the Hon'ble Bombay High Court in similar cases.