2022 (2) TMI 941 - HC - Income Tax

High Court upholds ITAT decision on IDS income declaration finality under Section 263

The High Court dismissed the appeal filed by the revenue, affirming the ITAT's decision. The Court held that once the income declared under the IDS, 2016 ... Finality of declaration under Income Declaration Scheme, 2016 - Power under Section 263 of the Income tax Act, 1961 to revise orders prejudicial to revenue - Chapter IX of the Finance Act, 2016 as a self contained code governing voluntary disclosures - Embargo on reopening once declaration under IDS is accepted (Section 189 and related Scheme provisions) - Prohibition on revisiting IDS acceptance by administrative revisionFinality of declaration under Income Declaration Scheme, 2016 - Power under Section 263 of the Income tax Act, 1961 to revise orders prejudicial to revenue - Chapter IX of the Finance Act, 2016 as a self contained code governing voluntary disclosures - Whether the Principal Commissioner of Income Tax could invoke the power under Section 263 of the Income tax Act to revise the assessment after the assessee's declaration under the Income Declaration Scheme, 2016 was accepted and certificate issued. - HELD THAT: - The Court held that Chapter IX of the Finance Act, 2016 (the IDS) constitutes a complete code providing a special procedure for voluntary disclosure, assessment of tax, surcharge and penalty, and mechanism for acceptance (Forms 1-4). Once the competent authority considered the declaration, issued the acknowledgement and certificate (Forms 2 and 4) and the tax, surcharge and penalty under the Scheme were paid, the declaration attained finality. Section 189 places an embargo on reopening assessments in respect of declared undisclosed income, and the Scheme contemplates that the authority accepting a declaration cannot thereafter reopen or revise that determination by invoking powers under the Income tax Act. In the present case the PCIT had accepted the declaration and issued the certificate; no charge of misrepresentation under the Scheme was invoked, nor was any exclusion under Section 196 of the Scheme shown to apply. Allowing revision under Section 263 after acceptance would defeat the statutory object of the Scheme and amount to indirectly doing that which the Scheme does not permit. Consequently the PCIT's assumption of jurisdiction under Section 263 in respect of amounts accepted under the IDS was held to be without jurisdiction and not permissible. [Paras 14, 16, 17, 18, 19]The PCIT could not invoke Section 263 to revise the assessment once the declaration under the IDS was accepted and the requisite payment made; the exercise of jurisdiction under Section 263 was without jurisdiction and liable to be quashed.Final Conclusion: The revenue's appeal is dismissed; the substantial questions of law are answered against the revenue, upholding the finality of the assessee's accepted IDS declaration for AY 2014 2015 and disallowing revision under Section 263. Issues Involved:1. Condonation of delay in filing the appeal.2. Legality of the Income Tax Appellate Tribunal's (ITAT) decision regarding the Income Declaration Scheme (IDS), 2016.3. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.4. Applicability of Section 68 of the Income Tax Act.Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The High Court acknowledged the delay of 420 days in filing the appeal by the appellant/revenue. It was determined that the appellant was entitled to the benefit of the Supreme Court's order extending the period of limitation for filing appeals. Consequently, the delay in filing the appeal was condoned.2. Legality of the ITAT's Decision Regarding IDS, 2016:The ITAT had ruled that once the income offered under the IDS, 2016 is accepted by the Department, an order under Section 143(3) of the Income Tax Act cannot be revised. The Tribunal found that the items of addition directed by the PCIT were part of the IDS application and not part of the order passed under Section 143(3) of the Act. The High Court upheld this view, stating that once the declaration under IDS is accepted and the taxes are paid, the assessment order cannot be revised under Section 263 of the Act as it would contradict the spirit of the IDS.3. Jurisdiction of the PCIT under Section 263 of the Income Tax Act:The High Court examined whether the PCIT could invoke powers under Section 263 to revise the assessment order after the declaration under IDS was accepted. It was noted that the IDS is a comprehensive code that provides a special procedure for disclosure and charging of income to tax. Once the declaration is accepted, it attains finality, and the PCIT is estopped from revising the decision on such declaration. The High Court concluded that the PCIT's assumption of jurisdiction under Section 263 was without authority, as it would undermine the finality and purpose of the IDS.4. Applicability of Section 68 of the Income Tax Act:The revenue contended that the ITAT overlooked its duty to scrutinize documentary evidence in depth to determine the assessee's liability under Section 68 of the Income Tax Act. However, the High Court found that the PCIT's presumption of commission payments to stock brokers was not based on direct evidence linking the assessee. The PCIT's reliance on statements from other stock brokers during search operations was insufficient to justify the revision of the assessment order. The High Court observed that the declaration under IDS had already been processed and accepted, and any attempt to revise it would be contrary to the scheme's provisions.Conclusion:The High Court dismissed the appeal filed by the revenue, affirming the ITAT's decision. The substantial questions of law were answered against the revenue, and the connected application was also dismissed. The judgment emphasized the finality of declarations made under the IDS and the limitations on the PCIT's powers to revise such declarations under Section 263 of the Income Tax Act.