2007 (4) TMI 300 - AT - Income Tax

Tribunal allows VDIS disclosure to offset estimated income from alleged Hawala business

The Tribunal held that the amount disclosed by the assessee under the Voluntary Disclosure of Income Scheme (VDIS) before a search and seizure operation ... Search And Seizure Issues Involved:1. Whether the amount disclosed in VDIS by the assessee prior to the raid under Section 132 of the IT Act can be considered against the estimation of income from alleged Hawala business.2. Whether the assessee is entitled to claim any benefit of VDIS disclosure in block assessment period cases to avoid assessment in respect of the income which according to him he had already disclosed in VDIS.Detailed Analysis:Issue 1: Consideration of VDIS Disclosure Against Estimation of Income from Alleged Hawala BusinessThe Tribunal was tasked with determining if the amount disclosed by the assessee under the Voluntary Disclosure of Income Scheme (VDIS) prior to a search and seizure operation under Section 132 of the IT Act could be used to offset the estimated income from alleged Hawala business. The search was conducted on 19th December 1997, and the assessee had already declared an undisclosed income of Rs. 18,12,525 under VDIS on 17th December 1997, which was accepted by the CIT on 20th December 1997. The Tribunal noted that the VDIS disclosure was made before the search, and therefore, the prohibition rules of VDIS, 1997, were not applicable against the assessee.The Tribunal referred to several precedents, including the Supreme Court's decision in Anantharam Veerasinghaiah & Co. vs. CIT, which held that intangible additions made to book profits during assessment proceedings constitute real income and could be available to the assessee. Similarly, the Madras High Court in S. Kuppuswami Mudaliar vs. CIT and the Punjab & Haryana High Court in CIT vs. Prem Chand Jain supported the notion that additions to income should be treated as real income available to the assessee. Based on these precedents, the Tribunal concluded that the income declared under VDIS was real income and could be used to explain the additions made in the block assessment.Issue 2: Entitlement to Claim Benefit of VDIS Disclosure in Block Assessment PeriodThe Tribunal also examined whether the assessee could claim the benefit of the VDIS disclosure to avoid assessment for the income already disclosed under VDIS during the block assessment period. The Tribunal highlighted the relevant provisions of the VDIS, 1997, which allowed for the declaration of undisclosed income and provided immunity from further scrutiny if the declaration was made within the stipulated time frame and the tax was paid.The Tribunal noted that the assessee had declared the undisclosed income under VDIS before the search, and the CIT had accepted this declaration. Therefore, the amount declared under VDIS was available to the assessee for explaining the additions made in the block assessment. The Tribunal emphasized that the scheme under VDIS was approved by the Department of Revenue, and once a certificate was granted, it could not be questioned in subsequent regular assessment proceedings.The Tribunal concluded that the income declared in VDIS was available to the assessee to explain the additions made during the block assessment period. Both questions formulated by the Hon'ble High Court were answered against the Revenue and in favor of the assessee.Conclusion:The appeal of the assessee was allowed on the two questions/issues remanded by the Hon'ble High Court. The Tribunal clarified that the findings in this order would be considered during the hearing of subsequent appeals on merits. The appeal was allowed, and the questions were answered in favor of the assessee.