2025 (12) TMI 544 - HC - Income Tax

Writ Against Reassessment Under Sections 147 and 143(2) Fails; Voluntary Disclosure Scheme Not Shielding Higher Income Detection

The HC dismissed the writ petition challenging reassessment proceedings initiated u/s 147 and notice u/s 143(2) relating to income earlier disclosed under ... Reopening of assessment u/s 147 - income disclosed under the Voluntary Disclosure of Income Scheme, 1997 - main contention of the petitioner is that under the Voluntary Disclosure Scheme of Income Scheme, 1997 cannot be subject to the tax under the Income Tax Act; therefore, the notice u/s 143(2) is liable to be quashed, which contravenes the very Scheme, 1997 itself HELD THAT:- As per the proviso attached to sub-Section 1 of Section 151, the petitioner may raise all these objections in the assessment proceedings. Therefore, after examining the record, the Assessment Officer would determine whether the sanction is there or not. Since this petition has been filed, therefore, the respondent has had no occasion to conclude the proceedings. The main contention of the petitioner is that under the Voluntary Disclosure Scheme of Income Scheme, 1997 cannot be subject to the tax under the Income Tax Act; therefore, the notice under Section 143(2) is liable to be quashed, which contravenes the very Scheme, 1997 itself. Under Section 64 of the Finance Act, the minor would be entitled to make voluntary disclosure for his income under the Scheme and the Authorities are not entitled to make any enquiry from the sources from where he has earned the income, but if it comes to the knowledge of the department that the higher amount is there, then Section 64 nowhere provides that the declaration relating to the extended income would also be taken to be correct. The assessee is only protected from disclosing the source of income, but as per the Scheme, the correct income is also liable to be disclosed. So far, the violation of instruction number 1984 is concerned, the instructions came into operation w.e.f. 09.06.2000, but the notice had already been issued under Section 147 of the Income Tax Act, 1961, before 09.06.2000. After passing the final order, the petitioner shall have a remedy to file an appeal before the Commissioner of Appeals, and thereby, before the Central Board of Direct Taxes. Therefore, the petitioner is not remedy-less, and even after the order passed by the CBDT, the petitioner can still approach the High Court. Hence, no case is made out to interfere with the impugned orders. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether notices issued under Section 143(2) of the Income Tax Act, 1961, in consequence of action under Sections 147/148, were vitiated by violation of CBDT Instructions Nos. 1967 and 1984. 1.2 Whether income disclosed under the Voluntary Disclosure of Income Scheme, 1997, made under Section 64 of the Finance Act, 1997, is immune from further scrutiny and assessment under the Income Tax Act, thereby invalidating notices under Sections 147, 148 and 143(2). 1.3 Whether the order passed under Section 144A of the Income Tax Act refusing to halt scrutiny proceedings was illegal on account of non-appreciation or non-compliance with CBDT instructions. 1.4 Whether the writ petition challenging the assessment notices and the Section 144A order was maintainable in view of the statutory alternative remedies and the stage of the assessment proceedings. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Validity of notices under Sections 147, 148 and 143(2); effect of CBDT instructions and VDIS, 1997 Legal framework (as discussed by the Court) 2.1 The Court referred to Section 143(2), which empowers the Assessing Officer, where a return has been filed under Section 139 or in response to Section 142(1), to issue a notice if it is considered necessary or expedient to ensure that the assessee has not failed to disclose actual income, has not computed excessive loss, or has not underpaid tax. 2.2 Section 147 permits assessment or reassessment of income which has escaped assessment, subject to the proviso restricting action after four years from the end of the relevant assessment year where a regular assessment under Section 143(3) has been made, unless income has escaped assessment. 2.3 Section 148 authorises the Assessing Officer to issue a notice requiring a return where income has escaped assessment, and Section 149 prescribes the time limits for such notice. 2.4 Section 151 prescribes sanction for issuing notice under Section 148 when the Assessing Officer is below the rank of Assistant Commissioner/Deputy Commissioner, and additional conditions where more than four years have elapsed. The Court observed that objections regarding sanction can be raised and examined in the course of assessment proceedings. 2.5 Section 64 of the Finance Act, 1997 (VDIS, 1997) was noticed to the effect that an assessee making a voluntary disclosure is protected from being compelled to disclose the source of such income, but is obliged to disclose the correct income. Interpretation and reasoning 2.6 The Court noted that after disclosure under VDIS, 1997, a difference was found between the income declared under the Scheme and the income declared in the returns, leading to initiation of proceedings under Sections 147/148 and consequential notices under Section 143(2). 2.7 On the contention that income disclosed under VDIS could not be subjected to further tax under the Income Tax Act, the Court held that Section 64 of the Finance Act does not provide that any higher income, if discovered by the department, must be accepted as covered by the declaration. The Scheme protects only against enquiry into the source of the disclosed income, not against scrutiny where the declaration is incomplete or incorrect in quantum. 2.8 The Court found that the protection under VDIS extends to non-enquiry into the source, but 'the correct income is also liable to be disclosed' under the Scheme; therefore, if the department comes to know of higher income than disclosed, the declaration is not conclusive as to correctness of the total income. 2.9 As regards violation of CBDT Instructions Nos. 1967 and 1984, the Court accepted the stand that those instructions applied to honest taxpayers filing returns within prescribed time and were not intended to benefit assessees who had failed to furnish returns under Section 139(1) and even after notice under Section 142(1). 2.10 Specifically on Instruction No. 1984, the Court held that it came into operation on 09.06.2000, whereas the notice under Section 147 had already been issued prior to that date; thus, no illegality could be founded on that instruction. 2.11 The Court further observed that the petitioner had statutory remedies after completion of assessment, including appeal before the Commissioner (Appeals) and further remedies up to the CBDT and the High Court, and that objections relating to legality of notices, sanction under Section 151, and applicability of instructions could all be raised before the authorities in the normal appellate hierarchy. Conclusions 2.12 Income disclosed under VDIS, 1997 is not absolutely immune from assessment or reassessment under the Income Tax Act where the disclosure is incomplete or incorrect in quantum; the Scheme merely protects the assessee from enquiry into the source of disclosed income, not from scrutiny of correctness of the amount. 2.13 Notices under Sections 147, 148 and 143(2) issued in the present case were not shown to be in contravention of VDIS, 1997, nor rendered invalid by CBDT Instructions Nos. 1967 and 1984, particularly as the instructions were inapplicable to the petitioner's factual situation and, in the case of Instruction No. 1984, became effective after initiation of proceedings. 2.14 No ground was made out to quash the notices under Section 143(2) or the action initiated under Sections 147/148. Issue 3: Legality of the order under Section 144A of the Income Tax Act Interpretation and reasoning 3.1 The Court noted that under Section 144A, the superior authority (Respondent No. 2) had considered the petitioner's request to restrain further scrutiny and had directed the Assessing Officer to proceed in accordance with law. 3.2 The Court held that, in view of the statutory scheme permitting scrutiny under Sections 143(2) and 147-149, and in the absence of any statutory bar arising from VDIS, 1997 or binding CBDT instructions applicable to the facts, there was no illegality in the direction to proceed with assessment. 3.3 The Court observed that any alleged non-consideration or misapplication of CBDT instructions or sanction aspects could be examined within assessment and appellate proceedings rather than through writ intervention at this stage. Conclusions 3.4 The order under Section 144A rejecting the petitioner's request to halt scrutiny and directing the Assessing Officer to proceed with assessment was not illegal and did not warrant interference. Issue 4: Maintainability of the writ petition in view of alternative remedies and stage of assessment Interpretation and reasoning 4.1 The Court recorded that assessment proceedings pursuant to the impugned notices were still pending and that an interim order of the Court itself had permitted continuation of assessment while restraining finalisation only for a limited period. 4.2 The Court emphasised that the statute provides a comprehensive mechanism of appeal after completion of assessment, beginning with an appeal to the Commissioner (Appeals), and then further departmental and judicial remedies, leaving the petitioner not 'remedy-less.' 4.3 The Court reasoned that issues concerning validity of sanction under Section 151, applicability and interpretation of CBDT instructions, and all objections to jurisdiction and procedure could appropriately be raised before the Assessing Officer and, if necessary, before the appellate forums, and therefore did not justify writ interference at the pre-assessment stage. Conclusions 4.4 In light of the availability of adequate statutory remedies and the pendency of assessment proceedings, no case was made out for exercise of writ jurisdiction to quash the notices under Section 143(2) or the order passed under Section 144A. 4.5 The petition was dismissed.