TaxTMI 
TaxTMI 
1981 (5) TMI 1
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....si. The present reference application relates to the assessment of this assessee for the assessment year 1967-68, for the previous year ending Diwali, 1966. For this year, the assessee returned an income of Rs. 20,137. On scrutiny of the balance-sheet and the accounts of the assessee, the ITO came across the following cash credits in the names of the following five persons, who are all sons of the partner, Kanhaiyalal, and brothers of the other partners of the assessee-firm : Rs. 1. Master Sailendra kumar 9,250 2. Master Satish kumar 9,250 3. Master Sunil kumar 9,250 4. Master Swatantra kumar 9,250 5. Master Santosh kumar 9,250 Total 46,250 The ITO called upon the assessee to prove the genuineness and the sources of these credits with necessary evidence. It was explained on behalf of the assessee that the amount credited in the names of these persons represented the amounts disclosed by them or on their behalf under the voluntary disclosure scheme under s. 24 of the Finance (No. 2) Act of 1965. The ITO was of the opinion that under s. 24 of the Finance (No. 2) Act of 1965, what was to be disclosed was the business income of any person chargeable to inco....
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.... view, he deleted the entire addition of Rs. 46,250 from the income of the assessee. 6. Aggrieved by this order of the AAC, the department filed an appeal to the Appellate Tribunal. 7. On behalf of the revenue, reliance was placed on the statement of Shri Kanhaiyalal who was the main partner of the assessee-firm as well as the father of the five creditors, mentioned above. It was further contended that the declarations made by the five creditors before the Commissioner of Income-tax under s. 24 of the Finance (No. 2) Act of 1965, would be of no avail to the assessee to claim immunity from taxation, if it was found by the department that the impugned credits were not genuine. It was, therefore, argued that the AAC was not justified in deleting the addition of Rs. 46,250 made by the ITO and that the order of the AAC deserved to be reversed in this regard and that the addition made by the ITO ought to be restored. 8. On behalf of the assessee, the learned counsel, Shri B. M. Gupta, relied on a number of decisions of this Bench and of the Indore Bench of the Income-tax Appellate Tribunal and also on a decision of the Madhya Pradesh High Court in the case of Surajben Patel v. CIT rep....
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....Act of 1965, would not stand in the way of the department assessing the impugned credits in the hands of the assessee-firm. In support of their conclusion, the Appellate Tribunal relied on the decision of the Gujarat High Court in .Manilal Gafoorbhai Shah v. CIT reported in [1974] 95 ITR 624. The Tribunal further pointed out that the decision of the Madhya Pradesh High Court relied on by the assessee did not touch the point at issue and as such did not apply to the facts of the present case. The Tribunal also declined to entertain the alternative plea of the counsel of the assessee for remanding the case to the AAC, to consider whether the unexplained cash credits, even if considered as the assessee's own income, could be deemed to be fully covered by the intangible additions made to the income of the assessee in the earlier assessments, as the assessee did not take any such plea in the grounds of appeal before the AAC, and as it was sought to be urged for the first time before the Appellate Tribunal. The Tribunal pointed out that it was not permissible for the assessee to raise such a plea in an appeal filed by the department, without even filing a cross-objection raising the alte....
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....he following three decisions : 1. Rattanlal v. ITO, C. W. No. 927 of 1973, decided on 1-3-1974, by the High Court of Delhi and reported in [1975] 98 ITR 681. 2. Badri Pd. and Sons v. CIT (I.T.R. No. 40 of 1972, dated 12-9-1973) reported in [1975] 98 ITR 657 (All). 3. Aminchand Payarilal v. ITO reported in [1973] 87 ITR 305 (Cal). The learned counsel pointed out that the decisions of the Delhi and Calcutta High Courts were in favour of the assessee, while the decisions of the Gujarat High Court and Allahabad High Court were against the assessee. In view of this conflict of decisions of the various High Courts, he contended that the questions raised by him in the reference application are questions of law which should be referred for the decision of the Madhya Pradesh High Court. 12. We have carefully looked into these decisions. The Calcutta High Court decision reported in [1973] 87 ITR 305 (Aminchand Payarilal v. ITO) dealt with a case of Voluntary Disclosure of Income under s. 68 of the Finance Act of 1965. The other three decisions dealt with cases of Voluntary Disclosure of Income under s. 24 of the Finance (No. 2) Act, 1965. We agree with the learned counsel for the assess....
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.... opinion, as reflected in the various decisions of different High Courts, with respect to the scope and effect of the Voluntary Disclosure Scheme under s. 24 of the Finance (No. 2) Act, 1965 (" the Act for short). The assessee, M/s. Jamnaprasad Kanhaiyalal, is a partnership firm. The firm consists of 4 partners, namely, Kanhaiyalal and his 3 major sons, Rajkumar, Swatantrakumar and Santoshkumar with his Minor son, Satishkumar, admitted to the benefits of the partnership. In the course of assessment proceedings for the assessment year 1967-68, the relevant accounting year of which was the year ending Diwali, 1966, the Income-tax Officer (ITO, for short) noticed in the books of account of the assessee five cash credits of Rs. 9,250 each, in the names of the five sons of Kanhaiyalal, as detailed below: Rs. Sailendra kumar 5 yrs 9,250 Satish kumar 9 yrs 9,250 Sunil kumar 7 yrs 9,250 Swatantra kumar 16 yrs 9,250 Santosh kumar 18 yrs 9,250 46,250 The ITO, accordingly, called upon the assessee to explain the genuineness as well as the source of the cash credits. On being questioned, Kanhaiyalal, the managing partner, disavowed all k....
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....sagreed with the AAC and upheld the decision of the ITO. It was of the opinion that the ITO was justified in treating the cash credits appearing in the books of account of the assessee in the names of the creditors as unexplained cash credits, since it was found that the income declared by the creditors did not belong to them, and there was nothing to prevent the same being taxed in the hands of the assessee to which it actually belonged. According to the Tribunal, the immunity under s. 24 of the Act was conferred on the declarant only, and there was nothing to preclude an investigation into the true nature and source of the credits. The Appellate Tribunal, after taking into consideration the statement of Kanhaiyalal, and having regard to the age of the creditors and the fact that none of them had any independent source of income at any time, held that the ITO was justified in holding that the assessee failed to discharge the burden of proof under s. 68 of the I.T. Act, 1961, in regard to the nature and source of the cash credits and, therefore, it had to be treated as the assessee's income from undisclosed sources. Thereupon, the assessee applied to the Appellate Tribunal under s.....
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.... 24 of the Finance (No. 2) Act, 1965, provided for the making of voluntary disclosures in respect of amounts representing income chargeable to tax under the Indian I.T. Act, 1922, or the I.T. Act, 1961, for any assessment year commencing on or before April 1, 1964. On such disclosure being made under sub-s. (1) thereof, in the manner provided by subs. (2), the amount was to be charged to income-tax in accordance with subs. (3), which provided by a legal fiction that income-tax shall be charged on the amounts of voluntarily disclosed income at certain specified rates " as if such amount were the total income of the declarant ". There was safeguard provided in sub-s. (4) that the benefit under the scheme would be available only in respect of the voluntarily disclosed income and not in respect of the amount detected or deemed to have been detected by the ITO before the date of declaration. When the Commissioner passed an order under sub-s. (4) there was an appeal provided to the CBR under sub-s. (5) and the Board was empowered under sub-s. (6) to pass such orders thereon as it deemed fit. There was a finality attached to the order of the Board under sub-s. (8). In support of the refe....
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.... part of such person to make a return under either of the said Acts to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment, he shall, notwithstanding anything contained in the said Acts, be charged income-tax in accordance with sub-section (3) in respect of the amount so declared or if more than one declaration has been made by person the aggregate of the amounts declared therein, as reduced by any amount specified in any order made under sub-section (4) or, if such amount is altered by an order of the Board under sub-section (6), then, such altered amount ............" Sub-section (3), containing the legal fiction, reads as follows " (3) Income-tax shall be charged on the amount of the voluntarily disclosed income (a) where the declarant is a person other than a company, at the rates specified in Paragraph A, and (b) where the declarant is a company, at the rates specified in Paragraph F, of Part I of the First Schedule to the Finance Act, 1965 (X of 1965), as if such amount were the total income-of the declarant..." Sub-section (8), on which strong reliance is placed, runs thus: " (8) An order under sub-section (6) shall be....
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....n payment of not less than 10% of the tax due and furnishing a security in respect of the balance. Income which had already been detected on the material available prior to the date of disclosure was, however, to be assessed under the regular provisions of the I.T. Act and not under the scheme. Any admissions made by a person in the declarations filed by him under the scheme in respect of such income were not to be used in assessing that income under the I.T. Act. Under the scheme, the disclosed income was not to be subjected to any further proceedings of assessment. The identity of the declarant was not to be revealed and he was also immune from penalty and prosecution for the past concealment of the disclosed income. It is, therefore, obvious that the Act granted immunity only to the declarant alone and not to other persons to whom the income really belonged. The scheme of the Act makes it abundantly clear that it was to protect only those who preferred to disclose the income they themselves had earned in the past and which they had failed to disclose at the appropriate time.. It is undoubtedly true that the Act was brought on the statute book to unearth the unaccounted money. B....
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....py thereof to the declarant. Any person who objected to such an order could appeal under sub-s. (5) to the CBR stating the grounds for such an objection. The Board was empowered to pass such orders as it thought fit under sub-s. (6). This order of the Board under sub-s. (6) was final and conclusive by reason of sub-s. (8). Thus, the finality under sub-s. (8) was to the order of the Board under sub-s. (6) of s. 24 and not to the assessment of tax made on the declarations furnished by the creditors under the scheme, by virtue of the legal fiction contained in sub-s. (3) of s. 24 of the Act. The next question that calls for determination is whether the non obstante clause contained in sub-s. (1) of s. 24 of the Act precludes the department from proceeding against the person to whom the income actually belonged. Under sub-s. (1) of s. 24, the declaration was required to be made in respect of the amount which represented the income of the declarant. The declaration could not be made in respect of an amount which was not the income of the declarant. If, therefore, a person made a false declaration with respect to an amount which was not his income, but was the income of somebody else, t....
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....was not the income of the declarant, while dealing with the case of another assessee under s. 68 of the I.T. Act, 1961. The legal fiction created by sub-s. (3) of s. 24 was restricted to the voluntary disclosure scheme itself. The protection enjoyed by the declarant under that scheme extended only to the amounts so declared being not liable to be added, in any assessment, of the declarant. There was no absolute finality attached to the declaration especially when the nature and source of the sum declared was being determined for the purpose of its inclusion in the income of an assessee other than the declarant. There was, therefore, nothing which prevented the ITO from investigating into the nature and source of the sums credited in the books of account of an assessee and reject his explanation to the effect that the sums belonged to the persons who had made declarations about them under s. 24 of the Act. Accordingly, the reference must be answered in favour of the revenue and against the assessee. Our answer to the first question is that the legal fiction created by sub-s. (3) of s. 24 of the Finance (No. 2) Act, 1965, by virtue of which the amounts disclosed by the declarants ha....