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TaxTMI 
TaxTMI 
2004 (12) TMI 64
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....as deposit with L.T. Shroff group is unexplained investment of the appellant and the same is not covered by the disclosure made by the appellant under the VDIS? (ii) Whether, in the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that under the VDIS, 1997, along with the disclosure, the declarant has to show the basis on which yearwise figures of income was arrived at together with the manner in which the income was bifurcated on the basis of ultimate investments existing as on the cut off date? (iii) Whether, in the facts and circumstances of the case, the order of the Income-tax Appellate Tribunal was perverse inasmuch as the Income-tax Appellate Tribunal has failed to appreciate that the appellant was prevented from sufficient cause and could not have produced the passbook issued by the L.T. Shroff group at any stage prior to the set aside first appellate proceedings? (iv) Whether, in the facts and circumstances of the case, the order of the Income-tax Appellate Tribunal was perverse inasmuch as it has not properly appreciated the evidences already placed on record and insisted on some hypothetical and hypertechnical ev....
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....e Income-tax Act, 1961 ("the Act") on March 31, 2000. The said order came to be challenged before the Commissioner of Income-tax (Appeals) who for the reasons stated in his order dated March 15, 2001, set aside the assessment with a direction to the Assessing Officer to offer proper opportunity to the assessee. While framing the fresh assessment, the Assessing Officer made an addition of Rs. 137 lakhs by holding that the said amount declared under the Voluntary Disclosure of Income Scheme, 1997 (the VDIS), was not credited in the books and no intimation was given to the Assessing Officer. In so far as the amount of Rs. 67.75 lakhs was concerned the Assessing Officer held that the same cannot be adjudicated in the course of the regular assessment proceedings and can only be a subject-matter of proceedings under Chapter XIV-B of the Act. This order was framed on March 28, 2002. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) who vide his order dated October 23, 2002, deleted the addition of Rs. 137 lakhs. However, the Commissioner of Income-tax (Appeals) issued a notice for enhancement in relation to the sum of Rs. 67.75 lakhs. The asse....
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.... only after the Commissioner of Income-tax (Appeals) issued notice for enhancement. Thus, according to Mr. Soparkar the order of the Tribunal confirming the addition of Rs. 67.75 lakhs which was made by the Commissioner of Income-tax (Appeals) for the first time in the second round was bad in law and to that extent the order of the Tribunal was required to be quashed and set aside. Mr. M.R. Bhatt, the learned advocate, submitted that the assessee had failed to produce the relevant piece of evidence in the first round before the assessing authority; not only that the same was not even produced before the Commissioner of Income-tax (Appeals) in the first round. That it was open to the assessee to place the said evidence on record in the set aside proceedings regardless of the opinion expressed by the Assessing Officer, especially when the Commissioner of Income-tax (Appeals) had directed the Assessing Officer to frame the assessment after giving opportunity to the assessee. It was alternatively contended that both the Commissioner of Income-tax (Appeals) and the Tribunal had looked into other evidence and came to the conclusion that the assessee was not able to substantiate its....
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.... the assessee had already made declaration under the VDIS and there was no further income which was liable to tax for the year under consideration. The Assessing Officer rejected the submissions made and framed the assessment on March 31, 2000 adding the entire sum of Rs. 67.75 lakhs as unexplained investment under section 69 of the Act. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) and one of the basic contentions along with other grounds was that the assessee was not accorded full and proper opportunity to meet the case of the Assessing Officer. The Commissioner of Income-tax (Appeals) observed as under: "5.1. The totality of the facts indicates that the assessment suffers from the following infirmities: (1) The notice under section 142(1) enclosing therewith a show-cause notice wherein the basis of proceedings initiated against the assessee was given was issued as late as on March 28, 2000, when the proceedings were getting time-barred on March 31, 2000. The assessee was confronted for the first time with the information that papers seized in L.T. Shroff group showed a credit balance of Rs. 67.75 lakhs in the name of the asses....
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.... the record proves that, the Tribunal ought not to have brushed aside the explanation of the assessee and proceeded to deal with the addition on the merits on other grounds. The law as to the principles of natural justice is well settled and needs no reiteration. Even for the purpose of tax proceedings, the said principles would come into play and all that the assessee was seeking was a reasonable opportunity. The Tribunal lost sight at the fact that the assessee had no occasion to produce the said passbook in the first round before the assessing authority due to the short period of notice, viz., three days within which the assessment was framed as it was getting barred by limitation. In the second round, the Assessing Officer specifically stated that he did not want to make addition qua the said item of Rs. 67.75 lakhs and hence, the assessee had no occasion to produce the said piece of evidence. That left the assessee with no choice but to produce the said passbook for the first time before the Commissioner of Income-tax (Appeals) in the proceedings of the second round, and that too only when the assessee was served with the notice for enhancement. In the light of the aforesai....
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....r of Income-tax (Appeals) vide her order dated March 15, 2001 had no right to assess the income of Rs. 137 lakhs in the fresh assessment order, when the earlier assessment order was set aside to be made 'de novo'? (ii) Whether, in the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the income of Rs. 137 lakhs declared by the assessee in the declaration under the VDIS-97 pertaining to the assessment year 1997-98 cannot once again be held to be liable to tax in fresh assessment for the redetermination of issue relating to the assessability of income of Rs. 67.75 lakhs? (iii) Whether the Appellate Tribunal was right in law and on facts in upholding the directions of the Commissioner of Income-tax (Appeals) that the provisions of section 158BD of the Income-tax Act were not applicable in this case with regard to bringing to tax the amount of Rs. 67.75 lakhs?" Mr. M. R. Bhatt, the learned advocate appearing on behalf of the appellant-Revenue, submitted that the Tribunal was in error in confirming the finding of the Commissioner of Income-tax (Appeals) that the income of Rs. 137 lakhs declared by the assessee under the VDIS pertaining....
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....y the Assessing Officer and which was under challenge before the Commissioner of Income-tax (Appeals). The only way, the Commissioner of Income-tax (Appeals) could have issued such a direction was by issuance of notice for enhancement which admittedly has not been done in the first round. In the circumstances, once the assessability of Rs. 137 lakhs was not the subject-matter of consideration in the original assessment made on March 31, 2000, it could not have entered the zone of consideration by the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) has thus, admittedly not given any direction in his order dated March 15, 2001. The appellate authorities have also noted the fact that under the Act there are various provisions under which a new source of income in appropriate cases may be taken up for consideration by way of revision, rectification or reassessment. In the light of what is stated hereinbefore, there is no infirmity in the order of the Tribunal in upholding the direction of the Commissioner of Income-tax (Appeals) that in the set aside proceedings the Assessing Officer had no right to assess the income of Rs. 137 lakhs in the fresh asses....
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....ield of legislation. The Assessing Officer further invoked article 14 of the Constitution of India to state that the Board, by issuing such circulars was violating the said article. Thus, he made addition of Rs. 137 lakhs to the total income on March 28, 2002 while framing the fresh assessment. As noted hereinbefore, the assessee succeeded before the Commissioner of Income-tax (Appeals) and the Revenue's appeal on this count was dismissed by the Tribunal. Section 68 of the VDIS reads as under: "68. Voluntarily disclosed income not to be included in the total income.-(1) The amount of the voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year under the Income-tax Act, if the following conditions are fulfilled, namely: (i) the declarant credits such amount in the books of account, if any, maintained by him for any source of income or in any other record, and intimates the credit so made to the Assessing Officer; and (ii) the income-tax in respect of the voluntarily disclosed income is paid by the declarant within the time specified in section 66 or section 67. (2) The Commissioner shall, on an application made....
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.... relevant entries in duplicate)". Against the said item, the Form gives two squares, with "Yes" and "No" succeeding the squares, and the square bearing "Yes" has been tick-marked. Thus, evidence on record goes to show that the assessee had while making declaration filled up the prescribed Form including entry regarding credit in the books of account or other record. The declaration is accompanied by notes attached to and forming part of the declaration under sub-section (1) of section 65 of the VDIS. Note No. 4 specifically states as under: "4. Necessary taxes at 30 per cent, on the aggregate income disclosed, has been paid and challan evidencing the payment of the same is attached herewith. Journal entries with reference to the said disclosure are passed as follows: Journal entries: ------------------------------------------------------------------- Particulars Debit amount Credit amount &....
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....g Officer having jurisdiction over the declarant. The Commissioner having issued the certificate under section 68(2) of the Scheme, judicial discipline requires that the authorities entrusted with administering law proceed on the basis that the certificate granted by the Commissioner would indicate satisfaction of all the requisite conditions as required by the provisions of the scheme and it is not open to the subordinate authority to sit in judgment over the certificate granted by the Commissioner. The Assessing Officer in the present case has, while making addition of Rs. 137 lakhs in the fresh assessment made pursuant to the order of set aside, taken upon himself to give a go-by to the certificate issued by the Commissioner as if the said certificate had been issued by the Commissioner without verification or application of mind. The court is not prepared to proceed on such an assumption, though it was so contended by learned counsel for the Revenue. The fact that the Commissioner is superior authority in so far as the Assessing Officer is concerned, is not in dispute and could not be disputed by learned counsel for the Revenue. Once that is the position, the following obser....
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....on for rejecting the declaration made under the VDIS by the assessee. According to the Assessing Officer the circulars issued by the Central Board of Direct Taxes could not have been issued under section 119 of the Act, and hence, they are violative of the provisions of the Constitution as well as go beyond the powers available to the Board under the Act. A similar contention was specifically raised in a case before the Supreme Court, in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706. The Supreme Court observed: "It is trite law that as long as an authority has power, which is traceable to a source, the mere fact that source of power is not indicated in an instrument does not render the instrument invalid [see in this connection State of Sikkim v. Dorjee Tshering Bhutia [1991] 4 SCC 243 at para. 16; N.B. Sanjana, CCE (Asst.) v. Elphinstone Spinning and Weaving Mills Co. Ltd. [1971] 1 SCC 337; P. Balakotaiah v. Union of India [1958] SCR 1052; AIR 1958 SC 232 and Afzal Ullah v. State of U.P. [1964] 4 SCR 991 ; AIR 1964 SC 264]." Even on this ground, the Assessing Officer was not justified in holding that the sum of Rs. 137 lakhs did not form part of valid....
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....f the Act. The Assessing Officer rejected the objection of the assessee by stating that, while making the assessment on remand, the Assessing Officer has all the powers which he originally had while framing the original assessment order and all issues of fact and law could be considered de novo. It was further stated by the Assessing Officer that the issue regarding the applicability of section 158BD of the Act was not before the Commissioner of Income-tax (Appeals) and, hence, the Commissioner of Income-tax (Appeals) could not have expressed anything on the issue which was not the subject-matter before him. Therefore, the Assessing Officer held that "the sum of Rs. 67.75 lakhs, can only be assessed under section 158BD". The assessee carried the matter in appeal before the Commissioner of 39 Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) came to the conclusion that section 158BD requires satisfaction of the Assessing Officer of the person searched before initiation of proceedings under section 158BD of the Act. The Commissioner of Income-tax (Appeals) further held that "perusal of case records does not show any such satisfaction of the Assessing Officer of L.T....
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....n to the Assessing Officer to proceed in accordance with the provisions of Chapter XIV-B against such other person. In support of the aforesaid proposition, Mr. Bhatt placed reliance on the following decisions of this court: (1) Rushil Industries Ltd. v. Harsh Prakash [2001] 251 ITR 608; (2) Priya Blue Industries P. Ltd. v. CIT (Joint) [2001] 251 ITR 615 ; and (3) Premjibhai and Sons v. CIT (Joint) [2001] 251 ITR 625. Mr. S.N. Soparkar, the learned advocate appearing on behalf of the respondent, submitted that the Assessing Officer in the second round had exceeded jurisdiction vested in him, and the Commissioner of Income-tax (Appeals) and the Tribunal were justified in holding that the provisions of section 158BD of the Act could not have been resorted to by the Assessing Officer in regular assessment proceedings in relation to the sum of Rs. 67.75 lakhs which was added in regular assessment, completed on March 31, 2000. He has, therefore, submitted that the Assessing Officer could not have even observed as submitted by learned standing counsel, if for the sake of argument it was accepted that the said findings were mere observations. In fact, the Assessing Officer had....
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....), which defines "undisclosed income", by the Revenue is misplaced. The said definition merely defines what undisclosed income would include. It is not a jurisdictional fact as contended on behalf of the Revenue. Even if it was a jurisdictional fact, for the application of section 158BD of the Act, the same has to come by way of information or handing over of the books of account, etc., by the Assessing Officer of the person searched. Similarly, the provision of section 158BA merely lays down that where a search is initiated under section 132 of the Act after June 30, 1995 or books of account, other documents, etc., are requisitioned under section 132A of the Act, then the Assessing Officer shall proceed to assess the undisclosed income in accordance with Chapter XIV-B of the Act. In the present case, at the cost of repetition, it requires to be stated that no search was initiated in the case of the assessee nor have any books of account or other documents been requisitioned under section 132A of the Act and hence, there is no question of invoking section 158BA of the Act. In the circumstances, on a plain reading of the relevant provisions, it is not possible to accept the st....
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....ions of section 158BA of the Act. The assessee, therefore, approached the respondent vide communication dated April 18, 2002, stating that the petitioner was not in a position to file the return as required in view of the fact that the said notice was vague and unclear. However, instead of responding, on September 5, 2002, the respondent wrote to the petitioner stating that the petitioner having not filed the return of undisclosed income within twenty days in response to the notice under section 158BD of the Act, which was duly served on April 3, 2002, the petitioner was liable to be proceeded against under section 276CCC of the Act and to be prosecuted for non-filing of the return of undisclosed income. The petitioner once again wrote to the respondent on September 16, 56 2002 inviting reference to the earlier letter of April 18, 2002, seeking the same clarification. On September 11, 2003, the respondent wrote to the petitioner informing him that the return was to be filed for the block period from August 1, 1986 to August 1, 1996. On November 24, 2003 the petitioner made the detailed submissions before the respondent stating that the observations/findings made by the Assessing....
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.... the course of the regular assessment proceedings, as it is on the basis of seized material in the case of L.T. Shroff." Further, in the reply affidavit, the respondent states that the assessment order may be referred to in which the Assessing Officer has "made detailed discussions as to why this amount of Rs. 67.75 lakhs should be assessed under section 158BD and not in the regular return". Thereafter the respondent quotes paragraphs Nos. 3, 5.1 and 5.2 of the assessment order dated March 28, 2002. The position in law is well settled that once a particular order is carried in appeal on the point on which the appellant is aggrieved, the order of the original authority merges with the order of the appellate authority and such appellate order is the final order, which only can be looked into. For all intents and purposes, the order made by the original authority thereafter has no independent existence. Therefore, the insistence on the part of the respondent to sustain the illegal notice under section 158BD of the Act by placing reliance on various observations made by the Assessing Officer in the assessment order dated March 28, 2002 is wholly untenable and bad in law. Th....
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....otal income of Rs. 26,61,630. The income so returned was accepted by the respondent. The impugned notice dated March 28, 2003 was served on the petitioner on April 3, 2003. The petitioner addressed letter dated April 28, 2003, objecting to the impugned notice on the ground that the same is legally invalid, as the same has been served after the expiry of the period of limitation. The petitioner further called upon the respondent to furnish a copy of the reasons recorded before issuing notice under section 148 of the Act. This request was made in the light of the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19. As there was no reply from the respondent, the petitioner submitted his return of income on November 24, 2003, declaring the same income as declared in the original return of income without prejudice to his right to challenge the jurisdiction or lack of it, on behalf of the respondent. The petitioner also called upon the respondent to supply a copy of the reasons recorded. On February 20, 2004, the respondent issued notice under section 142(1) of the Act calling upon the petitioner to submit its explanation as regards ex....
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....er: "Reasons for reopening income-tax assessment in the case of Shri Nitin P. Shah alias Modi for the assessment year 1996-97. In this case, the assessee declared an amount of Rs. 2,00,00,000 for the assessment year 1996-97 under the VDIS, 1997, along with a disclosure of Rs. 1,37,00,000 for the assessment year 1997-98 and other years. The Assessing Officer observed, while completing the assessment for the assessment year 1997-98 that the conditions of section 68(1) of the VDIS, 1997, were not satisfied. According to the Assessing Officer, in view of section 68(1), the benefit of the VDIS was not admissible to the assessee. Section 68(1) provides certain mandatory requirement so as to prevent the assessee's income from being included in the total income of the relevant years. His observation as per paras. 5.1 and 9 of his order is as under: Para-5.1. 'I have perused the records of the assessee for different years and I find that the assessee has neither credited the amount of the VDIS for the year under consideration in the books, nor has he given any intimation of such credit to the Assessing Officer. On March 19, 2002 the assessee was called upon to offer his comments....
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....ioner, submitted that the reasons recorded by the respondent are based on fresh assessment order dated March 28, 2002 for the assessment year 1997-98, framed by the respondent in pursuance of the original assessment having been set aside by the Commissioner of Income-tax (Appeals). However, the said assessment order could not have formed the basis for arriving at a reason to believe that any income has escaped assessment for the year under consideration in the light of the fact that the sum of Rs. 2 crores was admittedly declared for the assessment year under consideration under the VDIS and formed part of total disclosure of Rs. 817 lakhs. That, the Commissioner of Income-tax having issued necessary certificate under section 68(2) of the Finance Act, 1997, regarding the fact of payment of tax on the declared income and thus accepting the declaration, it was not open to the respondent to go behind the same and state that the conditions of section 68(1) of the Finance Act, 1997, were not satisfied. That, even otherwise, the appellate authorities had held that it was not open to the respondent to go behind the VDIS and he adopted detailed submissions made on the merits of the matter ....
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....e impugned notice seeking to reopen, cannot be permitted to stand. The reasons recorded must disclose the material and the basis, which reflect the process by which the authority has formed the belief. Even if sufficiency of such reasons cannot be gone into, it is equally well established, the court can always examine whether, on such material as disclosed in the reasons, there was a rational nexus for the formation of belief. In other words, whether a reasonable person could have arrived at such a belief. The reasons recorded here fail the objective test. The respondent-authority is also not sure that any income has escaped assessment-only a possible escapement of income is indicated. That cannot permit him to assume jurisdiction. On the merits of the controversy also, it is necessary to note that in Tax Appeal No, 90 of 2004, this court has accepted the findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal that all entries regarding declaration have been incorporated in the books of account. In the affidavit-in-reply the respondent has referred to his order dated March 26, 2004 disposing of the preliminary objections raised by the petitioner to reit....