IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA ITA No.6 of 2002. Judgment reserved on: 13.8.2008. Date of decision: 27th August, 2008 Commissioner of Income tax ..Appellant Versus Chander Prakash Gupta ..Respondent Coram The Hon’ble Mr. Justice Deepak Gupta, Judge. The Hon’ble Mr. Justice V.K.Ahuja, Judge. Whether approved for reporting?1 Yes For the Appellant.: Ms.Vandana Kuthiala, Advocate. For the Respondent: Mr.K.D.Sood, Advocate. Deepak Gupta, J. This appeal was admitted on the following substantial question of law: “1.Whether on the facts and in the circumstances of the case the ITAT was right in law in holding that since the order passed by the A.O. on 16.10.1998 u/s 143(3) was in accordance with the order of the CIT passed u/s 68(2) of VDIS-97, the same cannot be considered as erroneous or prejudicial to the interest of the revenue as the A.O. while framing reassessment on 16.10.1998 could not have ignored the impact of the acceptance of declaration and the certificate issued by the CIT himself?” This case relates to the assessment year 1993-94. Search and seizure operations under Section 1 Whether the reporters of the local papers may be allowed to see the Judgment? yes 2 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act) were conducted at the residential and business premises of the assessee Sh.Chander Parkash Gupta on 19.5.1994. During the search operation a rough trial balance dated 28.2.1993 was seized from the said residential premises. The trial balance showed sales of different vends in Shimla District run by M/s.Tirath Ram and Company, Shimla and credit balance of Rs.14,07,143/- was reflected in the name of Sh.Chand Gupta. According to the Revenue this was undisclosed income/investment of the assessee Chander Parkash Gupta. The assessee contended that his name was Chander Parkash Gupta and not Chand Gupta. He contended that he had nothing to do with the alleged trial balance and refuted the claim of the Revenue. The Assessing Officer on the basis of the seized document made an addition of Rs.14,07,143/- as the assessee’s investment in the liquor business of M/s.Tirath Ram and Company from undisclosed sources vide his assessment order dated 11.3.1996 passed under Section 143 (3) of the Act. The assessee filed an appeal before the Commissioner of Income Tax. The CIT (Appeals) came to the conclusion, on perusal of the record and submissions made before her, that the assessee is 3 having an interest in a partnership concern named as M/s.Chand and Company and therefore the Assessing Officer belief that the appellant is popularly known as Chand Gupta cannot be dismissed as an impossibility. However, the CIT (Appeals) held that the fact that Chand Gupta and Chander Parkash Gupta are the same person must be supported by other evidence or material collected in investigation. On this ground alone the order of the Assessing Officer was set-aside and the Assessing Officer was directed to frame the assessment order afresh after due investigation of the case. It appears that thereafter Sh.Chander Parkash Gupta as karta of Chander Parkash Gupta HUF disclosed the amount of Rs.14,07, 143/- as the income of the Chander Parkash Gupta, HUF under the Voluntary Disclosure of Income Scheme, 1997 (UDIS). He also obtained a certificate under section 68(2) of the said scheme to show that he had paid tax on this amount. The Assessing Officer vide order dated 16.10.1998 came to the conclusion that in view of the fact that certificate under Section 68(2) of the VDIS had been issued no addition was called for. Thereafter, the Commissioner of Income Tax exercising powers under Section 263 of the Act issued notice to the assessee to the effect that the order passed 4 by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue and action was proposed to be taken against the assessee. The assessee replied to the notice and took various objections. The CIT (Appeals) came to the conclusion that the assessee had previously claimed that he had no concern with the amount of Rs.14,07,143/- and had also taken up the plea that he is not known as Chand Gupta but had later made disclosure of the same amount under the VDIS, 1997. According to the CIT (Appeals), the amount which was belonging to the individual was declared to be in the hands of the HUF and therefore the order was erroneous and prejudicial to the Revenue. The order of the Assessing Officer was set-aside and the matter was remanded to the Assessing Officer for fresh assessment. The assessee filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal). The Tribunal allowed the appeal of the assessee on various grounds. One of the grounds which weighed with the Tribunal was that since the same CIT had issued the certificate under Section 68(2), and the Assessing Officer had acted in accordance with the said certificate, therefore, the order of the Assessing Officer could not be said to be erroneous or prejudicial to the interest of the Revenue and the Assessing Officer was 5 bound to follow the acceptance of the declaration made by the assessee in his capacity as Karta of the HUF. A preliminary objection has been raised by Sh.K.D.Sood, learned counsel for the assessee that the notice under Section 263-A was not within limitation and on this short ground the reference should be rejected. Section 263(2) of the Act reads as follows: “263(2):No order shall be made under sub-section(1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.” It is obvious that the order under Section 263 of the Act should be passed within two years from the end of the financial year in which the order sought to be revised was passed. In the present case the Assessing Officer passed the order, which was the subject matter of the notice under Section 263, on 16.10.1998. The financial year for this notice would end on 31.3.1999 and two years would expire on 31.3.2001. The order was passed by the learned CIT on 26th March, 2001 that is before 31.3.2001 and is within limitation. Therefore, the preliminary objection is rejected. We may also note that keeping in view the importance of the matter we have not restricted ourselves only the question on which the appeal was admitted though that remains the moot question. The ancillary 6 questions arising out of the said question also required to be answered. To appreciate the controversy which arises in the present case it would be relevant to mention that the Voluntary Disclosure of Income Scheme, 1997 was introduced by the Finance Act, 1997. The purpose of this scheme was to encourage persons who had not declared certain incomes and had consequently not paid tax on the same to declare the income and pay tax without being liable to pay penalty etc. They also got immunity from criminal action. Reference may be made to Section 63(a) of the scheme under which the declarent is defined: “63(a): ‘Declarent’ means a person making the declaration under sub-section (1) of Section 64.” Section 64 relates to the charge of tax on voluntarily disclosed income, relevant portion for our purpose is Section 64 (2)(ii) which reads as follows: “64.Charge of tax on voluntarily disclosed income:- (1)xxxxxxx (2)Nothing contained in sub-section(1) shall apply in relation to:- (i)xxxxxx (ii):the income in respect of the previous year in which a search under section 132 of the Income-tax Act was initiated or requisitioned under section 132-A of the Income-tax Act was made, or survey under Section 133-A of the Income-tax Act was carried out or in respect of any earlier previous year.” Section 68 reads as follows: “68.Voluntary disclosed income not be included in the total income.-(1)The amount of the voluntarily 7 disclosed income shall not be included in the total income of the declarent for any assessment year under the Income-tax Act, if the following conditions are fulfilled, namely:- (i)the declarent 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 declarent within the time specified in section 66 or section 67. (2)The Commissioner shall, on an application made by the declarent, grant a certificate to him setting forth the particulars of the voluntarily disclosed income and the amount of income-tax paid in respect of the same.” From a perusal of the aforesaid provisions it is apparent that the declarent is a person who makes the declaration under the scheme. Section 64 permits any person to make voluntary disclosure of any income during the period prescribed therein for which he has not filed a return under Section 139 of the Income-tax Act; or income which he has failed to disclose in his return filed under the Act; or income which has escaped assessment by reason or omission or failure on the part of such person to make the return under the Act or disclose fully the true material facts necessary for the assessment. However, sub-section (2)(ii) of Section 64 makes it absolutely clear that the provisions of Section 64(1) will not apply in respect of income in respect of any previous year in which a search under Section 132 of the Act was initiated, or 8 requisitioned under Section 132-A or survey was carried out under Section 133-A. It is therefore abundantly clear that the income which is the subject matter of a previous year in which search and seizure operation had been carried out or any previous year thereto cannot be disclosed under the scheme. Section 68 provides that the amount of voluntarily disclosed income shall not be included in the total income of the declarent for any assessment year if the said declarent credits such amount in the books of account and intimates the fact of making credit to the Assessing Officer and pays income tax in respect of this voluntarily disclosed income within the time specified. The Commissioner can grant a certificate to the said person mentioning therein the particulars of the income voluntarily disclosed and the income tax paid in respect of the same. It would be pertinent to mention that the Central Board of Direct Taxes (CBDT) has issued circulars from time to time. Certain clarifications were sought in terms of the scheme. It would be relevant to refer to questions No.6, 27, 29 & 45: “Question No.6: Where search and seizure action has taken place in financial year 1995-96, the block period is 1985-86 to 1995-96, can disclosure under the present scheme be made by the persons searched for an assessment year prior to 1985-86? 9 Answer: No. In respect of a case where search has taken place in any financial year, the person cannot make a declaration in respect of any previous year prior to the previous year in which search has taken place. Question No.27: Whether survey under section 133A(5) of the Income-tax Act, will also bar a person from making a disclosure? Answer: Yes, for the previous year in which the survey was carried out. Question No.29: A search under section 132 of the Income-tax Act, bars a person from making a disclosure in respect of the previous year in which the search took place and also for any earlier previous year. In case a search warrant is issued in the name of one person, can others who also reside at the same premises and whose statements may have been recorded during the course of the search, make a disclosure of their income? Answer:Yes, but not in respect of income assets, etc., seized during the course of the search or discovered as a result of the search. Question No.45: Whether a person who makes a declaration as karta of a Hindu undivided family, can be questioned subsequently in respect of income accruing on the disclosed income with regard to the correctness of the status? Answer: No.” On behalf of the assessee it is contended that since he has made the declaration as karta of the Hindu Undivided Family he cannot be questioned in respect of the income and with regard to the correctness of the status especially in view of the fact that certificate under Section 68 has been issued by the assessee. We are unable to accept this contention. The language of 10 Section 64(2)(ii) is absolutely clear. It is clear that once search and seizure operations are carried out on the premises of the assessee within the meaning of Section 132 of the Act or survey is carried out within the meaning of Section 133 then such an assessee cannot make any voluntary disclosure of any income in respect of the previous year in respect of the years in which search operation was carried out or in respect of any earlier previous years. The net result is that the income which he can disclose is only such income which may have accrued in the financial years subsequent to the year in which the search and seizure operation was carried out. If there was any doubt with regard to the interpretation of this section the same stands set at rest by the clarification given by the Central Board of Taxes in reply to questions 6, 27 and 29. In fact in answer to question 29 it is clearly stated that any person other than the assessee who is residing in the same premises and whose statement has been recorded during the course of the search cannot make a disclosure in respect of the income for the said financial year or any previous year. In the present case, as noted hereinabove, the search and seizure operation was carried out on 19.5.1994. Prior to that on 28.1.1994 the assessee had filed return of Rs.3,02,687/- only. After search and 11 seizure operation was carried out the Assessing Officer added a sum of Rs.14,07,143/- to the income of the assessee on the basis of the documents recovered during the search operations which showed that the assessee under the name of Chand Gupta had made certain investments in the liquor business at Shimla. At that time the assessee only contested the claim on the ground that he is not Chand Gupta and his name is Chander Parkash Gupta and the assessee asserted that he has no connection with any person by the name of Chand Gupta. This assertion of the assessee is totally falsified by his later action in declaring this income of Rs.14,07,143/- as income of Chander Parkash Gupta, HUF. He thereby admits that Chand Gupta is a part and parcel of Chander Parkash Gupta, HUF. It is also clear indicator of the fact that Chand Gupta and Chander Parkash Gupta are one and the same person. The Karnataka High Court in Mysore Plantations Ltd. Vs. CIT, 262 ITR 397, was dealing with a case where search operation under Section 132 of the Act was carried out on the business premises of the assessee on March 6, 1996. Some undisclosed income was discovered during the search operation. It appears that a certificate of disclosure and deposit of tax under section 68 was issued in favour of the assessee. This 12 certificate was later cancelled in terms of section 64(2)(ii) after issuing notice to the assessee. Thereafter, notices were issues to the assessee in respect of the income which had escaped assessment. In that case on behalf of the assessee it was argued that the cancellation of the certificate was bad in law and that once a certificate has been issued it could not be reopened. It was also argued that once the certificate is accepted the same become final and binding. The Karnataka High Court dealt with this objection by holding as follows: “It cannot be forgotten that the Scheme has been introduced with the laudable object of ending the dispute between the parties. When there is no voluntary disclosure, then the petitioner cannot have the benefit of a beneficial scheme. The scheme is beneficial only to bona fide assessees and not to those who try to make an unlawful gain out of the said scheme. In these circumstances, I am clear in my mind that the respondents are fully justified in canceling the certificate issued to the petitioner.” In the present case, no doubt the certificate under Section 68 has not been cancelled but it is apparent that the disclosure made by the assessee is in total violation of the provisions of the scheme. The scheme does not envisage the declaration being made in respect of the income which relates to the previous year in which the search is made or any previous year prior thereto. In the present case, the very act of disclosure is 13 against the scheme itself. The conduct of the assessee is also not above board. It is obvious that while making the declaration he has not stated correct facts. To get out of penalties which he may have faced the assessee who had previously denied that he had any connection with Chand Gupta, declared the income to be that of Chander Parkash Gupta, HUF. He was aware that this income was subject matter of the search operation. He purposely withheld this fact. He, therefore, cannot take benefit of his own illegal declaration. Faced with this situation Sh.K.D.Sood, on the basis of judgment of the Madras High Court reported in Venkatakrishna Rice Company vs. Commissioner of Income Tax, (1987)163 ITR 129, urged that since the assessment order is in accordance with law the same cannot be said to be erroneous or prejudicial to the interest of the revenue. This contention cannot be accepted. Previously the CIT had set-aside the order of the Assessing Officer and had directed him to frame denovo assessment on the basis of investigation. The Assessing Officer did not carry out any investigation and only relied upon the certificate issued under section 68. We have found that this certificate is totally contrary to the provisions of Section 64(2)(ii) of the Act. Therefore, the 14 order of the Assessing Officer was not only against law but also prejudicial to the interest of the Revenue. In view of the above discussion, we hold that the declaration made by the assessee was totally contrary to the provisions of Section 64 (2)(ii) of the Act and therefore the certificate issued under Section 68 is not binding upon the Assessing Officer. Consequently, the appeal filed by the Revenue is allowed, the order of the learned Tribunal is set-aside and the order of the learned Commissioner of Income Tax is restored. No order as to costs. ( Deepak Gupta ), J. August 27, 2008 ( V. K. Ahuja ), J. PV