Ita/519/2008 Of The Commissioner Of Income Tax v. Shri Kundanmal Babulal

1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE. Dated this the 8[th]day of July, 2014| PRESENT THE HON’BLE MR. JUSTICE N KUMAR ANTI THE HON’BLE MR. JUSTICE B MANOHAR| ITA No. 519/2008 BETWEEN: 1.The Commissioner ot Income Tax C.R.Building, Queens Road, Bangalore. oo.The Assistant Commissioner of Income-Tax Circle — 5(1),. C.R. Building, Queens Road, Bangalore. . Appellants. (By Sri K.V. Aravind, Advocate) AND: Sri Kundanmal Babulal Jain|Prop: M/s. B. Praveen Kumar,No.14, Devatha Market, Chickpet,Bangalore. . Respondent p (By Sri A. Shankar & Sri M. Lava, Advs.) This ITA filed under Section 260-A of I.T. Act, 1961 arising|OUTotorderdated18.01.2008passed1nNIT(SS)ANo.43/Bang/2001 for the Block Assessment period 1988-89 to|1997-98 till 21/10/1997, praying to (i) formulate the substantial|questions of law stated therein; (11) allow the appeal and set aside|theorderpassedby|theITATBangaloreinIT(SS)ANo.43/Bang/2001 dated 18.01.2008 and confirm the order of the|Appellate Commissioner confirming the order passed by the|Assistant Commissioner of Income Tax, Circle-5(1), Bangalore. This ITA coming on for hearing this day,|N. KUMAR Jdelivered the following: JUDGMENT This appeal is filed by the revenue challenging the order|passed by the Tribunal, which has upheld the order passed by theCommissioner of Income Tax (Appeals), where it has held that.when the identical income is accepted under VDIS, the same could.not be assessed in the hands of the assessee-individual. oOA search and seizure operation under Section 132 of|the Income Tax Act (for short hereinafter referred to as ‘the Act),was conducted on 21.10.1997 in the case oft Sri Kundanma|Babulal - the assessee at his residential premises at No.47, R.T.|street, Chickpet, Bangalore and also at his business premises at|No.14, Devatha Market, Bangalore. Simultaneously, survey under| Section 133A of the Act was conducted on 21.10.1997 at thebusiness premises of his son Sri B. Praveen Kumar at No.118,|Devatha Market, Bangalore. 3.The assessee is trading in Sarees in proprietary|concern in the name of M/s. B. Praveen Kumar at No.14, Devatha.Market, Bangalore. His son is also running a proprietary concern|in the name of M/s. Prathik Creations at No.118, Devatha Market, Bangalore, dealing in shirt and pant pieces. On the date of search,the assessee and his tamily members had filed their regular|returns of income up to assessment year 1995-96 only. Returns|for the assessment years 1996-97 and 1997-98 were not filed. In|the course of search, certain incriminating documents were seized,which revealed that the unaccounted business had been carried|on by the assessee and his son only as proprietary concerns.|There was no material to link the business activities of the|assessee with any HUF. Sworn statements were recorded on the|day of search by the assessee and his tamily members. In the|statement recorded, they have categorically admitted that the|unaccounted business had been carried on by himself and his sononly as a proprietary concerns in their individual capacity. Notices v were issued and they were asked to file their income tax returns in their individual capacity. v were issued and they were asked to file their income tax returns in their individual capacity. 4However, they took advantage of Voluntary Disclosureof Income Scheme, 1997 (for short hereinafter referred to as ‘the|VDIS Scheme’) and filed a declaration in accordance with the|provisions of Section 69 of the VDIS Scheme declaring income of|Rs.23.00 lakhs as belonging to HUF, which was not disclosed|earlier. On consideration of the said application, the Commissionerof Income Tax, in pursuance of the power vested in him under)section 68 of the VDIS Scheme granted a certificate certifying theparticulars of the voluntary disclosed income and the amount of|income tax paid in respect of the same. The said certificate was.produced before the Assessing Authority. The Assessing Authorityignoring the said certificate proceeded to assess the very income in respect of which certificate was issued under Section 68 of the.VDIS Scheme as undisclosed income in the hands oft the individualwho is the member ot the HUF and framed assessment order.|Agegrieved by the said order, the assessee preferred an appeal tothe Commissioner of Income Tax (Appeals). * 5The appellate Authority on careful examination of the|entire material on record, held the Assessing Authority could not|have assessed the income which was the subject matter of|certificate in the hands of the individual and therefore, he set.aside the order and allowed the appeal. He also held the said|income belongs to HUF and liberty was reserved to the Authoritiesto proceed against the assessee in respect of the said amount in|the hands of HUF under Section 158BD of the Act. Aggrieved by|the said order, the revenue preferred an appeal to the Tribunal. | 6.TheTribunalOT)reconsideration ottheentirematerials on record held, though the assessee could be the owner|of the income, but once the department accepted the very income|as belonging to some other person and that too under a scheme|floated by the Income Tax Department called VDIS and the|certificate is issued by not less than a person than the|Commissioner, it is wholly improper for another assessing|authority, who is very much lower in the rank than the|Commissioner to examine the identical facts for framing of|assessment in the hands of another person. The Assessing Officer|cannot sit over the judgment of the Commissioner who had issued the certificate under VDIS and especially when it is still valid, theAssessing Officer could not have proceeded to frame _ thassessment in the hands of the individual in regard to the same|income and therefore, he did not find any merit in the appeal.|Accordingly, the appeal came to be dismissed. Aggrieved by the|said order, the revenue is in appeal. T.The appeal is admitted to consider the following|substantial questions of law: (1)“Whether the Appellate Authorities were correct|in holding that the undisclosed income includingcash detected in the search conducted on21.10.1997 cannot be brought to tax in thehands of the assessee in individual capacity astheaSSe€@SSEhaddeclaredpart|ottheundisclosed income under VDIS which had beenaccepted by the Commissioner on 12.01.1998 inthe status otf HUF?in holding that the undisclosed income includingcash detected in the search conducted on21.10.1997 cannot be brought to tax in thehands of the assessee in individual capacity astheaSSe€@SSEhaddeclaredpart|ottheundisclosed income under VDIS which had beenaccepted by the Commissioner on 12.01.1998 inthe status otf HUF? (11)Whether the Appellate Authorities were correct|in not appreciating that the VDIS had been filedsubsequent to search proceedings, which wasnot maintainable and by misrepresentation andby misleading the department the certificate|under the VDIS in the status of HUF had been|in not appreciating that the VDIS had been filedsubsequent to search proceedings, which wasnot maintainable and by misrepresentation andby misleading the department the certificate|under the VDIS in the status of HUF had been| (11)Whether the Appellate Authorities were correct|in not appreciating that the VDIS had been filedsubsequent to search proceedings, which wasnot maintainable and by misrepresentation andby misleading the department the certificate|under the VDIS in the status of HUF had been|in not appreciating that the VDIS had been filedsubsequent to search proceedings, which wasnot maintainable and by misrepresentation andby misleading the department the certificate|under the VDIS in the status of HUF had been| obtained when the assessee had not declaredany income in such status for the assessmentyear1995-96,1996-97and|1997-98|normaintained any books, registration under thesales Tax Act, or any other evidence in that|capacity and consequently recorded a perversefinding? (111)Whether Appellate Authorities were correct in|deleting the addition made by the Assessingotficer of the undisclosed income in the status otthe individual by holding that the income shouldbe brought to tax in the hands of HUF by|upholding a partition deed dated 01.12.1994produced without there being any supportingevidence and consequently recorded a perversefinding?deleting the addition made by the Assessingotficer of the undisclosed income in the status otthe individual by holding that the income shouldbe brought to tax in the hands of HUF by|upholding a partition deed dated 01.12.1994produced without there being any supportingevidence and consequently recorded a perversefinding? (iv)Whether the Appellate Authorities were correct|in holding that the income has to be brought to tax in the hands of the HUF when they|themselvesrecognizedapartitiondated01.12.1994 executed among the tamily memberswhich only demonstrates that the entire schemeis to mislead the department and _ escapeassessment?”in holding that the income has to be brought to tax in the hands of the HUF when they|themselvesrecognizedapartitiondated01.12.1994 executed among the tamily memberswhich only demonstrates that the entire schemeis to mislead the department and _ escapeassessment?” 8 8.Learned counsel for the revenue assailing the|impugned order contends, the VDIS declaration has been filed|after search and seizure in the premises of the individuals. Section|68 of the scheme provides that the amount of the voluntary|disclosed income shall not be included in the total income of the|declarant for any assessment year under the Act and therefore, hesubmits the findings recorded by both the authorities is not|correct and requires to be set aside. QOIn order to appreciate this contention, it is necessary|to have a look at the provisions contained in the Voluntary|Disclosure of Income Scheme, 1997. Section 64 reads as under: E64. Charge of Tax on _ voluntarily disclose income:-|(1) Subject to the provisions of this Scheme,where any person makes, on or aiter the date ofCOMmencement of this Scheme but on or before the/31[st]day of December, 1997, a _ declaration inaccordance with the provisions of Section 65 in respect of any income chargeable to tax under the Income-tax|Act for any assessment year- (a) for which he has failed to furnish a return)under Section 139 of the Income-tax Act; (b) which he has failed to disclose in a return of.income furnished by him under the Income-taxAct before the date of commencement of this|scheme; (c) which has escaped assessment by reason of)the omission or failure on the part of such|person to make a return under the income-taxAct or to disclose fully and truly all material|facts necessary for his assessment or otherwise, then, notwithstanding anything contained in the)Income-tax Act or in any Finance Act, income-tax shallbe charges in respect of the income so declared (such|income being hereinafter referred to as the voluntarily|disclosed income) at the rates specified hereunder,|namely:- (1)in the case of a declarant, being a company|or a firm, at the rate of 35 percent, of the|voluntarily disclosed income; (11)in the case of a declarant, being a person|other than a company or a firm, at the rate of 30per cent of the voluntarily disclosed income (c) which has escaped assessment by reason of)the omission or failure on the part of such|person to make a return under the income-taxAct or to disclose fully and truly all material|facts necessary for his assessment or otherwise, then, notwithstanding anything contained in the)Income-tax Act or in any Finance Act, income-tax shallbe charges in respect of the income so declared (such|income being hereinafter referred to as the voluntarily|disclosed income) at the rates specified hereunder,|namely:- (1)in the case of a declarant, being a company|or a firm, at the rate of 35 percent, of the|voluntarily disclosed income; (11)in the case of a declarant, being a person|other than a company or a firm, at the rate of 30per cent of the voluntarily disclosed income (2) Nothing contained in sub-section (1) shall apply in|relation to- (i) the income assessable for any assessment,year for which a notice under Section 142 orSection 148 of the I[Income-tax Act has beefurnished before the commencement of this|scheme; (11) the income in respect of the previous year in|which a search under Section 132 of theIncome-tax Act was initiated or requisition|under Section 132A of the Income-tax Act wasmade, or survey under Section 133A of theIncome-tax Act was carried out or in respect ofany earlier previous year” 10..Section 68 reads as under: E68. Voluntarily disclosed income not be included| in the total income:-(1) The amount of thevoluntarily 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:- (1)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 11 intimates the credit so made to the Assessing|Officer; and (11)the income-tax in respect of the voluntarily|disclosed income is paid by the declarant withinthe time specified in section 66 or section 67. (2) The commissioner shall, on an application made by|the declarant grant a certificate to him setting forth|the particulars of the voluntarily disclosed income andthe amount of income-tax paid in respect of the same. 11.)From the aforesaid provisions, it is clear, once a|person files an application under Section 64 in accordance with|the provisions of Section 65 in respect of any income chargeable totax under the Act, which earlier he has not offered it to tax, theCommissioner on consideration of such application can grant a|certificate to him setting forth the particulars of voluntary|disclosed of income and the amount of income tax paid in respect|of the same. Once such a certificate is granted, the amount of the|voluntary disclosed income shall not be included in the total|income of the declarant for any assessment year under the incometax Act. Once a particular income is included in the income of the.person and taxed and such person pays the tax, the same income| 12 cannot be taxed in the hands of another person. In the instant.case the amount has been taxed in the hands ot HUF. Once the|tax is paid for that undisclosed income, again the same income|cannot be taxed in the hands of the member of the HUF, that is.the assessee., 12 cannot be taxed in the hands of another person. In the instant.case the amount has been taxed in the hands ot HUF. Once the|tax is paid for that undisclosed income, again the same income|cannot be taxed in the hands of the member of the HUF, that is.the assessee., 12.)Therefore, in the light of the provisions of the aforesaidVDIS scheme as well as the provisions of the Act, the AppellateAuthorities were justified in holding that as long as the certificateis in force, the income which was the subject matter of the|certificate cannot be taxed not only in the hands of the declarant|but also in the hands of any other person. If such a certificate is obtained by misrepresentation misleading the Commissioner, the|proper course would be to recall the said certificate. No such stepsare taken. The certificate is still in force. When that being the|case, the same income cannot be assessed over and again in the|hands oft the individuals who are the members otf the HUHTherefore, the order passed by the Tribunal as well the Appellate|Authority is in accordance with law and do not suffer from any|legal infirmity calling for interference. Therefore, the substantial questions of law are answered infavour of the assessee and against the revenue. We do not see any|merit in this appeal. Accordingly, it is dismissed. (N. KUMAR)JUDGE (B. MANOHAR);JUDGE VP.