Principal Commissioner Of Income Tax – 9, Kolkata v. Manju Osatwal

Form No. (J2) IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTIONORIGINAL SIDE P R E S E N T: THE HON’BLE JUSTICE T.S. SIVAGNANAM A N D THE HON’BLE JUSTICE HIRANMAY BHATTACHARYYA ITAT/96/2021IA NO.GA/1/2021 PRINCIPAL COMMISSIONER OF INCOME TAX – 9, KOLKATAVS.MANJU OSATWAL ITAT/96/2021IA NO.GA/2/2021 PRINCIPAL COMMISSIONER OF INCOME TAX – 9, KOLKATAVS.MANJU OSATWAL For the appellant : Mr. Soumen Bhattacharjee, Adv. For the respondent : Ms. Swapna Das, Adv. Mr. Siddharth Das, Adv. Heard on : 11[th] February, 2022. Judgment on : 11[th] February, 2022. RE : IA No. GA 1 of 2021 T.S. SIVAGNANAM, J. : We have heard Mr. Soumen Bhattacharjee, learned standing counsel for the appellant/revenue and Ms. Swapna Das, duly assisted by Mr. Siddharth Das, learnedcounsel for the respondent/assessee. 2. There is a delay of 420 days in filing the appeal. On perusal ofthe relevant dates, we find that the appellant/revenue would beentitled to the benefit of the order passed by the Hon’ble SupremeCourt extending the period of limitation for filing appeals. Hence, thedelay in filing the appeal is condoned. 3. Accordingly, the application for condonation of delay standsdisposed of. ITAT No. 96 of 2021 4. This appeal by the revenue filed under Section 260A of theIncome Tax Act, 1961, (the Act for brevity) is directed against theorder dated 15[th] January, 2020 passed by the Income Tax AppellateTribunal “B” Bench, Kolkata (Tribunal) in ITA No. 707/Kol/2019 forthe assessment year 2014-2015. 5. The revenue has raised the following substantial questions oflaw for consideration : i)Whether the Ld. ITAT has committed substantialerror in law in holding that once the income offeredand IDS (Income Declaration Scheme), 2016 isaccepted by the Department an order under Section143(3) of the Act cannot be revised as the items ofaddition in question directed by the LearnedPrincipal Commissioner of Income Tax was part oferror in law in holding that once the income offeredand IDS (Income Declaration Scheme), 2016 isaccepted by the Department an order under Section143(3) of the Act cannot be revised as the items ofaddition in question directed by the LearnedPrincipal Commissioner of Income Tax was part of IDS, 2016 application and not part of the orderpassed under Section 143(3) of the Act?passed under Section 143(3) of the Act? ii)Whether the Learned Tribunal has committedsubstantial error in law in holding that the orderunder Section 263 of the Act was withoutjurisdiction as such as the items of additiondirected by the Learned Principal Commissioner ofIncome Tax was part of IDS, 2016 and not part oforder under Section 143(3) of the Act?substantial error in law in holding that the orderunder Section 263 of the Act was withoutjurisdiction as such as the items of additiondirected by the Learned Principal Commissioner ofIncome Tax was part of IDS, 2016 and not part oforder under Section 143(3) of the Act? iii)Whether the Learned Tribunal is perverse in ourlooking that it is the duty of the Tribunal to scratchsurface and probe documentary evidence in depthin light of conduct of assessee and othersurrounding circumstances in order to see whetherthe assessee is liable to provisions of Section 68 ofthe Income Tax Act or not?looking that it is the duty of the Tribunal to scratchsurface and probe documentary evidence in depthin light of conduct of assessee and othersurrounding circumstances in order to see whetherthe assessee is liable to provisions of Section 68 ofthe Income Tax Act or not? 6. We have heard Mr. Soumen Bhattacharjee, learned standingCounsel for the appellant and Ms. Swapna Das and Mr. SiddharthDas, learned Counsel appearing for the respondent/assessee. 7. As an interesting question of law arises for consideration in thisappeal, we requested Mr. J.P. Khaitan, learned senior counsel toassist us and with his assistance and after hearing the learnedcounsels we proceed to decide the matter. 6. We have heard Mr. Soumen Bhattacharjee, learned standingCounsel for the appellant and Ms. Swapna Das and Mr. SiddharthDas, learned Counsel appearing for the respondent/assessee. 7. As an interesting question of law arises for consideration in thisappeal, we requested Mr. J.P. Khaitan, learned senior counsel toassist us and with his assistance and after hearing the learnedcounsels we proceed to decide the matter. 8. The assessee is an individual who had filed her return of incomefor the assessment year under consideration, AY 2014-2015 declaring a total income of Rs.10,82,352/-. The return was processed underSection 143(1) of the Act. Subsequently, the return was selected forscrutiny and notice under Section 143(2) dated 18.09.2015 and noticeunder Section 142(1) along with a requisition of details/documentswere issued to the assessee. In response to such notice, the assesseefurnished necessary details. The assessing officer noted that theassessee derived income from salary from a company and othersources. Upon perusal of the details submitted by the assessee, theassessing officer further noted that the assessee derived income fromlong term capital gain and claimed exemption under Section 10(38) ofthe Act. The assessing officer further noted that the assessee hadmade sale/purchase of shares through a stock broker. Acommunication under section 133(6) of the Act was issued to the saidshare broker for verification and confirmation of the transactionsregarding sale and purchase of shares and reply was received from thestock broker confirming the details filed by the assessee and havingfound no discrepancy, the assessment was completed under Section143(3) of the Act by order dated 6.5.2016 accepting the return of totalincome of Rs.10,82,352/- and tax payable thereon was accordinglycomputed. After the assessment was completed, the assessee availedthe benefit of Income Declaration Scheme, 2016 (IDS). 9. The said scheme was introduced in Chapter IX of the FinanceAct, 2016. 10. Clause (a) in Section 182 defines ‘declarant’ to mean a personmaking a declaration under sub Section (1) of Section 180. Section 183(1) states that subject to the provisions of the scheme any personmay make, on or after the date of commencement of the scheme (IDS),but before a date to be notified by the Central Government in theofficial gazette, a declaration in respect of any income chargeable totax under the Income Tax Act for any assessment year prior to theassessment year beginning on the first day of April 2017. Thecircumstances enumerated in clauses (a), (b), (c) to Section 183(1)enumerates the types of assessees who would be entitled to file suchdeclaration. Section 184 deals with charge of tax and surcharge. SubSection (1) of Section 184 commences with a non-obstante clausestating that notwithstanding anything contained in the Income TaxAct or in any Finance Act, the undisclosed income declared underSection 180 within the time specified therein shall be chargeable totax @30% of such undisclosed income. Section 185 deals withpenalty. Section 186 speaks about the manner of declaration and subSection (2) of Section 186 enumerates as to who has to sign thedeclaration. Section 187 deals with time for payment of tax. Section188 deals with undisclosed income declared not to be included in thetotal income. The provision states that amount of undisclosed incomedeclared in accordance with Section 180 shall not be included in thetotal income of the declarant for any assessment year under theIncome Tax Act, if the declarant makes the payment of tax andsurcharge referred to in Section 181 and the penalty referred to inSection 182 by the date specified under sub Section (1) of Section 184.Section 189 states that the declarant under the scheme shall not be entitled, in respect of undisclosed income declared or any amount oftax and surcharge paid thereon, to reopen any assessment orreassessment made under the Income Tax Act, or the Wealth Tax1957, or claim any set off or relief in any appeal, reference or otherproceeding in relation to any such assessment or reassessment.Section 191 places an embargo on the declarant to the effect that anyamount of tax and surcharge paid under Section 181 or penalty paidunder Section 182 in pursuance of a declaration under Section 180shall not be refundable. Section 193 deals with declaration bymisrepresentation of facts to be void. The said provision commenceswith a non-obstante clause stating that notwithstanding anythingcontained in the scheme, where a declaration has been made bymisrepresentation or suppression of facts, such declaration shall bevoid and shall be deemed never to have been made under the scheme(IDS). Section 196 enumerates the persons to whom the scheme willnot apply. Clause (e) in Section 196 states that the scheme will notapply in relation to any undisclosed income chargeable to tax underthe Income Tax Act and for any previous year relevant to anassessment year prior to the assessment year beginning on first day ofApril 2017. Clause (i) in Section 196(e) states that where a noticeunder Section 142 or sub Section (2) of Section 143 or Section 148 orSection 153(A) or Section 153(C) of the Income Tax Act has beenissued in respect of such assessment year the proceedings is pendingbefore the assessing officer, the provisions of the scheme (IDS), would not apply. Section 198 deals with power to the Central Government to remove difficulties and Section 199 is the rule making power. 11. In exercise of the powers conferred under sub Section (1) and (2)of Section 199 of the Finance Act, 2016 the Central Board of DirectTaxes (CBDT) had framed the Income Declaration Scheme Rules 2016.In terms of Rule 4(1) a declaration of income or income in the form ofinvestment in any asset under Section 183 shall be in Form 1. Form 2is the acknowledgement of declaration under Section 183 of theFinance Act 2016 in respect of IDS. The said Form whileacknowledging the receipt of the declaration determines the amountpayable with regard to the declaration made by the assessee under thescheme. The assessee is required to pay an amount of not less than25% of the amount quantified on or before 30.11.2016; an amount notless than 50% on or before 31.03.2017 and the whole of the sumpayable reduced by the amount paid earlier on or before 30.09.2017.The assessee is required to give an intimation of payment made underSection 187(1) in respect of IDS in Form 3. After the proof of paymentis intimated in Form 3, the certificate of declaration under Section 183of the Finance Act, 2016 is issued in Form 4. In the said Form it isstated that it is an acknowledgement that a declaration under Section183 of the Finance Act, 2016 has been accepted. 12. It would be relevant to note that in Form 2, which is theacknowledgement under Section 193 of the Finance Act, 2016 andwhere the amount payable by the assessee is notified, there is atabular statement containing the assessment year, the undisclosed income as declared in Form 1, undisclosed income eligible for thescheme, the amount payable namely, tax, sur-charge and penalty andreason in case there is a difference in the undisclosed income declaredin Form 1 and undisclosed income eligible for the scheme. 12. It would be relevant to note that in Form 2, which is theacknowledgement under Section 193 of the Finance Act, 2016 andwhere the amount payable by the assessee is notified, there is atabular statement containing the assessment year, the undisclosed income as declared in Form 1, undisclosed income eligible for thescheme, the amount payable namely, tax, sur-charge and penalty andreason in case there is a difference in the undisclosed income declaredin Form 1 and undisclosed income eligible for the scheme. 13. In the preceding paragraphs we have mentioned about themanner in which the assessment was completed by the AssessingOfficer under Section 143(3) of the Act by order dated 6[th] March,2016. The Principal Commissioner of Income Tax X, Kolkata issued show cause notice dated 27[th] December, 2018 under Section263 of the Act on the ground that an error was apparent in theassessment order and that in his prima facie view the assessment iserroneous in so far as it was prejudicial to the interest of revenue.Much prior to the issuance of notice under Section 263, dated 27[th]December, 2018, the assessee had submitted a declaration under theIDS on 24[th] September, 2016. The declaration was processed and acertificate of declaration under Section 183 of the Finance Act, 2016in Form No.4 was issued on 30[th] October, 2017. In the declarationfiled by the assessee, she had mentioned the amount of undisclosedincome declared and accepted as Rs.74,24,379/-. This was verifiedand accepted by the PCIT who was the authority who had issued themshow cause notice under Section 263 of the Act. The certificate ofdeclaration in Form No.4, dated 13[th] October, 2017, clearly states thatit is to acknowledge that the declaration under Section 193 of theFinance Act, 2016 submitted by the assessee has been accepted. Thetax payable on the undisclosed income was computed at Rs.22,27,314/-, sur-charge at Rs.5,56,829/-, penalty atRs.5,56,829/- and the total amount payable as Rs.33,40,972/-. 14. It is not in dispute that the assessee has complied with thecertificate and the entire amount has been paid. As mentioned earlier,much after the certificate of declaration dated 13[th] October, 2017 wasissued, the PCIT issued show cause notice dated 27[th] December, 2018under Section 263 of the Act. The PCIT was of the view that a sum ofRs.1 Lac which was claimed by the assessee as purchase price of theshares ought to have been included in the total income and the totalamount should have been Rs.75,24,379/- and not Rs.74,24,379/- asdeclared by the assessee under the IDS. Further, the PCIT opined thatthe assessee would have paid commission to the entry operators andbrokers etc. at 5% for making accommodation entries. The assessee inher submission dated 15[th] January, 2019 had denied having paid anycommission. Nevertheless, the PCIT taking note of certain materialwhich was culled out from the Investigation wing of the Departmentduring the course of search and seizure proceedings against certainstock brokers there appears to have been statements recorded thatthey have been paid commission. The statements relied on were notfurnished to the assessee, nor there is any finding that the assesseepaid commission to any stock broker. Thus, the Assessing Officer wasdirected that the purchase price of Rs.1 Lac is to be added backthough PCIT accepted the fact that the sum of Rs.74,24,380/- hasbeen offered by way of declaration under the IDS and accepted andapart from that a sum of Rs.3,76,219/- has to be added back under Section 69(c) of the Act. With these findings the Assessing Officer wasdirected to reassess the income of the assessee for the relevantassessment year. Aggrieved by the order passed by the PCIT theassessee filed appeal before the Tribunal. The Tribunal found that theassessee has already offered long term capital gain of Rs.74,24,380/-to tax under the IDS and paid the taxes thereon and this fact wasbrought to the notice of the PCIT in pursuance of the show causenotice issued under Section 263 of the Act and the Department’srepresentative appearing on behalf of the Department before theTribunal also acknowledged the same. The Tribunal was of the viewthat once the income offered and the declaration under IDS isaccepted by the Department, the assessment order passed underSection 143(3) of the Act cannot be revised as the items of addition inquestion directed by the PCIT was part of IDS application and not partof the order passed under Section 143(3) of the Act. Further, theTribunal observed that once a person has availed the benefit of theIDS and paid tax, the PCIT cannot revise the assessment order underSection 263 of the Act as it would be against the spirit of the Scheme.With this finding the appeal filed by the assessee was allowed. 15. The revenue is before us contending that the Tribunalcommitted substantial error in holding that once the income offered isaccepted by the IDS, the Department cannot revise the assessmentorder by invoking the power under Section 263 of the Act. The othersubmissions is on the merits of the matter with which we are not concerned in the facts at hand. Thus, the question would be whetherthe PCIT could have invoked this power under Section 263 of the Act.16. Section 263 deals with the revision of orders prejudicial torevenue. Sub-section (1) of Section 263 states that the Principal ChiefCommissioner or Chief Commissioner or Principal Commissioner orCommissioner may call for and examine the record of any proceedingsunder the Income tax Act and if he considers that any order passedtherein by the assessing officer is erroneous in so far as it isprejudicial to the interest of the revenue, he may, after giving theassessee an opportunity of being heard and after making or causing tobe made such enquiry as he deems necessary, pass such orderthereon as the circumstances of the case justify, including an orderenhancing or modifying the assessment or cancelling the assessmentand directing a fresh assessment. Thus, the power under Section 263could be invoked to examine the records of any proceedings under theIncome tax Act and if the authority finds that the order is erroneous inso far as it is prejudicial to the interest of revenue, he may revise suchorder after opportunity to the assessee. In the case at hand, the taxpaid by the assessee is under the IDS which is a scheme framedunder the provisions of the Finance Act, 2016. That apart, in thedeclaration filed by the assessee in terms of Section 183 of the Act, inForm 1 the assessee has mentioned about the undisclosed incomeand also the undisclosed income which is eligible under the scheme(IDS). This declaration was considered by the appropriate authority,who incidentally is the PCIT and having been satisfied that the assessee is eligible to the benefit of IDS, the acknowledgement ofdeclaration was given in Form 2 mentioning the undisclosed incomeas declared by the assessee in Form 1 and the undisclosed incomeeligible for the Scheme. The acknowledgement issued in Form 2 isissued after consideration of relevant material and the determinationis made by the PCIT on the amount payable by the assessee withrespect to the declaration made by her under the Scheme. Therefore,it will be too late in the day for the PCIT to now invoke the powerunder Section 263 of the Income Tax Act to set at naught the finalityarrived at under the IDS which was a Scheme notified in exercise ofpowers conferred under Section 199(1) and (2) of the Finance Act,2016. That apart, the order of assessment under Section 143(3),upon the declaration being accepted has worked itself out and as on13[th] October, 2017, the tax, sur-charge and penalty having been fullypaid in terms of the declaration issued in Form 4, there is nothingmore to be revised by the PCIT by invoking his power under theIncome tax Act. If such revision of assessment is permitted, it wouldwork against the object and purpose of IDS. Section 189 of theFinance Act, places an embargo on the assessee to the effect that anassessee who is a declarant under the IDS shall not be entitled, inrespect of undisclosed income, declared or any amount of tax and sur-charge paid thereon, to reopen any assessment or re-assessmentmade under the Income tax Act. If such is the legal position, it wouldequally apply to the revenue thereby prohibiting them from disturbingthe finality of a declaration issued under the IDS (a scheme framed under the Finance Act, 2016) by invoking power under Section 263 ofthe Income tax Act. That apart, the declaration filed by the assesseewas accepted and the PCIT who did not invoke his power underSection 193 of the Act stating that there has been a misrepresentationor suppression of facts by the assessee. Furthermore, it is not the caseof the revenue that the assessee’s case would fall under any one of thecategories under Section 196 of the Finance Act for the schemenamely, IDS not to apply. Furthermore, in terms of clause (e) ofSection 196 the Scheme will not apply in relation to any undisclosedincome chargeable to tax under the Income tax Act for any previousyear relevant to an assessment order prior to the assessment orderbeginning on first day of April, 2017. Clause (i) mentions the categorywhere a notice under Section 142 or 143(3) or 148 or 153A or Section153C has been issued, where the IDS would not apply. Admittedly, nosuch notice had been issued in the assessee’s case to non-suit theassessee from availing the benefit of IDS. That apart, the PCIT in hisorder dated 29[th] January, 2019 under Section 263 of the Act hasaccepted the fact that the amount of Rs.75,24,380/- has been enteredin the books of accounts. Nevertheless, the assessee while availing thedeclaration had mentioned the amount as Rs.74,24,379/-. Therefore,the authority while examining the declaration filed by the assesseeunder the IDS could have very well noted this aspect of the matter.However, such course was not adopted, the declaration was processedand a certificate of declaration was issued on 13[th] October, 2017accepting the declaration filed by the assessee. Therefore, the power under Section 263 could not have been invoked. That apart, the PCITwas of the view that the assessee would have paid commission to thestock brokers for making those accommodation entries in spite of theassessee’s specific stand in her letter dated 15[th] January, 2019 thatno commission had been paid. Therefore, this presumption is notbased on any evidence directly linking the assessee, rather the PCIThimself would accept that he has come to such conclusion basedupon certain statements which were recorded from certain other stockbrokers during the search and survey operations conducted by theinvestigation wing of the Income tax Department. Further, we notethat there is an annexure in Form I to declaration under Section 183of the Act. The annexure is a statement of undisclosed income. Itcontains a description of undisclosed income and income declared inthe form of investment in assets. There is a tabular statement whichhas to be filled up by the assessee mentioning the assessment year towhich the undisclosed income pertains, the amount of undisclosedincome and the nature of undisclosed income. Furthermore, we wouldbe well justified in observing that the assumption of jurisdiction bythe PCIT under Section 263 of the Act is, in fact, an exercise done bythe concerned authority indirectly what the authority could not dodirectly in terms of the Finance Act, 2016 as the declaration filed bythe assessee had been accepted and attained finality.17.After going through the provisions of the scheme, this Courtfinds that Chapter IX of the Finance Act, 2016 is a complete code byitself. It provides an opportunity to an assessee to offer income, which was not disclosed earlier, to tax. Chapter IX provides for a specialprocedure for disclosure and charging income to tax. It lays down theprocedure for disclosure of such income; the rate of income tax andthe penalty to be levied thereupon and the manner of making suchpayment. Under the said scheme the competent authority has beenvested with the power to accept the declaration made by the assesseeand such power to be exercised only upon being satisfied with suchdisclosure. It is also open to such authority not to accept suchdeclaration. But once accepted, the same attains finality. The schemedoes not empower and/or authorise the competent authority toreopen and/or revise a decision taken on such declaration. It is wellsettled that a statutory authority has to function within the limits ofthe jurisdiction vested with him under the statute. Thus, once thedeclaration is accepted by the PCIT such authority is estopped fromtaking any steps which would in effect amount to reopening and/orrevising the decision already taken on such declaration. The saidscheme was introduced in order to encourage an assessee to make adisclosure of the income not disclosed earlier. PCIT in the instant caseinvoked its power under Section 263 in respect of an item of incomewhich was declared in terms of the said scheme. All particulars wereavailable before the PCIT in respect of such income and the PCIT uponbeing satisfied, accepted such declaration. Thus, if the contention ofthe revenue is accepted that the PCIT has power to invoke Section 263of the I.T. Act, the same, in our considered view, would frustrate theobject behind introduction of such Scheme. The PCIT was not justified in invoking the power under Section 263 of the I.T. Act as it wouldamount to revising a decision taken by the PCIT on such declarationby the assessing officer which is not contemplated under the IncomeTax Act. 18. Thus, all materials were available before the PCIT when thedeclaration made under Section 183 of the Finance Act wereconsidered and accepted. Therefore, the assumption of jurisdiction bythe PCIT under Section 263 of the Act is wholly without jurisdiction.19. In the result, the appeal filed by the revenue is dismissed andthe substantial questions of law are answered against the revenue.20. With the dismissal of the appeal, the connected application isdismissed. (T. S. SIVAGNANAM, J.) I agree. (HIRANMAY BHATTACHARYYA, J.)