Principal Commissioner Of Income Tax-Ii …….… v. Siraj Siddique (Since Deceased) ……

THE HIGH COURT OF MADHYA PRADESH: INDORE BENCH(DIVISION BENCH) ITA No. 86/2017 Principal Commissioner of Income Tax-II …….…..AppellantIndore Versus Siraj Siddique (since deceased) ……...RespondentNow by LR: Smt. Shabana Siraj Siddique -------------------------------------------------------------------------------------------- CORAM: Hon’ble Mr. Justice Ajay Kumar Mittal, Chief Justice Hon’ble Miss Justice Vandana Kasrekar, Judge -------------------------------------------------------------------------------------------- Appearance: For the Appellant:Ms. Veena Mandlik, Advocate For the Respondent:Mr. P.M. Choudhary, Sr. Advocate with Mr. Anand Prabhawalkar and Ms. Rashi Gohil, Advocates -------------------------------------------------------------------------------------------- JUDGMENT (Oral)[ 05.12.2019 ] Per: Ajay Kumar Mittal, Chief Justice: This appeal under Section 260A of the Income Tax Act, 1961(hereinafter referred to as “the Act”) has been filed by the Revenue against aconsolidated order dated 23.12.2016 passed by the Income Tax AppellateTribunal, Indore Bench, Indore (for brevity “the Tribunal”) in ITANo.173/Ind/2013 (Revenue’s appeal) and C/O No.56/Ind/2013 (Assessee’sobjection) relating to the Assessment Year 1997-98, whereby the order of theCommissioner of Income Tax (Appeals) [in short “CIT(A)”] has beenaffirmed and appeal filed by the appellant-Revenue has been dismissed. 2.The appellant has claimed the following substantial questions of lawfor determination by this Court:- “(i)Whether on the facts and in the circumstances of thecase and in law the ITAT was justified in upholding thedecision of the Ld. CIT(A) ignoring the very fact that,declaration made by the assessee under VDIS 1997 wasineligible within the meaning of Section 64(2)(ii) of theVDIS 1997? case and in law the ITAT was justified in upholding thedecision of the Ld. CIT(A) ignoring the very fact that,declaration made by the assessee under VDIS 1997 wasineligible within the meaning of Section 64(2)(ii) of theVDIS 1997? (ii)Whether on the facts and in the circumstances of thecase and in law the ITAT was justified in upholding thedecision of the Ld. CIT(A) ignoring the very fact thatwhile completing the scrutiny assessment, the AO haspointed out that such declaration made by the assesseewas not eligible in view of the judicial pronouncementreported in 262 ITR 397 (Karnataka) and 230 ITR 536(A.P.) in which it has been held that ‘income detected asa result of search proceedings is not entitled to anybenefit under VDIS 1997? case and in law the ITAT was justified in upholding thedecision of the Ld. CIT(A) ignoring the very fact thatwhile completing the scrutiny assessment, the AO haspointed out that such declaration made by the assesseewas not eligible in view of the judicial pronouncementreported in 262 ITR 397 (Karnataka) and 230 ITR 536(A.P.) in which it has been held that ‘income detected asa result of search proceedings is not entitled to anybenefit under VDIS 1997? (iii)Whether on the facts and in the circumstances of thecase and in law the ITAT was justified in ignoring thefacts that the issues have not been decided on merits inrespect of addition made on account of unaccountedinvestment of Rs.2,14,21,200/- and profit ofRs.1,33,66,800/- by the AO and additions have beendeleted simply on account of declaration of Rs.52 Lakhonly in VDIS?”case and in law the ITAT was justified in ignoring thefacts that the issues have not been decided on merits inrespect of addition made on account of unaccountedinvestment of Rs.2,14,21,200/- and profit ofRs.1,33,66,800/- by the AO and additions have beendeleted simply on account of declaration of Rs.52 Lakhonly in VDIS?” (iii)Whether on the facts and in the circumstances of thecase and in law the ITAT was justified in ignoring thefacts that the issues have not been decided on merits inrespect of addition made on account of unaccountedinvestment of Rs.2,14,21,200/- and profit ofRs.1,33,66,800/- by the AO and additions have beendeleted simply on account of declaration of Rs.52 Lakhonly in VDIS?”case and in law the ITAT was justified in ignoring thefacts that the issues have not been decided on merits inrespect of addition made on account of unaccountedinvestment of Rs.2,14,21,200/- and profit ofRs.1,33,66,800/- by the AO and additions have beendeleted simply on account of declaration of Rs.52 Lakhonly in VDIS?” 3.The facts, in brief, necessary for the purposes of adjudication of thepresent appeal, are that assessee/original respondent - Shri Siraj Siddique,was a Partner in the Firm - M/s Milan Traders having 50% share of profitincluding remuneration and interest from the Firm. On 29/30[th] August, 1996,a search under Section 132 of the Act was carried out in the factory of M/s Shivraj Tobacco Co., Unnao wherein it was found that the assessee hadpurchased Pan Masala from M/s Shivraj Tobacco Co. worth Rs.6,68,34,000/-between 01.04.1996 to 29.08.1996 pertaining to the assessment year 1997-98. Since this amount was not disclosed by the assessee in the return for theassessment year 1997-98, the Assessing Officer issued notice to the assesseeunder Section 148 of the Act on 27.03.2003. In response to the notice, theassessee submitted his return of income for the assessment year 1997-98,declaring total income of Rs.69,590/-. Thereafter, on being confronted in thescrutiny assessment completed under Section 148/143(3) of the Act on31.03.2004, the assessee submitted a copy of certificate dated 03.03.1998issued by the Commissioner of Income Tax, Indore under VoluntarilyDisclosure of Income Scheme 1997 (for short “VDIS 1997”) and claimedthat he has declared income voluntarily amounting to Rs.52 Lac for theperiod 1992-93 to 1997-98 under Section 65 of VDIS 1997, therefore,neither the re-opening of the case nor the additions in this regard, werejustified. In view of the provisions of Clause (ii) of Sub-section (2) ofSection 64 of VDIS 1997, the Assessing Officer observed that incomedeclared by the assessee to the tune of Rs.52 Lac under VDIS 1997 will notbe available to be adjusted against unaccounted purchase and sale ofRs.6,68,34,000/-. The Commissioner of Income Tax-II, Indore cancelled thecertificate dated 03.03.1998 issued to the assessee under VDIS 1997 videorder dated 31.03.2004. Thereafter, the Assessing Officer passed theassessment order under Section 143(3) read with Section 148 in whichaddition of profit on unaccounted purchases was estimated atRs.1,33,66,800/- by applying GP rate of 20% on sales of Rs.6,68,34,000/- and unaccounted investment in purchases was added at Rs.2,14,21,200/-. Itis pertinent to note here that against the cancellation of the certificate dated03.03.1998, the assessee filed a writ petition before this Court being W.P.No.501/2004 (Siraj Siddique vs. Income Tax Officer & Another) reportedas (2013) 21 ITJ 498 (MP), which was allowed vide order dated 20.09.2012and the order of the CIT-II, Indore dated 31.03.2004 cancelling the VDIScertificate, was set aside. 4.The Commissioner of Income Tax (Appeals) (in short “the CIT(A)”),relying upon the decision of this Court in Siraj Siddique (supra), vide orderdated 17.01.2013 allowed the appeal filed by the assessee and deleted theadditions made by the Assessing Officer to the total income of the assessee.Being aggrieved by the order of the CIT(A), the Revenue filed appeal beforethe ITAT, Bench Indore, Indore. The assessee also filed cross-objections tothe appeal of the Revenue. The ITAT, Indore vide order impugned herein hasdismissed the appeal of the Revenue and upheld the decision of the CIT(A).In this manner, the present appeal has been filed by the Revenue. 4.The Commissioner of Income Tax (Appeals) (in short “the CIT(A)”),relying upon the decision of this Court in Siraj Siddique (supra), vide orderdated 17.01.2013 allowed the appeal filed by the assessee and deleted theadditions made by the Assessing Officer to the total income of the assessee.Being aggrieved by the order of the CIT(A), the Revenue filed appeal beforethe ITAT, Bench Indore, Indore. The assessee also filed cross-objections tothe appeal of the Revenue. The ITAT, Indore vide order impugned herein hasdismissed the appeal of the Revenue and upheld the decision of the CIT(A).In this manner, the present appeal has been filed by the Revenue. 5.Learned counsel for the Revenue relying upon the judgment ofAndhra Pradesh High Court rendered in Shankarlal vs. Income-TaxOfficer and others reported as (1998) 230 ITR 536(AP) and KarnatakaHigh Court decision in Mysore Plantations Ltd. vs. Commissioner ofIncome-Tax and another reported as (2003) 262 ITR 397 (Kar), made asolitary submissionthat the certificate issued under the VDIS 1997 waserroneous and the Revenue had the power to recall the certificate issuedunder the VDIS 1997 and accordingly, as the assessee did not fulfill theconditions under the said Scheme, the Tribunal has wrongly granted the benefit thereunder. On that basis, it has been urged that the impugned orderbe set aside and the appeal be allowed. 6.Per contra, learned counsel for the assessee contended that once theorder of cancellation of the certificate of VDIS 1997 was set aside by thisCourt in Siraj Siddique (supra) and in the absence of any challenge by theRevenue to the said order and the said order having attained finality, it doesnot lie in the mouth of the Revenue to contend that no benefit could beavailed by the assessee on the basis of the certificate. In such circumstances,the Revenue was not empowered to recall the certificate issued under thesaid scheme and neither the CIT (A) nor the Tribunal has committed anyerror in passing the impugned order. On these premises, it was contendedthat no substantial question of law arises. 7.We have heard learned counsel for the parties and are of theconsidered opinion that the present appeal deserves to be dismissed. 8.In the present case, a declaration was made by the respondent-assessee under the VDI Scheme 1997 on 31.12.1997 wherein he disclosed anincome of Rs.52 Lac covering the unaccounted purchase from M/s ShivrajTobacco Company and income earned from Kirana and PanMasalabusiness in his own name and in the name of Milan Traders in which he wasa partner and was having 50% share of profit including remuneration andinterest, as declared by him. The other partner in Mayur Stones had alsodisclosed an amount of Rs.18 Lac under the VDIS 1997 in respect of thesaid purchases and in this manner, total VDIS disclosure of Rs.70 Lac wasmade covering the unaccounted purchases from M/s Shivraj TobaccoCompany, Unnao. The disclosure of income made by the assessee under the 8.In the present case, a declaration was made by the respondent-assessee under the VDI Scheme 1997 on 31.12.1997 wherein he disclosed anincome of Rs.52 Lac covering the unaccounted purchase from M/s ShivrajTobacco Company and income earned from Kirana and PanMasalabusiness in his own name and in the name of Milan Traders in which he wasa partner and was having 50% share of profit including remuneration andinterest, as declared by him. The other partner in Mayur Stones had alsodisclosed an amount of Rs.18 Lac under the VDIS 1997 in respect of thesaid purchases and in this manner, total VDIS disclosure of Rs.70 Lac wasmade covering the unaccounted purchases from M/s Shivraj TobaccoCompany, Unnao. The disclosure of income made by the assessee under the VDIS 1997 was also accepted by the CIT-II by issuing a certificate underSection 62 of the Act on 3[rd] March, 1998. It is, during the course of searchmade at the premises of M/s Shivraj Tobacco Company on 29/30-08-1996when it was revealed that unaccounted purchases of Rs.6.68 Crores weremade by the assessee, the VDIS certificate dated 03.03.1998 was held to beinvalid by the CIT-II and the same was cancelled vide letter dated31.03.2004. Against the order of cancellation of VDIS 1997 certificate, theassessee approached this Court by filing a writ petition forming subjectmatter of W.P. No.501/2004. The Court allowed the writ petition and setaside the order of cancellation of VDIS certificate dated 31.03.2004. Thelearned Tribunal has specifically observed these facts in the light of the orderpassed by a Division Bench of this Court in W.P. No.501/2004 to return afinding in favour of the assessee vide order dated 23.12.2016 that theassessee was entitled to the benefit of Rs.52 Lac on account of unaccountedtransactions by virtue of the VDIS declaration. The findings recorded by thelearned Tribunal in the order dated 23.12.2016, read, thus:- “13.We have considered the rival submissions of both the parties, factsand perused the material available on record. We find that a search u/s 132of the Act was conducted on 29/30-08-1996 in the case of M/s. ShivrajTobacco Company, wherein unaccounted purchase of Rs.6.68 crores madeby the assessee in the name of Milan Traders from the said party werenoticed. We also note that there was no search and seizure action carriedout in the case of the assessee nor any search warrant was issued in thename of the assessee. We find that the assessee has made a declarationunder VDI Scheme 1997 on 31.12.1997, declaring therein undisclosedincome of Rs.52 lakhs on account of income earned from kirana and panmasala business in own name as well as in the name of Milan Traders andother partner in Mayur Stones has also disclosed Rs. 18 lakhs under VDIS1997 in respect of these purchases. Thus, total VDIS disclosure of Rs. 70lakhs was made covering the unaccounted purchases from M/s. Shivrajand perused the material available on record. We find that a search u/s 132of the Act was conducted on 29/30-08-1996 in the case of M/s. ShivrajTobacco Company, wherein unaccounted purchase of Rs.6.68 crores madeby the assessee in the name of Milan Traders from the said party werenoticed. We also note that there was no search and seizure action carriedout in the case of the assessee nor any search warrant was issued in thename of the assessee. We find that the assessee has made a declarationunder VDI Scheme 1997 on 31.12.1997, declaring therein undisclosedincome of Rs.52 lakhs on account of income earned from kirana and panmasala business in own name as well as in the name of Milan Traders andother partner in Mayur Stones has also disclosed Rs. 18 lakhs under VDIS1997 in respect of these purchases. Thus, total VDIS disclosure of Rs. 70lakhs was made covering the unaccounted purchases from M/s. Shivraj Tobacco Company, Unnao. It is seen that CIT-II, Indore, has issued acertificate u/s 62 of the Income-tax Act, 1961, on 3[rd] March, 1998,accepting the disclosure made by the assessee. We find that CIT-II, Indorehas cancelled VDIS certificate dated 03.03.1998 vide letter dated31.03.2004, on the ground that unaccounted purchases made by theassessee were detected during the course of search, hence, VDIDeclaration is not valid. As against this, the assessee has filed Civil WritPetition before the Hon’ble M.P. High Court, wherein the Hon’ble HighCourt has restored the VDIS certificate dated 03.03.1998 issued by CIT-II,Indore. We have perused the order of Hon’ble High Court dated20.09.2012, passed in Writ Petition No. 501/2004 setting aside thecancellation of VDI Certificate of CIT-II, Indore wherein para 10 of writpetition reads as under:- “[10] In the present case it is not in dispute that in thepetitioner's premises no search or seizure under Section 132of the Act has been done nor any search warrant has beenissued in the name of the petitioner. The search was done inthe premises of M/s. Shivraj Tobacco Company, Kanpur on30/8/1996. As per the respondents during the search, certaintransaction done by the petitioner out of book weredetected which showed the income of the petitioner muchhigher than what was disclosed in the VDIS. The petitionerin his statement recorded on 1/8/2002 by the Dy.Director ofIncome Tax had disclosed that on the transactions found outof books of account in respect of purchase made fromShivraj Tobacco Company, the petitioner had calculated theincome and disclosed it under the VDIS 1997.” 14.The perusal of the above para of the order of the Hon’ble HighCourt shows that the assessee has stated in his statement dated 01.08.2002recorded by the DDIT that the income from unaccounted purchases madefrom Shivraj Tobacco Company has been offered by the assessee underVDIS 1997. Therefore, the claim of the assessee that declaration of Rs.52lakhs made under VDIS 1997, covers the source of investment as well asprofit out of unaccounted purchases of pan masala of Rs.6.68 crores fromM/s. Shivraj Tobacco Company for which a valid VDIS Certificate hasbeen issued by the CIT-II, Indore. These facts have also been disclosed bythe assessee before the Hon’ble High Court, which has been dulyconsidered by the Hon’ble High Court. And after considering the facts, theHon’ble High Court relying on various case laws has held in paras no.21to 25, which are reproduced as under:- “[21]In the present case, though the statement of thepetitioner recorded by the Dy. Director of Income Tax on 1.8.2002 indicates that the petitioner had made thedisclosure calculating the income on the basis of thepurchase which were made from M/s. Shivraj TobaccoCompany but there is nothing on record to show that thepetitioner had committed any fraud in disclosing theincome. On the same amount of sale, the department iscalculating higher income whereas the petitioner haddisclosed the lower income. Therefore, only on that basis itcannot be held to be a case of fraud. [22] Counsel for respondents has also placed relianceupon the Single Bench judgment of the Karnataka HighCourt in the matter of Mysore Planatations Ltd. Vs. CITand another,reported in 262 ITR 397 but that was a caseof fraud where the assessee had claimed to have purchasedthe cylinders from a non-existent entity, therefore, theCourt had taken the view that power to recall the certificatein the event of fraud is available. Learned counsel forrespondents has also relied upon the Single Benchjudgment of this Court in the matter of Smt.Shashi DeviVs. ITO & Ors reported in (2000) 241 ITR 216 (MP) butthat case does not relate to power to cancel the certificateissued u/S 68 of VDIS 1997. [22] Counsel for respondents has also placed relianceupon the Single Bench judgment of the Karnataka HighCourt in the matter of Mysore Planatations Ltd. Vs. CITand another,reported in 262 ITR 397 but that was a caseof fraud where the assessee had claimed to have purchasedthe cylinders from a non-existent entity, therefore, theCourt had taken the view that power to recall the certificatein the event of fraud is available. Learned counsel forrespondents has also relied upon the Single Benchjudgment of this Court in the matter of Smt.Shashi DeviVs. ITO & Ors reported in (2000) 241 ITR 216 (MP) butthat case does not relate to power to cancel the certificateissued u/S 68 of VDIS 1997. [23] It is also worth noting that the Commissioner ofIncome Tax has cancelled the certificate issued u/S 68(2) ofthe VDIS 1997 at the instance of the ITO who had initiatedthe reassessment proceedings and on the same day ofpassing of the impugned order of cancellation of thecertificate, the ITO had passed the order of reassessment. [24] There is yet another reason to set aside theimpugned order cancelling the VDIS certificate. The noticefor cancellation of the certificate is dated 25.3.2004. In theimpugned order itself it is mentioned that the notice wasserved by affixture and speed post on 26.3.2004. Within 5days of service of notice, the final order was passed inspiteof the specific request of the petitioner to the ChiefCommissioner vide Annexure P.13 for grant of reasonabletime and proper opportunity before passing any adverseorder. [25] Keeping in view the aforesaid aspect of the matter, theimpugned order dated 31.3.2004 cancelling the VDIScertificate dated 3.3.1998 issued u/S 68(2) of the VDIS1997 cannot be sustained and is hereby set aside.” 15.In the light of the findings of Hon’ble Jurisdictional High Court ofMadhya Pradesh in the aforesaid writ petition, we are of the consideredview that the assessee having been disclosed the income relating tounaccounted purchases made from Shivraj Tobacco Company under VDIS1997, and same has been accepted by the Commissioner of Income Tax, who has duly issued a certificate dated 03.03.1998, hence, no addition onaccount of the same could be made by the AO. The claim of Revenue thatld. CIT(A) has not decided the issue on merit is devoid of any merit as theld. CIT(A) has duly mentioned in para 4 of his order (reproduced at para 8above of this order) stating that as a result action of AO to estimate theincome of Rs.1,33,66,800/- and to assess investment on such unaccountedtransaction of Rs.2,14,21,200/- is set aside because the assessee disclosedincome of Rs.52,00,600 on such unaccounted transaction in the VDISdeclaration. In view of that matter, we find that both additions made by theAO are covered in writ petition and also by order of ld. CIT(A). Underthese circumstances, we do not find any infirmity in the findings recordedby the ld. CIT(A). Therefore, the grounds of appeal as taken by theRevenue originally as well as revised amended are dismissed. 16.Since the appeal of the Revenue is dismissed, the cross objectionfiled by the assessee has become infructuous and the same is alsodismissed.” 16.Since the appeal of the Revenue is dismissed, the cross objectionfiled by the assessee has become infructuous and the same is alsodismissed.” 9.The question as to whether the declaration made by the assessee underVDIS 1997 was ineligible within the meaning of Sub-clause (ii) of Sub-section (2) of Section 64 of the VDIS 1997 and the consequent certificatedated 03.03.1998 issued to the asssessee was illegal and therefore, was liableto be cancelled, has already received consideration by a Division Bench ofthis Court in Siraj Siddique (supra), which was decided in favour of theassessee holding that the certificate once issued, cannot be cancelled unlessit is issued contrary to the scheme or ignoring the bar under Sub-clause (ii)of Sub-section (2) of Section 64 thereof or where it is obtained by fraud. TheDivision Bench found that there was no fraud committed by the assessee soas to attract the bar or prohibition envisaged under the said provision ofVDIS 1997. The Division Bench also took note of the single Bench decisionof Karnataka High Court in Mysore Plantations Ltd. (supra) relied uponby the learned counsel for the appellant and held that the said judgment was distinguishable on facts because that was a case of fraud whereas no fraudwas associated with the present assessee. The judgment of the DivisionBench in Siraj Siddique (supra) restoring the VDIS 1997 certificate of theassessee having attained finality, the Tribunal did not commit any error inaffirming the order of the CIT(A) allowing the appeal of the assessee on thatscore. In this view of the matter, we do not find that the decision in MysorePlantations Ltd. (supra) is of any help to the Revenue. 10.So far as the Division Bench decision of Andhra Pradesh High Courtin Shankarlal (supra) placed reliance upon by the Revenue is concerned, inthe facts and circumstances of that case, a search was conducted in thepremises of the assessee and money was seized along with the pledgedjewellery. The said judgment deals with Section 64(2) of the Finance Act,1997 and it only denies the benefit of voluntary disclosure of income thatwas not returned within the income prescribed in the notice issued underSections 142 or 148 of the Act and which expired before the commencementof the scheme, or the income which was detected in a search under Section132 of the Act, or a requisition under Section 132A of the Act or in a Surveyunder Section 133A thereof, which would say that the undisclosed incomeother than such detected income in relation to the previous year can still bedeclared and therefore, it is constitutionally valid. In Siraj Siddique(supra), the Division Bench held that under Section 64(2) of the FinanceAct, the certificate can be cancelled only if there was search at the premisesof the assessee and since no search was conducted at the premises of theassessee, the certificate cannot be cancelled. Thus, even the Division Benchjudgment in Shankarlal (supra) is not applicable in the present case. S/ 11.Apart from the aforesaid, since the certificate under the VDIS 1997was issued to the assessee in pursuance to the direction of this Court in SirajSiddique (supra), the judgments relied upon by the Revenue, do not cometo its rescue. Accordingly, we do not find any substantial question of lawarises in the present appeal. Consequently, the appeal stands dismissed. ( AJAY KUMAR MITTAL ) ( VANDANA KASREKAR ) CHIEF JUSTICE JUDGE