THE COMMISSIONER OF INCOME TAX V. SHRI KUNDANMAL BABULAL

ITA/519/2008

AI Insights

The case revolves around a dispute concerning the reassessment of undisclosed income following a search and seizure operation under Section 132 of the Income Tax Act, 1961. The assessee, Sri Kundanmal Babulal Jain, and his son, after the operation, declared certain undisclosed incomes under the VDIS 1997 in the status of HUF, which was accepted by the Commissioner. However, the Assessing Officer later attempted to reassess this income in the individual capacity of the assessee, leading to a series of appeals. The Tribunal and the Appellate Authority both ruled against the reassessment, leading to the revenue's appeal to the High Court, which upheld the lower authorities' decisions.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 729004 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 08-07-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961, Voluntary Disclosure of Income Scheme, 1997
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR; M LAVA
• Assessee Lawyers: K V ARAVIND
• Keywords: HUF; Proprietary concern; Search and seizure; Undisclosed income; Voluntary Disclosure of Income Scheme
• Section: 64; 132; 68; 133A; 65; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 8th day of July, 2014 PRESENT THE HON’BLE MR. JUSTICE N KUMAR AND THE HON’BLE MR. JUSTICE B MANOHAR ITA No. 519/2008 BETWEEN: 1. The Commissioner of Income Tax C.R.Building, Queens Road, Bangalore. 2. 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 2 (By Sri A. Shankar & Sri M. Lava, Advs.) This ITA filed under Section 260-A of I.T. Act, 1961 arising out of order dated 18.01.2008 passed in IT (SS)A No.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; (ii) allow the appeal and set aside the order passed by the ITAT Bangalore in IT(SS)A No.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 J delivered the following: J U D G M E N T This appeal is filed by the revenue challenging the order passed by the Tribunal, which has upheld the order passed by the Commissioner 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. 2. A 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 of Sri Kundanmal 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 3 Section 133A of the Act was conducted on 21.10.1997 at the business 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 family 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 family members. In the statement recorded, they have categorically admitted that the unaccounted business had been carried on by himself and his son only as a proprietary concerns in their individual capacity. Notices 4 were issued and they were asked to file their income tax returns in their individual capacity. 4. However, they took advantage of Voluntary Disclosure of Income Scheme, 1997 (for short hereinafter referred to as ‘the VDIS Scheme’) and filed a declaration in accordance with the provisions of Section 65 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 Commissioner of Income Tax, in pursuance of the power vested in him under Section 68 of the VDIS Scheme granted a certificate certifying the particulars 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 Authority ignoring 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 of the individual who is the member of the HUF and framed assessment order. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). 5 5. The 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 Authorities to 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. The Tribunal on reconsideration of the entire materials 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 6 the certificate under VDIS and especially when it is still valid, the Assessing Officer could not have proceeded to frame the assessment 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. 7. The appeal is admitted to consider the following substantial questions of law: (i) “Whether the Appellate Authorities were correct in holding that the undisclosed income including cash detected in the search conducted on 21.10.1997 cannot be brought to tax in the hands of the assessee in individual capacity as the assessee had declared part of the undisclosed income under VDIS which had been accepted by the Commissioner on 12.01.1998 in the status of HUF? (ii) Whether the Appellate Authorities were correct in not appreciating that the VDIS had been filed subsequent to search proceedings, which was not maintainable and by misrepresentation and by misleading the department the certificate under the VDIS in the status of HUF had been 7 obtained when the assessee had not declared any income in such status for the assessment year 1995-96, 1996-97 and 1997-98 nor maintained any books, registration under the Sales Tax Act, or any other evidence in that capacity and consequently recorded a perverse finding? (iii) Whether Appellate Authorities were correct in deleting the addition made by the Assessing officer of the undisclosed income in the status of the individual by holding that the income should be brought to tax in the hands of HUF by upholding a partition deed dated 01.12.1994 produced without there being any supporting evidence and consequently recorded a perverse finding? (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 themselves recognized a partition dated 01.12.1994 executed among the family members which only demonstrates that the entire scheme is to mislead the department and escaped assessment?” 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, he submits the findings recorded by both the authorities is not correct and requires to be set aside. 9. In 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: “64. Charge of Tax on voluntarily disclosed income:- (1) Subject to the provisions of this Scheme, where any person makes, on or after the date of commencement of this Scheme but on or before the 31st day of December, 1997, a declaration in accordance 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; 9 (b) which he has failed to disclose in a return of income furnished by him under the Income-tax Act 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-tax Act 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 shall be 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:- (i) in the case of a declarant, being a company or a firm, at the rate of 35 percent, of the voluntarily disclosed income; (ii) in the case of a declarant, being a person other than a company or a firm, at the rate of 30 per cent of the voluntarily disclosed income (2) Nothing contained in sub-section (1) shall apply in relation to- 10 (i) the income assessable for any assessment year for which a notice under Section 142 or Section 148 of the Income-tax Act has been furnished before the commencement of this Scheme; (ii) the income in respect of the previous year in which a search under Section 132 of the Income-tax Act was initiated or requisition under Section 132A of the Income-tax Act was made, or survey under Section 133A of the Income-tax Act was carried out or in respect of any earlier previous year” 10. Section 68 reads as under: “68. Voluntarily disclosed income not 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 11 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 by the declarant 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. 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 to tax under the Act, which earlier he has not offered it to tax, the Commissioner 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 income tax 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 of 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 aforesaid VDIS scheme as well as the provisions of the Act, the Appellate Authorities were justified in holding that as long as the certificate is 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 steps are taken. The certificate is still in force. When that being the case, the same income cannot be assessed over and again in the hands of the individuals who are the members of the HUF. Therefore, 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. 13 Therefore, the substantial questions of law are answered in favour 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 "