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Judgment
Prakash Shrivastava, J.—This Writ Petition has been filed challenging the order dated 31/3/2004 passed by the Commissioner of Income Tax cancelling the certificate issued to the petitioner u/s 68(2) of the Voluntary Disclosure of Income Scheme 1997. In brief, the petitioner is an individual assessee of income tax. The dispute relates to the assessment year 1997-98. The petitioner earns income as partner of the Firm M/s. Milan Traders as also from the separate business of purchase and sale of Pan Masala in his individual capacity by making certain purchase from one M/s. Shivraj Tobacco Company of Kanpur. The petitioner had submitted the return of income for this period but had failed to disclose the income from the said individual business in the original return. The Voluntary Disclosure of Income Scheme 1997 (for short "VDIS 1997") was introduced by the Finance Act of 1997 with effect from 1/7/1997 which remained in operation till 31/3/1998. The petitioner under the said Scheme had disclosed the income of Rupees fifty two lakhs earned from Kirana and Pan Masala business and had paid the tax accordingly. The certificate dated 3rd March, 1998 Annexure P.3 was issued to the petitioner u/s 68(2) of the Voluntary Disclosure of Income Scheme 1997. After a lapse of time the summons u/s 131/131(A) of the Income Tax Act were issued to the petitioner requiring him to produce books of account and other documents for the financial year 1996-97. The petitioner had submitted the reply Annexure P.5 and his statement was recorded on 1/8/2002. Thereafter the notice of assessment u/s 148 dated 27/3/2003 for the assessment year 1997-98 were issued by the income tax officer. Petitioner had filed return of income under protest disclosing the same income as per his original return and objecting to the proceedings, thereafter notice u/s 142 dated 1/8/2003 was issued by the Income Tax Officer which was duly replied by the petitioner. The petitioner was communicated with the reasons recorded u/s 148 of the Act vide covering letter dated 15/9/2003 disclosing that the assessment was reopened on the alleged ground of escapement of income relating to transaction of purchases made by the petitioner from M/s. Shivraj Tobacco Company, Kanpur. The petitioner had filed objection to the same, pointing out that the said income was already disclosed by the petitioner in Voluntary Disclosure of Income Scheme 1997. The assessing authority rejected the petitioner''s objection and thereafter the notice dated 25/3/2004 was issued by the Commissioner of Income Tax for cancellation of the certificate issued under the VDIS. The petitioner vide Annexure P.3 dated 26th March, 2004 sought time and had then submitted the reply dated 29th March, 2004 before the Commissioner and the Commissioner by the impugned order dated 31st March, 2004 has cancelled the certificate dated 3rd of March, 1998 issued to the petitioner under the VDIS 1997 and on the same day the assessing authority passed the order of reassessment. Aggrieved with the same, the petitioner has approached this Court questioning the cancellation of the certificate issued under the VDIS 1997.
A reply has been filed by the respondents disclosing that the action was taken against the petitioner on the basis of the information gathered in consequence of search and seizure action taken by the department in the case of M/s. Shivraj Tobacco Company Kanpur. In the search conducted u/s 132 of the IT Act in case of Shivraj Tobacco Company, Kanpur the transaction done by the petitioner out of books were detected. The income from undisclosed source was shown by the assessee in his declaration under VDIS 1997 after detection of transaction/income by the Income Tax Department during search u/s 132(1) of the Act in the premises of Shivraj Tobacco Company, Kanpur. Therefore, the bar of Section 64(2)(ii) of the Scheme is attracted and the certificate has rightly been cancelled. A further plea has been raised that the provisions of Section 64(2)(ii) of the Scheme, certificate could not have been issued to the petitioner and that the certificate issued on wrong declaration was not valid.
Learned counsel for petitioner submits that once the certificate is issued to the petitioner under VDIS 1997, then there is no provision for cancellation of the said certificate. He further submits that Section 64(2)(ii) is not attracted in the case of the petitioner since no search has been carried out in the petitioner''s premises. He has also submitted that the cancellation of the certificate issued under VDIS 1997 is at the instance of the assessing officer and no ground exist for cancellation of the certificate once issued to the petitioner.
Learned counsel for respondents submits that the provisions of Section 64(2)(ii) are clearly attracted in the matter since during the search carried out in the premises of Shivraj Tobacco Company, the sales made to the petitioner were discovered therefore subsequently the petitioner could not have availed the benefit of VDIS 1997. He submits that since the petitioner has made a false declaration of income under the VDIS 1997, therefore, the certificate has rightly been cancelled.
We have heard the learned counsel for parties and perused the record.
By the Finance Act of 1997, the Voluntary Disclosure of Income Scheme 1997(for short "VDIS 1997") was introduced. The certificate dated 3rd March, 1998 was issued to the petitioner u/s 68(2) of the Voluntary Disclosure of Income Scheme 1997 relating to the assessment years 1992-93 to 1997-98 accepting the declared income of Rupees fifty two lakhs from Kirana and Pan Masala business and commission income from Kirana, Pan Masala etc. and accordingly the tax was paid on that amount.
Section 64 relating to charge of tax on voluntary disclosed income provided as under:-
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 u/s 139 of the income tax Act;
(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 charged in respect of the income so declared (such income being hereinafter referred to as the voluntarily disclosed income) at the rate specified hereunder, namely:-
(i) in the case of a declarant, being a company or a firm, at the rate of 35 per cent, 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 notice u/s 142 or section 148 of the income tax Act has been served upon such person and the return has not been furnished before the commencement of this Scheme;
(i) the income assessable for any assessment year for which a notice u/s 142 or section 148 of the income tax Act has been served upon such person and the return has not been furnished before the commencement of this Scheme;
(ii) the income in respect of the previous year in which a search u/s 132 of the income tax Act was initiated or requisitioned u/s 132A of the income tax Act was made, or survey u/s 133A of the income tax Act was carried out or in respect of any earlier previous year.
In terms of the Scheme of Section 64, the benefit of Section 64(1) cannot be availed by a person for the income in respect of the previous year in which a search u/s 132 of Income Tax Act was initiated or requisition u/s 132-A was made or survey u/s 133-A was carried out. Such a bar is contained in Section 64(2)(ii).
In the present case it is not in dispute that in the petitioner''s premises no search or seizure u/s 132 of the Act has been done nor any search warrant has been issued in the name of the petitioner. The search was done in the premises of M/s. Shivraj Tobacco Company, Kanpur on 30/8/1996. As per the respondents during the search, certain transaction done by the petitioner out of book were detected which showed the income of the petitioner much higher than what was disclosed in the VDIS. The petitioner in his statement recorded on 1/8/2002 by the Dy. Director of Income Tax had disclosed that on the transactions found out of books of account in respect of purchase made from Shivraj Tobacco Company, the petitioner had calculated the income and disclosed it under the VDIS 1997.
Counsel for petitioner has placed reliance upon the clarification issued by the CBDT in the minutes of ASSOCHEM meeting with CBDT on VDIS 1997 held on 23/7/1997 wherein in answer to question Number Six, the CBDT had clarified as under:-
Question No. 6: Section 64(2)(ii) prohibits disclosure of income in respect of the previous year in which a search u/s 132 was initiated or in respect of earlier previous years. This implies restriction in the case of a person in whose case search proceedings are initiated u/s 132 by issue of search warrant. Keeping this in view, can disclosure be made for the earlier years, in a case which is interconnected with some search proceedings, but where no direct search is initiated or no search warrant is issued u/s 132 ?
Answer: Yes, there would be no bar for disclosure in such cases where no direct search is initiated u/s 132.
The aforesaid clarification of the CBDT makes it clear that for attracting the provisions of Section 64(2)(ii) there should be direct search initiated u/s 132 to attract a bar created by Section 64(2)(ii) and such a bar will not be attracted in a case which is interconnected with some search proceedings but where no direct search is initiated or no search warrant is issued u/s 132. Present is also a case where no direct search was initiated against the petitioner but on the basis of the search conducted u/s 132 in respect of a third party i.e. M/s. Shivraj Tobacco Company Kanpur, the respondents are seeking to attract the bar of Section 64(2)(ii).
The Division Bench of Allahabad High Court in the matter of Bhagwat Prasad Poddar Vs. Commissioner of Income Tax and Others, has taken the view that an assessee against whom no warrant of authorisation u/s 132 was issued and no action was taken u/s 132(1), 132-A or u/s 133-A of the Income Tax Act, was fully eligible to make a declaration u/s 64 of the Scheme for which certificate u/s 68(2) was granted and as such he was entitled to immunity u/s 68. The Allahabad High Court has held as under:-
In our opinion, the petitioner did not suffer from the infirmity as contemplated u/s 64 of the Voluntary Disclosure of Income Scheme, 1997, Scheme. In Killick Nixon Ltd., Mumbai Vs. Deputy Commissioner of Income Tax, Mumbai and Others, , the Supreme Court while interpreting an analogous provision of the Kar Vivad Samadhan Scheme observed (page 7634): "Once the declarant makes payment of the amount so determined u/s 90, the immunity u/s 91 springs into effect. We are also of the view that upon such declaration being made, tax arrears being determined, paid and certificate issued under the Kar Vivad Samadhan Scheme, there is no jurisdiction for the Assessing Officer to reopen the assessment by a notice u/s 143 of the Act except where the case falls under the proviso (2) of sub-section(1) of section 90 as it is found that any material furnished in the declaration is found to be false.
A similar view was taken by the Supreme Court in Commissioner of Income Tax Vs. Shaily Engineering Plastic Ltd., In ALL INDIA FEDERATION OF TAX PRACTITIONERS AND ANOTHER Vs. UNION OF INDIA AND OTHERS., , the Supreme Court observed that the Government was committed to make success of the Voluntary Disclosure of Income Scheme 1997. In Laherchand Dhanji Vs. Union of India and others, , the Bombay High Court while dealing with the Voluntary Disclosure Scheme, 1975, observed that the Commissioner of income tax has no power to cancel or modify the certificate granted by him.
Counsel for respondents has placed reliance upon the judgment of the Supreme Court in the matter of Tanna and Modi Vs. Commissioner of Income Tax , Mumbai XXV and Others, but in that case the search and seizure proceedings were conducted in the premises of partners in which office of the Firm was also situated and the certificate was issued to the Firm under the VDIS which was later cancelled on the ground that it was void after knowledge of search and seizure proceedings and the statement of the partners. In this back ground the Supreme Court had upheld the order of cancellation of certificate stating that the principle that Firm is a separate assessee does not apply in the context of immunity under the VDIS 1997 but in the present case the search was conducted in the premises of a third party situated at Kanpur.
Counsel for respondents has also placed reliance upon the judgment of Karnataka High Court in the matter of Aswath Vs. Commissioner of Income Tax, In that case the declaration filed under VDIS 1997 was rejected on the ground that there was search in regard to the assessee u/s 132 of the Income Tax Act prior to the declaration and it was also found that when there was a search in a leasing company, the authority found a locker in the name of assessee''s brother and the assessee''s brother had disclosed that a part of the valuable in the locker belongs to the assessee. In that back ground, though the search warrant was issued in the name of the assessee''s brother, the Court took the view that it relate not only to the assessee''s brother but the assets of the assessee also.
In the judgment of the Himachal Pradesh High Court in the matter of Commissioner of Income Tax Vs. Chander Prakash Gupta reported in (2008) 13 DTR (HP) 45, both the petitioner as well as the respondents have placed reliance. In that case the search was carried out in the residential premises of the assessee, therefore, the declaration made under the VDIS 1997 was held to be invalid u/s 64(2)(ii) of the Finance Act 1997.
Keeping in view the aforesaid aspect of the matter and also considering the facts of the present case, we are of the opinion that the respondents are not justified in attracting the bar of Section 64(2)(ii) in the case of the present petitioner.
It has also been contended by the counsel for the petitioner that the certificate once issued u/s 68 of the VDIS 1997 cannot be cancelled. The VDIS 1997 does not provide for cancellation of the certificate once issued. The Division Bench of Bombay High Court in the matter of Laherchand Dhanji Vs. Union of India and others reported in 135 ITR 6789 while considering the voluntary disclosure of income and Wealth Act 1976 which also did not contain any provisions to withdraw the certificate issued u/s 8(2) of the Act, took the view that the certificate issued by the Commissioner u/s 68(2) of the VDIS 1997 cannot be cancelled or revoked and so long as the certificate u/s 68(2) holds the field, the amount of voluntary disclosed income cannot be included in the total income of the declarant for any assessment year under the Income Tax Act.
The Gujarat High Court in the matter of Nitin P. Shah alias Modi Vs. Dy. Commissioner of Income Tax, has taken the view that certificate of the Commissioner accepting declaration under the Voluntary Disclosure of Income Scheme cannot be ignored or questioned by the assessing officer taking the view that the Commissioner having issued the certificate u/s 68(2) of the Scheme, judicial discipline requires that authorities entrusted with administering law proceed on the basis that the certificate granted by the Commissioner would indicate satisfaction of all the requisite conditions as required by the provisions of the Scheme.
Thus, considering the aforesaid judgment as well as the Scheme of VDIS 1997, we are of the opinion that in normal circumstances the certificate issued under the VDIS cannot be cancelled unless the certificate was issued contrary to the Scheme itself or ignoring the bar contained in Section 62(2)(ii) or where the certificate under the VDIS itself has been obtained practicing fraud since fraud vitiates any solemn action.
In the present case, though the statement of the petitioner recorded by the Dy. Director of Income Tax on 1/8/2002 indicates that the petitioner had made the disclosure calculating the income on the basis of the purchase which were made from M/s. Shivraj Tobacco Company but there is nothing on record to show that the petitioner had committed any fraud in disclosing the income. On the same amount of sale, the department is calculating higher income whereas the petitioner had disclosed the lower income. Therefore, only on that basis it cannot be held to be a case of fraud.
Counsel for respondents has also placed reliance upon the Single Bench judgment of the Karnataka High Court in the matter of Mysore Plantations Ltd. Vs. Commissioner of Income Tax and Another, but that was a case of fraud where the assessee had claimed to have purchased the cylinders from a non-existent entity, therefore, the Court had taken the view that power to recall the certificate in the event of fraud is available. Learned counsel for respondents has also relied upon the Single Bench judgment of this Court in the matter of Smt. Shashi Devi Vs. Income Tax Officer and Others, but that case does not relate to power to cancel the certificate issued u/s 68 of VDIS 1997.
It is also worth noting that the Commissioner of Income Tax has cancelled the certificate issued u/s 68(2) of the VDIS 1997 at the instance of the Income Tax Officer who had initiated the reassessment proceedings and on the same day of passing of the impugned order of cancellation of the certificate, the Income Tax Officer had passed the order of reassessment.
There is yet another reason to set aside the impugned order cancelling the VDIS certificate. The notice for cancellation of the certificate is dated 25/3/2004. In the impugned order itself it is mentioned that the notice was served by affixture and speed post on 26/3/2004. Within 5 days of service of notice, the final order was passed inspite of the specific request of the petitioner to the Chief Commissioner vide Annexure P.13 for grant of reasonable time and proper opportunity before passing any adverse order.
Keeping in view the aforesaid aspect of the matter, the impugned order dated 31/3/2004 cancelling the VDIS certificate dated 3/3/1998 issued u/s 68(2) of the VDIS 1997 cannot be sustained and is hereby set aside. The Writ Petition is allowed to the extent indicated above. No costs.