Judgment:
1. This appeal by the assessee is directed against the order of the CIT(A)-II, Indore, dated 4.1.2001 for the block assessment 1988-89 to 1998-98.
2. We have heard the learned representatives of both the parties and gone through the material available on record.
3. Earlier this appeal alongwith other appeals of the connected persons was decided by earlier Bench of this Tribunal vide order dated 23^rd September, 2003 deciding several issues. The order of the Tribunal was challenged before the Hon'ble High Court of Madhya Pradesh in ITA No.23/04 in the matter of Rakesh Tapadia v. CIT and Hon'ble High Court of Madhya Pradesh admitted this appeal for final hearing on following substantive questions of law: 1. Whether Tribunal was justified in holding that the amount disclosed in VDIS by the assessee prior to commission of raid effected Under Section 132 of the Incometax Act cannot be considered against the estimation of income from alleged Hawala business? 2. Whether assessee is entitled to claim any benefit of VDIS disclosure in block assessment period cases to avoid assessment in respect of the income which according to him he had already disclosed in VDIS as admittedly the estimated income did not exceed the disclosure made in VDIS? Hon'ble High Court of Madhya Pradesh observed that this issue is considered by the Tribunal in para 8A which reads as under: 8A. Ground No. 5 - In support of this ground the ld. (sic) draws our attention to the contents of page nos. 36 and 37 of the paper which are certificates under Section 68(2) of the Voluntary Disclosure of Income Scheme, 1997 respectively in the case of Shri Ramanand Tapadia (HUF) and the assessee, so far disclosure in the case of assessee is concerned, as apparent from the certificate it has been made against the investment in the immovable properties and nothing to do with money in question. This ground is thus rejected." The Hon'ble High Court considering the matter in detail ultimately remanded the matter to the Tribunal by setting aside the order of the Tribunal. This Tribunal, therefore, refixed this appeal for hearing as per direction of the Hon'ble High Court in order to decide the above issues involved in appeal before the Hon'ble High Court.
4. The ld. representatives of both the parties submitted that the Tribunal shall have to decide only the above two questions admitted by the Hon'ble High Court.
5. Briefly, the facts of the case are that survey was conducted on 19^th December, 1997 by the DDIT(Inv.), Unit I, Bangalore, at the premises of Shri Rakesh Tapadia and Shri Suresh Tpadia who were running business in the names of Malwa Silk and Saree Emporium at Bangalore.
The information was available with the Intelligency Wing that Hawala business i.e. transfer of money from one place to another was carried out at the business premises of Malwa Silk and Saree Emporium. In respect of such money transaction, the said hawala dealer had been charging commission @ Rs. 300 to Rs. 350 per lac of money transaction which is not disclosed to the department and remained with Hawala dealer in the form of debtors outside the books which formed concealed income. The survey was converted into search action Under Section 132 of Incometax Act same day which concluded on 5.3.1997. The AO considering the matter in detail, came to the conclusion that the assessee is carrying on hawala business and he estimated, the same income for past two years at Rs. 10 lacs per year as per the assessment order dated 16^th March, 2000. The AO while framing the assessment made the following additions: 6. In appeal, the learned CIT(A) at page 7 maintained the addition of Rs. 8 lacs and deleted Rs. 12 lacs on account of hawala business. He deleted the addition of Rs. 10,50,000/-. The CIT(A) on issue of Rs. 17,82,000/- set aside the order and restored to AO. It is stated that the AO in the set aside proceedings again added Rs. 17,82,000/- which was deleted by the learned CIT(A) vide order dated 15.1.2003 which was upheld by the Tribunal in IT(SS) A. No. 11/Ind/01. Against the above addition of Rs. 20 lacs which was deleted partly at Rs. 12 lacs, the assessee and the department preferred appeals before the Tribunal and the Tribunal vide order dated 23^rd September, 2003 set aside the matter to the AO by affording opportunity to cross examine the persons vide para 6.2 as regards the addition of Rs. 8 lacs is concerned.
Similarly, in the departmental appeal in IT(SS) A. No. 7/Ind/01 deletion of addition of Rs. 12 lcs was also set aside and the matter restored to the AO.7. It is submitted that the assessee had taken an alternative plea in its appeal in IT(SS) A. No. 5/Ind/01 that without prejudice, the learned CIT(A) ought to have considered the availability of the amount which was disclosed under VIDS and as such should have held that this money is already with the assessee and is not taxable. However, the Tribunal in para 8A has referred to the above, did not accept the contention of the assessee.
8. The ld. counsel for the assessee in view of the above facts submitted that the issue of hawala commission of Rs. 20 lacs and addition for investment in share in profit at Rs. 3,70,000/- is the subject matter with regard to the claim of benefit of amount declared under VDIS for which the assessee has taken ground No. 7 in the original appeal. The ld. counsel for the assessee further submitted that the matter when set aside to the AO with regard to commission from hawala, further addition is made by the AO and the learned CIT(A) in the same way deleted the addition of Rs. 12 lacs and confirmed the addition of Rs. 8 lacs on which the assessee as well as the department are in appeal in IT (SS) A. Nos. 58 and 60/Ind/06.
9. The ld. representatives of both the parties submitted that the issue of availability of the amount under VDIS may be considered in this appeal and thereafter the remaining appeals in IT(SS)A. Nos. 58 and 60/Ind/06 may be decided on merits. On the submission of the parties, the cross appeals in IT (SS) A. Nos. 58 and 60/Ind/06 were adjourned which were fixed with the present appeal.
10. The only question before us to be answered is whether the amount declared under VDIS prior to search is available to the assessee for explaining the addition and whether the assessee is entitled to claim any benefit of VDIS in the block assessment period cases to avoid assessment in respect of the income which according to him he had already disclosed in VDIS.11. The ld. counsel for the assessee referred to VDIS Certificate in which declaration was riled on 17^th December, 1997 and the following amounts were disclosed: 1(a) Rs. 9,61,250 1996-97 Investment in house No. 7(Old No. 24) Main Rape DOC, Shripuram (b) Rs. 1,01,275 1996-97 Investment in house No. 13/2, Jawahar Marg, Room No. 201/II- 2.
Rs. 5,00,000 1997-98 Cash (out of this rs. 2,50,000 were invested in property at UG-11, Sunrise Rower, 579, MG Road, Indore & balance in hand VDIS certificate is issued by CIT, Indore, on above amount on 20.12.97.
The ld. Counsel for the assessee submitted that since prior to search the assessee filed application under VDIS declaring undisclosed income at Rs. 18,12,525/- which is accepted by the learned CIT, Indore, it was available to the assessee to explain the income atleast from allegedly hawala commission. The ld. counsel for the assessee also referred to assessment order to show that even the AO has mentioned that such hawala income pertained to two years prior to the block period.
Therefore, according to the ld. counsel for the assessee this income pertained to assessment years 1996-97 and 1997-98 and since the undisclosed income of Rs. 18,12,525/- was shown for these years, income declared under VDIS should be treated as income allegedly earned on commission from hawala. The ld. counsel for the assessee submitted that though he would be disputing hawala transaction in regular appeals, but at the moment it may be taken that the amount is available with the assessee as declared under VDIS in explaining the additions made in the block assessment. The ld. DR, however, relied upon the orders of the authorities below and submitted that no amount is available to the assessee for set off in the block assessment because the amount declared under VDIS has no nexus with the investment made in the properties.
We have considered the rival submissions and the material available on record.
12. The relevant provisions of Voluntary Disclosure of Income Scheme, 1997 are reproduced as under: Chapter IV of The Finance Act, 1997 and the Central Government appoints 1^st day of July 1997 as the date on which the VDIS-97 shall come into force.
62 Short title and commencement. -(1) This Scheme may be called the Voluntary Disclosure of Income Scheme, 1997.
(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
63 Definitions. -In this Scheme, unless the context otherwise requires,- (a) "declarant" means a person making the declaration under Sub-section (1) of Section 64; (d) all other words and expressions used in this Scheme but not defined and defined in the Income-tax Act or the Wealth-tax Act shall have the meanings respectively assigned to them in those Acts.
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 31^st 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; (b) which her 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 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 rates 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.
(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 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 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.
65. Particulars to be furnished in declaration.-(1) A declaration under Sub-section (1) of Section 64 shall be made to the Commissioner and shall be in such form and shall be verified in such manner as may be prescribed.
(a) where the declarant is an individual, by the individual himself; where such individual is absent form India, by the individual concerned or by some person duly authorised by him in this behalf; and where the individual is mentally incapacitated from attending to his affairs, by his guardian or by any other person competent to act on his behalf; (b) where the declarant is a Hindu undivided family, by the karta, and where the karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of such family; (c) where declarant is a company, by the managing director thereof, or where for any unavoidable reason such managing director is not able to sign the declaration or where there is no managing director, by any director thereof; (d) where the declarant is a firm, by the managing partner thereof, or where for any unavoidable reason such managing partner is not able to sign the declaration, or where there is no managing partner as such, by any partner thereof, not being a minor; (e) where the declarant is any other association, by any member of the association or the principal officer thereof; and (f) where the declarant is any other person, by that person or by some other person competent to act on his behalf.
(3) Any person, who has made a declaration under Sub-section (1) of Section 64 in respect of his income or as a representative assessee in rspect of the income of any other person, shall not be entitled to make the income of such other person, and any such other declaration, if made, shall be deemed to be void.
66. Time for payment of tax.--The tax payable under this Scheme in respect of the voluntarily disclosed income shall be paid by the declarant and the declaration shall be accompanied by proof of payment of such tax.
67. Interest payable by declarant.--(1) Notwithstanding anything c ontained in Section 66, the declarant may file a declaration without paying the tax under that section and the declarant may file the declaration and the declarant may pay the tax within three months from the date of filing of the declaration with simple interest at the rate of two per cent for every month or part of a month comprised in the period beginning from the date of filing the declarationj and ending on the date of payment of such tax and file the proof of such payment within the said period of three months.
68. Voluntarily disclosed income not to 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 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 of or Section 67.
(2) The Commissioner shall, on an application made by the leclarant, grant a certificate to him setting forth the particulars of the oluntarily disclosed income and the amount of income-tax paid in respect of the same.
69. Voluntarily disclosed income not to affect finality of completed assessment, etc. - The declarant shall not be entitled, in respect of the voluntarily disclosed income or any amount of tax paid thereon, to reopen any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act or claim any set-off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment.
13. Certain clarifications were issued by CBDT on VDIS -97 in circular No. -754. Question No. -6 reads "Where search and seizure action has taken place in financial year 1995-96, the block period is 1985-86 to 1995-96, can discloser under the present scheme be made by the persons searched for an assessment year prior to 1985-86? Answer.:-No, in respect of a case where search has taken place in any financial year, the person cannot make a declaration in respect of any previous year prior to the previous year in which search has taken place.
Question No. -23: The scope of the Scheme should be expended so as to include cases where: Answer:-This is not possible. In respect of survey Under Section 133A, the declarants are debarred for that previous year only.
14. Scope of Section 64 of the VDIS -97 indicated by the act is a charging section in as much as it provides for charge on the voluntary disclosure income. It is available for any person as long as it is made within the time frame stipulated in the statute. The section, however, also makes it clear that where a notice Under Section 142 or 148 has been issued and return has not been furnished by the assessee before commencement of the scheme, there is a disqualification for such person from making a declaration of such income for such year. There is total disqualification in respect of person who have been subjected to search either directly Under Section 132 or have been persons in respect of whose assessments, a requisition has been issued Under Section 132A in respect of books of accounts or documents or assets in custody of any authority under the law. The income subjected to survey is also made ineligible for disclosure. There is thus total disability for persons who are subjected to search Under Section 132 of the IT Act, It is needless to point out only to persons who have been searched or surveyed under Income-tax Act, will not be able to avail the benefit of VDIS -97. Even on the satisfaction of the above points the true owner of such income, whether he is the person who is surveyed or searched, will loose the benefit of the scheme.
15. Where materials relating to third parties are found. Such third parties may be taking a risk. If they meanwhile, make disclosures of assets found during the search as is indicated in CIT v. Amber Construction 207 ITR 435 (Rajasthan), in which it was held that availability of the right to disclosure of seized assets for the third party Under Section 14 of the voluntary disclosure of income and wealth ordinance 1975, would bar disclosure Under Section 3 of the said Act.
Since Section 3 of the said Act is analogous Under Section 64(2)(ii), a similar view is to be taken. Therefore there is a total prohibition for the persons subjected to search Under Section 132 and 132A or surveyed Under Section 133A respectively. The persons under such disability are not permitted to avail the scheme not only in the year of the search but also any earlier previous year. Since only incomes covered by search are out side the purview of Section 64(2)(ii) and come within the prohibition, earlier years out side the scope of search or in other words, in the block assessment pursuant thereto should be capable of being subject matter disclosure. Because of the above prohibition Under Section 64(2)(ii), persons who are third parties to the search, in whose case notice Under Section 158BD is taken will be the person who will be denied the benefit of the scheme.
16. The condition Under Section 68(1)(i) subject to which disclosure is made is that the amount disclosed should be credited in the books of accounts or in any other record. It is duty of the assessee to intimate to the Assessing Officer about the credit.
17. It is made clear Under Section 69 of the Act, by providing that the declarant shall not be entitled to reopen any assessment or reassessment under the Income-tax Act, or the Wealth-tax Act, and it has also been made further clear that no set off or relief will be available in respect of any appeal, reference or other proceedings in relation to such assessment or reassessment in appeal, reference or other proceedings relating to such assessment or reassessment. It would therefore be clear that the matters pending in appeal or reference is shut out from the scheme. But the words "other proceedings" in relation to any such assessment or reassessment are vide enough to cover other proceedings. It is not in dispute that assessee opted for VDIS prior to search Under Section 132 of IT Act, therefore, prohibition contained in the rules of VDIS-97 are not applicable against the assessee.
18. The Hon'ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. v. CIT; 123 ITR 457 held- When an 'intangible" addition is made to the book profits durijng anasessment proceeding, it is on the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as 'intangible' is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as the book profits could be.
Hon'ble Madras High Court in the case of S. Kuppuswami Mudaliar v. CIT; 51 ITR 757 held- Where the incometax authorities make an addition to the income of the assessee over and above the income as disclosed by the assessee, on an estimate basis, the amount so added must be treated as the real income of the assessee. It is not open to the authorities to take the view that the addition was only for purposes of taxation and that it should not be regarded as the true income of the assessee.
Hon'ble Punjab & Haryana High Court in the case of CIT v. Prem Chand Jain; 189 ITR 320 held. Held, that the Tribunal was right in law in holding that past intangible additions made in the case of the firm and allocated to the assessee's share could be taken into account in considering the unexplained investments of the assessee and these would also be available for set off purposes in respect of the agreed additions for low household expenses made in the five years under consideration, and remanding the case to the Appellate Assistant Commissioner.
Hon'ble Rajasthan High Court in the case of CIT v. Tyaryamal Balchand; 165 ITR 453 held. Held, that the Appellate Assistant Commissioner and the Tribunal had committed no error of law in holding that the unproved cash credit of Rs. 16,950 should be taken to have come out of intangible additions as substantial additions had been made even in the earlier years. It had also been rightly held by the Tribunal that even during the present assessment, an addition of Rs. 18,117/- had been made which would sufficiently cover any unexplained income to the extent of Rs. 16,950. The amount of Rs. 16,950 could not, therefore, be added as income from undisclosed source.
19. Considering the proposition of law decided in the above cases, it is clear that the undisclosed income assessed is real income and could be available to the assessee as the book profits could be a source of explaining undisclosed investment. In the present case, the search is conducted on 19^th December, 1997 and on the basis of certain statements and the material, income of the assessee from hawala commission and investment in shares was computed in a sum of Rs. 20 lacs and Rs. 3,70,000/-. The assessee prior to search on 17^th December, 1997 had already declared undisclosed income in a sum of Rs. 18,12,525/- in VDIS which was accepted by the CIT on 20.12.1997.
Therefore, the amount declared under VDIS was available to the assessee being real income for the purpose of explaining the additions made in the block assessment. The case of the assessee in the present facts and circumstances is on the better footing because the scheme declared under VDIS is approved by the Department of revenue and as per the scheme, once a certificate is granted, the same cannot be questioned in subsequent regular assessment proceedings. The ld. counsel for the assessee is, therefore, justified in contending that the income so computed in the block period for different years prior to the block assessment is the same income which was declared under VDIS. The ld.counsel for the assessee, therefore, has been able to prove that the income declared in VDIS is available to the assessee because the same was disclosed prior to the search Under Section 132 and the assessee would be entitled to set off in case addition is to be made or sustained against him in the block assessment. Both the questions as formulated by the Hon'ble High Court are, therefore, answered against the revenue and in favour of the assessee.
20. We may clarify that the findings given in this order would be taken into consideration at the time of hearing the subsequent appeals in IT (SS) A. Nos. 58 and 60/Ind/06 in which the matter again came up before the Tribunal on merits after decision on CIT(A). Both the parties are entitled to make their submissions on merit in those cases apart from the findings given herein in this order. Since the additions on quantum are pending for disposal in different appeals before the Tribunal, we do not given any specific finding as to whether additions would be maintained or not because the same questions on merit would be considered in the respective appeals already adjourned at the request of learned representatives of both the parties.
21. With the above discussion, the questions formulated by the Hon'ble High Court are answered against the revenue Department and in favour of the the assessee. As a result, the appeal of the assessee is allowed on the above two questions/issues which were remanded by the Hon'ble High Court. As a result, the appeal is allowed. Order pronounced in open Court on 5^thApril, 2007.