TMI Blog1981 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... aw up an agreed statement of the case for submission to the Supreme Court of India, New Delhi, under s. 257 of the I.T. Act, 1961, and place the same before the President of the Income-tax Appellate Tribunal for referring the same direct to the Supreme Court. 3. The assessee is a partnership firm which carries on business in cloth at Itarsi. The present reference application relates to the assessment of this assessee for the assessment year 1967-68, for the previous year ending Diwali, 1966. For this year, the assessee returned an income of Rs. 20,137. On scrutiny of the balance-sheet and the accounts of the assessee, the ITO came across the following cash credits in the names of the following five persons, who are all sons of the partner, Kanhaiyalal, and brothers of the other partners of the assessee-firm : Rs. 1. Master Sailendra kumar 9,250 2. Master Satish kumar 9,250 3. Master Sunil kumar 9,250 4. Master Swatantra kumar 9,250 5. Master Santosh kumar 9,250 Total 46,250 The ITO called upon the assessee to prove the genuineness and the sources of these credits with nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 79,112 under section 143(3) of the Act. 4. The assessee appealed to the AAC objecting, inter alia, to the said addition of Rs. 46,250 as its income. 5. Accepting the contentions of the assessee, the AAC held that the ITO was not right in ignoring the voluntary disclosures made by these five creditors under the Finance (No. 2) Act of 1965. He also relied on the order of the Appellate Tribunal, Delhi Bench 'C', in the case of Indian Book Depot v. ITO, Dist. V(7), N. Delhi, reported in [1972] Tax. XXXII (6)-103. In this view, he deleted the entire addition of Rs. 46,250 from the income of the assessee. 6. Aggrieved by this order of the AAC, the department filed an appeal to the Appellate Tribunal. 7. On behalf of the revenue, reliance was placed on the statement of Shri Kanhaiyalal who was the main partner of the assessee-firm as well as the father of the five creditors, mentioned above. It was further contended that the declarations made by the five creditors before the Commissioner of Income-tax under s. 24 of the Finance (No. 2) Act of 1965, would be of no avail to the assessee to claim immunity from taxation, if it was found by the department that the impugned credits we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Kanhaiyalal was examined with reference to the genuineness of the credits appearing in the firm's books, that he was the senior partner and that taking the evidence as a whole, it was clear that the assessee-firm failed to discharge the burden of proof cast on it by s. 68 of the I.T. Act, 1961, in regard to the nature and source of the impugned credits. The Tribunal accepted the contention of the revenue that the declarations made by the five creditors under the Voluntary Disclosure Scheme under s. 24 of the Finance (No. 2) Act of 1965, would not stand in the way of the department assessing the impugned credits in the hands of the assessee-firm. In support of their conclusion, the Appellate Tribunal relied on the decision of the Gujarat High Court in .Manilal Gafoorbhai Shah v. CIT reported in [1974] 95 ITR 624. The Tribunal further pointed out that the decision of the Madhya Pradesh High Court relied on by the assessee did not touch the point at issue and as such did not apply to the facts of the present case. The Tribunal also declined to entertain the alternative plea of the counsel of the assessee for remanding the case to the AAC, to consider whether the unexplained cash cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Appellate Tribunal committed an error in not relying on the decision of the Madhya Pradesh High Court in the case of Surajben Patel v. CIT reported in January, 1973 Part of M. P. L. J. ? 7. Whether the Tribunal committed an error of law in not acceding to the request of the applicant for sending the case back to the Appellate Assistant Commissioner for further investigation on the point ? " 11. At the time of hearing of this reference application, Shri B. L. Nema, the learned counsel for the assessee, brought to our notice the following three decisions : 1. Rattanlal v. ITO, C. W. No. 927 of 1973, decided on 1-3-1974, by the High Court of Delhi and reported in [1975] 98 ITR 681. 2. Badri Pd. and Sons v. CIT (I.T.R. No. 40 of 1972, dated 12-9-1973) reported in [1975] 98 ITR 657 (All). 3. Aminchand Payarilal v. ITO reported in [1973] 87 ITR 305 (Cal). The learned counsel pointed out that the decisions of the Delhi and Calcutta High Courts were in favour of the assessee, while the decisions of the Gujarat High Court and Allahabad High Court were against the assessee. In view of this conflict of decisions of the various High Courts, he contended that the questions ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enior Advocate (B. L. Nema and K. J.John, Advocates, with him), for the assessee. V. S. Desai, Senior Advocate (Champat Rai and Miss A. Subhashini, Advocates, with him), for the Commissioner. JUDGMENT [PATHAK J. delivered a separate judgment. The judgment of SEN and VENKATARAMIAH JJ. was delivered by SEN J.] SEN J.- This is a direct reference under s. 257 of the I.T.. Act, 1961, made by the I.T. Appellate Tribunal, Jabalpur (for short, the Appellate Tribunal), at the instance of the assessee. The reference is necessitated due to divergence of opinion, as reflected in the various decisions of different High Courts, with respect to the scope and effect of the Voluntary Disclosure Scheme under s. 24 of the Finance (No. 2) Act, 1965 (" the Act for short). The assessee, M/s. Jamnaprasad Kanhaiyalal, is a partnership firm. The firm consists of 4 partners, namely, Kanhaiyalal and his 3 major sons, Rajkumar, Swatantrakumar and Santoshkumar with his Minor son, Satishkumar, admitted to the benefits of the partnership. In the course of assessment proceedings for the assessment year 1967-68, the relevant accounting year of which was the year ending Diwali, 1966, the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on into the source of the deposits was prohibited and illegal under the Act. He accordingly held that the acceptance of the voluntary disclosures made by the creditors in question to the Commissioner and the payment of tax thereon precluded the department from disputing that the income belonged to the said creditors and as the same income cannot be taxed twice, once in the hands of the creditors and again in the hands of the assessee, the order passed by the ITO in that behalf was unsustainable. The AAC, therefore, directed the deletion of Rs. 46,250. The department went up in appeal before the Appellate Tribunal. The Appellate Tribunal, however, disagreed with the AAC and upheld the decision of the ITO. It was of the opinion that the ITO was justified in treating the cash credits appearing in the books of account of the assessee in the names of the creditors as unexplained cash credits, since it was found that the income declared by the creditors did not belong to them, and there was nothing to prevent the same being taxed in the hands of the assessee to which it actually belonged. According to the Tribunal, the immunity under s. 24 of the Act was conferred on the declarant only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than the person making the declaration under the provisions of the Act. The question for consideration is whether the absence of such a provision as is found in Act No. 8 of 1976 leads to the consequence that acceptance of a declaration under s. 24 of the Act confers a benefit which is not provided by the Act on a person other than the declarants and takes away the power of the ITO under s. 68 of the I.T. Act, 1961, to make an investigation as to the nature and source of a cash credit appearing in the books of the assessee to reject the explanation offered by the assessee as unsatisfactory and to treat it as his income from undisclosed sources. Section 24 of the Finance (No. 2) Act, 1965, provided for the making of voluntary disclosures in respect of amounts representing income chargeable to tax under the Indian I.T. Act, 1922, or the I.T. Act, 1961, for any assessment year commencing on or before April 1, 1964. On such disclosure being made under sub-s. (1) thereof, in the manner provided by subs. (2), the amount was to be charged to income-tax in accordance with subs. (3), which provided by a legal fiction that income-tax shall be charged on the amounts of voluntarily disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to tax under the Indian Incometax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961), for any assessment year commencing on or before the 1st day of April, 1964 (a) for which he has failed to furnish a return within the time allowed under section 22 of the Indian Income-tax Act, 1922 (11 of 1922), or section 139 of the Income-tax Act, 1961 (43 of 1961), or (b) which he has failed to disclose in a return of income filed by him on or before the 19th day of August, 1965, under the Indian Incometax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961), or (c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under either of the said Acts to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment, he shall, notwithstanding anything contained in the said Acts, be charged income-tax in accordance with sub-section (3) in respect of the amount so declared or if more than one declaration has been made by person the aggregate of the amounts declared therein, as reduced by any amount specified in any order made under sub-section (4) or, if such amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If a person made a declaration the Commissioner was under an obligation to assess him to tax. In respect of the voluntary disclosures made, a declarant acquired an immunity from further investigation as to the nature and source of the income. He also acquired certain benefits. One of the distinctive features of the scheme was that tax was chargeable on the whole of the disclosed income taken as a single block at rates prescribed for personal income or for corporate income under the Act, and not at an ad hoe concessional rate. Further, facilities were allowed for payment of tax in appropriate instalments extending over a period not exceeding four years, subject to a down payment of not less than 10% of the tax due and furnishing a security in respect of the balance. Income which had already been detected on the material available prior to the date of disclosure was, however, to be assessed under the regular provisions of the I.T. Act and not under the scheme. Any admissions made by a person in the declarations filed by him under the scheme in respect of such income were not to be used in assessing that income under the I.T. Act. Under the scheme, the disclosed income was not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 24 of the Act was conferred on the declarant only, and there was nothing to preclude an investigation into the true nature and source of the credits. The ITO was, therefore, justified in treating the cash credits in the books of account of the assessee in the names of the creditors as unexplained cash credits. The finality under sub-s. (8) is to the order of the CBR under sub-s. (6). Under sub-s. (4), the Commissioner was required, within thirty days, if satisfied that the whole or any part of the income declared had been detected or deemed to have been detected by the ITO prior to the date of declaration, to make an order in writing to that effect and forward a copy thereof to the declarant. Any person who objected to such an order could appeal under sub-s. (5) to the CBR stating the grounds for such an objection. The Board was empowered to pass such orders as it thought fit under sub-s. (6). This order of the Board under sub-s. (6) was final and conclusive by reason of sub-s. (8). Thus, the finality under sub-s. (8) was to the order of the Board under sub-s. (6) of s. 24 and not to the assessment of tax made on the declarations furnished by the creditors under the schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h v. CIT [1974] 95 ITR 624, of the Allahabad High Court in Badri Pd. and Sons v. CIT [1975] 98 ITR 657 and Pioneer Trading Syndicate v. CIT [1979] 120 ITR 5 [FB] and of the Madhya Pradesh High Court in Addl. CIT v. Samrathmal Santoshchand [1980] 124 ITR 297, which lay down the true scope of the Voluntary Disclosure Scheme under s. 24 of the Act, must be upheld. The decisions of the Delhi High Court in Rattan Lal v. ITO [1975] 98 ITR 681 and Shakuntala Devi v. CIT [1980] 125 ITR 18 and of the Jammu Kashmir High Court in Mohd. Ahsan Wani v. CIT [1977] 106 ITR 84, taking a view to the contrary, are overruled. The ITO was entitled to determine whether the amount disclosed was or was not the income of the declarant, while dealing with the case of another assessee under s. 68 of the I.T. Act, 1961. The legal fiction created by sub-s. (3) of s. 24 was restricted to the voluntary disclosure scheme itself. The protection enjoyed by the declarant under that scheme extended only to the amounts so declared being not liable to be added, in any assessment, of the declarant. There was no absolute finality attached to the declaration especially when the nature and source of the sum declared wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be governed by the general principle that a finding recorded therein governs only the particular person assessed. The jurisdiction of an ITO when making an assessment is concerned primarily with the issue whether the receipt under consideration constitutes the income of the assessee before him. Any finding reached by the ITO touching a person, not the assessee, in the process of determining that issue, cannot be regarded as an operative finding in favour of or against such person. The only exception to this rule centres on the limited class, and for the limited purpose, defined by this court in ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335, 346. Viewed in the light of that principle it is apparent that the finality enacted by sub-s. (8) of s. 24 of the Finance (No. 2) Act, 1965, attaches to the assessment of the declarant only. It cannot in law operate, in favour of or against any other person. I am of opinion that the making of an assessment against a declarant on his disclosure statement under s. 24 of the Finance (No. 2) Act, 1965, cannot deprive an ITO of jurisdiction to assess the same receipt in the hands of another person if, in a properly constituted assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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