TMI Blog2004 (12) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... rd with Tax Appeals Nos. 539 of 2003 and 90 of 2004. Accordingly, all these matters, which are interconnected have been heard together and are taken up for final disposal with the consent of the learned advocates for the respective parties. Tax Appeal No. 539 of 2003 The appellant is the assessee who has challenged the order of the Tribunal dated July 10, 2003, by proposing the following questions of law stated to arise out of I.T.A. No. 3910/Ahd/2002 for the assessment year 1997-98: "(i) Whether, in the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the amount of Rs. 67.75 lakhs placed as deposit with L.T. Shroff group is unexplained investment of the appellant and the same is not covered by the disclosure made by the appellant under the VDIS? (ii) Whether, in the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that under the VDIS, 1997, along with the disclosure, the declarant has to show the basis on which yearwise figures of income was arrived at together with the manner in which the income was bifurcated on the basis of ultimate investments existing as on the cut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and in the circumstances of the case, the order of the Tribunal can be said to be perverse when the Tribunal has failed to appreciate that the appellant was prevented by sufficient cause from producing the passbook issued by L.T. Shroff group at any stage prior to the appellate proceedings in the second round after the assessment order was set aside in the first round?" The assessment year is 1997-98 and the relevant previous year is March 31,1997. The assessee was assessed on a total income of Rs. 67.75 lakhs by treating a deposit of Rs. 67.75 lakhs with L.T. Shroff group as being unexplained investment under section 69 of the Income-tax Act, 1961 ("the Act") on March 31, 2000. The said order came to be challenged before the Commissioner of Income-tax (Appeals) who for the reasons stated in his order dated March 15, 2001, set aside the assessment with a direction to the Assessing Officer to offer proper opportunity to the assessee. While framing the fresh assessment, the Assessing Officer made an addition of Rs. 137 lakhs by holding that the said amount declared under the Voluntary Disclosure of Income Scheme, 1997 (the VDIS), was not credited in the books and no inti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax (Appeals) setting aside the said assessment. That, in the second round, the Assessing Officer instead of dealing with the merits of the addition of Rs. 67.75 lakhs came to the conclusion that the said amount was not required to be added in regular assessment proceedings, but the provisions of section 158BD were required to be invoked in relation to the said item. In fact, the Assessing Officer made addition of Rs. 137 lakhs, an item which was not the subject-matter of the original proceedings. In the circumstances, the assessee was obliged to produce the said passbook before the Commissioner of Income-tax (Appeals) and that too only after the Commissioner of Income-tax (Appeals) issued notice for enhancement. Thus, according to Mr. Soparkar the order of the Tribunal confirming the addition of Rs. 67.75 lakhs which was made by the Commissioner of Income-tax (Appeals) for the first time in the second round was bad in law and to that extent the order of the Tribunal was required to be quashed and set aside. Mr. M.R. Bhatt, the learned advocate, submitted that the assessee had failed to produce the relevant piece of evidence in the first round before the assessing authority; n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly dated March 30, 2000 and submitted that : (a) the assessee was not provided with the statements of persons that were proposed to be used against the assessee ; (b) no inquiries were conducted in the case of the assessee when the search proceedings were carried out in the case of L.T. Shroff group ; (c) the assessee was not identified on the basis of the seized material by carrying out necessary investigation under section 131 of the Act; (d) the burden was on the Revenue to establish the alleged transaction and its consequence to result in taxable income. A further letter dated March 31, 2000 was filed and it was submitted that the assessee had already made declaration under the VDIS and there was no further income which was liable to tax for the year under consideration. The Assessing Officer rejected the submissions made and framed the assessment on March 31, 2000 adding the entire sum of Rs. 67.75 lakhs as unexplained investment under section 69 of the Act. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) and one of the basic contentions along with other grounds was that the assessee was not accorded full and proper opportunity to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried in appeal and ultimately both the sides went before the Tribunal. In the light of the aforesaid findings recorded by the Commissioner of Income-tax (Appeals), it is apparent that the Tribunal erred in adopting the course that it did. Despite the aforesaid facts being available on record the Tribunal states that the assessee has also not given any convincing reason as to why this passbook issued by L.T. Shroff group was not produced during the original assessment proceedings. The Tribunal records that the assessee stated that he was allowed only three days time. Once this fact was available before the Tribunal and the record proves that, the Tribunal ought not to have brushed aside the explanation of the assessee and proceeded to deal with the addition on the merits on other grounds. The law as to the principles of natural justice is well settled and needs no reiteration. Even for the purpose of tax proceedings, the said principles would come into play and all that the assessee was seeking was a reasonable opportunity. The Tribunal lost sight at the fact that the assessee had no occasion to produce the said passbook in the first round before the assessing authority due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and on facts in upholding the directions of the Commissioner of Income-tax (Appeals) that the provisions of section 158BD of the Income-tax Act were not applicable in this case with regard to bringing to tax the amount of Rs. 67.75 lakhs?" Having heard the learned advocates for the parties, the appeal is admitted on the following substantial questions of law: "(i) Whether the Appellate Tribunal was right in law and on facts in upholding the directions of the Commissioner of Income-tax (Appeals), that the Assessing Officer while completing fresh assessment pursuant to the directions given by the Commissioner of Income-tax (Appeals) vide her order dated March 15, 2001 had no right to assess the income of Rs. 137 lakhs in the fresh assessment order, when the earlier assessment order was set aside to be made 'de novo'? (ii) Whether, in the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the income of Rs. 137 lakhs declared by the assessee in the declaration under the VDIS-97 pertaining to the assessment year 1997-98 cannot once again be held to be liable to tax in fresh assessment for the redetermination of issue relating to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment in the first round. As can be seen from the facts which have come on record when the original assessment was framed under section 143(3) of the Act on March 31, 2000, the question relating to the assessability of Rs. 137 lakhs as income in the course of the regular assessment, was not the subject-matter of consideration. The Commissioner of Income-tax (Appeals), therefore, while setting aside the said assessment order could not have issued any direction to process the said item in the set aside proceedings and hence, the order of set aside has to be read as being confined to the item which was added by the Assessing Officer and which was under challenge before the Commissioner of Income-tax (Appeals). The only way, the Commissioner of Income-tax (Appeals) could have issued such a direction was by issuance of notice for enhancement which admittedly has not been done in the first round. In the circumstances, once the assessability of Rs. 137 lakhs was not the subject-matter of consideration in the original assessment made on March 31, 2000, it could not have entered the zone of consideration by the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied. Reliance by the assessee on various Central Board of Direct Taxes circulars for the purpose of showing compliance with section 64(1)(a) of the Act, was met with by the Assessing Officer by stating that the only power that was available with the Central Government was under section 76 of the VDIS to remove difficulties in giving effect to the provisions of the Scheme, but under the said provisions, it was not open to either the Central Government or the Central Board of Direct Taxes to issue circulars so as to give fresh legal right by way of clarification or instruction which, in fact, was within the field of legislation. The Assessing Officer further invoked article 14 of the Constitution of India to state that the Board, by issuing such circulars was violating the said article. Thus, he made addition of Rs. 137 lakhs to the total income on March 28, 2002 while framing the fresh assessment. As noted hereinbefore, the assessee succeeded before the Commissioner of Income-tax (Appeals) and the Revenue's appeal on this count was dismissed by the Tribunal. Section 68 of the VDIS reads as under: "68. Voluntarily disclosed income not to be included in the total income.-(1) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h asset so declared. The certificate also records that the tax of Rs. 2,45,10,000 has been paid as worked out on the income declared. Going to the Form which is prescribed under rule 3, it is apparent that even the Form requires under item No. 5, to give statement of voluntarily disclosed income and the same details tally with the details recorded in the certificate. However, what is necessary, and more pertinent for the present, is item No. 10 which reads "whether the amount of the voluntarily disclosed income has been credited in the books of account or any other record (if so, attach copies of the relevant entries in duplicate)". Against the said item, the Form gives two squares, with "Yes" and "No" succeeding the squares, and the square bearing "Yes" has been tick-marked. Thus, evidence on record goes to show that the assessee had while making declaration filled up the prescribed Form including entry regarding credit in the books of account or other record. The declaration is accompanied by notes attached to and forming part of the declaration under sub-section (1) of section 65 of the VDIS. Note No. 4 specifically states as under: "4. Necessary taxes at 30 per cent, on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that one set is retained by the Commissioner along with declaration made by the concerned assessee while the second set is forwarded to the Assessing Officer having jurisdiction over the declarant. The Commissioner having issued the certificate under section 68(2) of the Scheme, judicial discipline requires that the 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 and it is not open to the subordinate authority to sit in judgment over the certificate granted by the Commissioner. The Assessing Officer in the present case has, while making addition of Rs. 137 lakhs in the fresh assessment made pursuant to the order of set aside, taken upon himself to give a go-by to the certificate issued by the Commissioner as if the said certificate had been issued by the Commissioner without verification or application of mind. The court is not prepared to proceed on such an assumption, though it was so contended by learned counsel for the Revenue. The fact that the Commissioner is superior authority in so far as the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner and by ignoring the same, assess an income which has already borne tax under the VDIS. The Assessing Officer has assigned one more reason for rejecting the declaration made under the VDIS by the assessee. According to the Assessing Officer the circulars issued by the Central Board of Direct Taxes could not have been issued under section 119 of the Act, and hence, they are violative of the provisions of the Constitution as well as go beyond the powers available to the Board under the Act. A similar contention was specifically raised in a case before the Supreme Court, in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706. The Supreme Court observed: "It is trite law that as long as an authority has power, which is traceable to a source, the mere fact that source of power is not indicated in an instrument does not render the instrument invalid [see in this connection State of Sikkim v. Dorjee Tshering Bhutia [1991] 4 SCC 243 at para. 16; N.B. Sanjana, CCE (Asst.) v. Elphinstone Spinning and Weaving Mills Co. Ltd. [1971] 1 SCC 337; P. Balakotaiah v. Union of India [1958] SCR 1052; AIR 1958 SC 232 and Afzal Ullah v. State of U.P. [1964] 4 SCR 991 ; AIR 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002. The assessee responded by reply dated March 15, 2002 wherein he objected to the applicability of the provisions under Chapter XIV-B of the Act. The Assessing Officer rejected the objection of the assessee by stating that, while making the assessment on remand, the Assessing Officer has all the powers which he originally had while framing the original assessment order and all issues of fact and law could be considered de novo. It was further stated by the Assessing Officer that the issue regarding the applicability of section 158BD of the Act was not before the Commissioner of Income-tax (Appeals) and, hence, the Commissioner of Income-tax (Appeals) could not have expressed anything on the issue which was not the subject-matter before him. Therefore, the Assessing Officer held that "the sum of Rs. 67.75 lakhs, can only be assessed under section 158BD". The assessee carried the matter in appeal before the Commissioner of 39 Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) came to the conclusion that section 158BD requires satisfaction of the Assessing Officer of the person searched before initiation of proceedings under section 158BD of the Act. The Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer having jurisdiction over the other person (in the present case, the assessee) had information as to facts, it was always open to the Assessing Officer to proceed in accordance with the provisions of Chapter XIV-B against such other person. In support of the aforesaid proposition, Mr. Bhatt placed reliance on the following decisions of this court: (1) Rushil Industries Ltd. v. Harsh Prakash [2001] 251 ITR 608; (2) Priya Blue Industries P. Ltd. v. CIT (Joint) [2001] 251 ITR 615 ; and (3) Premjibhai and Sons v. CIT (Joint) [2001] 251 ITR 625. Mr. S.N. Soparkar, the learned advocate appearing on behalf of the respondent, submitted that the Assessing Officer in the second round had exceeded jurisdiction vested in him, and the Commissioner of Income-tax (Appeals) and the Tribunal were justified in holding that the provisions of section 158BD of the Act could not have been resorted to by the Assessing Officer in regular assessment proceedings in relation to the sum of Rs. 67.75 lakhs which was added in regular assessment, completed on March 31, 2000. He has, therefore, submitted that the Assessing Officer could not have even observed as submitted by learned standing cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer of the L.T. Shroff group to the Assessing Officer of the assessee. Reliance on the provision of section 158B(b), which defines "undisclosed income", by the Revenue is misplaced. The said definition merely defines what undisclosed income would include. It is not a jurisdictional fact as contended on behalf of the Revenue. Even if it was a jurisdictional fact, for the application of section 158BD of the Act, the same has to come by way of information or handing over of the books of account, etc., by the Assessing Officer of the person searched. Similarly, the provision of section 158BA merely lays down that where a search is initiated under section 132 of the Act after June 30, 1995 or books of account, other documents, etc., are requisitioned under section 132A of the Act, then the Assessing Officer shall proceed to assess the undisclosed income in accordance with Chapter XIV-B of the Act. In the present case, at the cost of repetition, it requires to be stated that no search was initiated in the case of the assessee nor have any books of account or other documents been requisitioned under section 132A of the Act and hence, there is no question of invoking section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days of the service of notice without specifying the block period which is required to be mentioned as per the provisions of section 158BA of the Act. The assessee, therefore, approached the respondent vide communication dated April 18, 2002, stating that the petitioner was not in a position to file the return as required in view of the fact that the said notice was vague and unclear. However, instead of responding, on September 5, 2002, the respondent wrote to the petitioner stating that the petitioner having not filed the return of undisclosed income within twenty days in response to the notice under section 158BD of the Act, which was duly served on April 3, 2002, the petitioner was liable to be proceeded against under section 276CCC of the Act and to be prosecuted for non-filing of the return of undisclosed income. The petitioner once again wrote to the respondent on September 16, 56 2002 inviting reference to the earlier letter of April 18, 2002, seeking the same clarification. On September 11, 2003, the respondent wrote to the petitioner informing him that the return was to be filed for the block period from August 1, 1986 to August 1, 1996. On November 24, 2003 the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held in the fresh assessment order that the sum of Rs. 67.75 lakhs can be assessed under section 158BD and not in the course of the regular assessment proceedings, as it is on the basis of seized material in the case of L.T. Shroff." Further, in the reply affidavit, the respondent states that the assessment order may be referred to in which the Assessing Officer has "made detailed discussions as to why this amount of Rs. 67.75 lakhs should be assessed under section 158BD and not in the regular return". Thereafter the respondent quotes paragraphs Nos. 3, 5.1 and 5.2 of the assessment order dated March 28, 2002. The position in law is well settled that once a particular order is carried in appeal on the point on which the appellant is aggrieved, the order of the original authority merges with the order of the appellate authority and such appellate order is the final order, which only can be looked into. For all intents and purposes, the order made by the original authority thereafter has no independent existence. Therefore, the insistence on the part of the respondent to sustain the illegal notice under section 158BD of the Act by placing reliance on various observations made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioner filed his return of income for the assessment year 1996-97 on June 27, 1997 declaring total income of Rs. 26,61,630. The income so returned was accepted by the respondent. The impugned notice dated March 28, 2003 was served on the petitioner on April 3, 2003. The petitioner addressed letter dated April 28, 2003, objecting to the impugned notice on the ground that the same is legally invalid, as the same has been served after the expiry of the period of limitation. The petitioner further called upon the respondent to furnish a copy of the reasons recorded before issuing notice under section 148 of the Act. This request was made in the light of the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19. As there was no reply from the respondent, the petitioner submitted his return of income on November 24, 2003, declaring the same income as declared in the original return of income without prejudice to his right to challenge the jurisdiction or lack of it, on behalf of the respondent. The petitioner also called upon the respondent to supply a copy of the reasons recorded. On February 20, 2004, the respondent issued noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent petition has been filed at this stage. The reasons recorded by the respondent read as under: "Reasons for reopening income-tax assessment in the case of Shri Nitin P. Shah alias Modi for the assessment year 1996-97. In this case, the assessee declared an amount of Rs. 2,00,00,000 for the assessment year 1996-97 under the VDIS, 1997, along with a disclosure of Rs. 1,37,00,000 for the assessment year 1997-98 and other years. The Assessing Officer observed, while completing the assessment for the assessment year 1997-98 that the conditions of section 68(1) of the VDIS, 1997, were not satisfied. According to the Assessing Officer, in view of section 68(1), the benefit of the VDIS was not admissible to the assessee. Section 68(1) provides certain mandatory requirement so as to prevent the assessee's income from being included in the total income of the relevant years. His observation as per paras. 5.1 and 9 of his order is as under: Para-5.1. 'I have perused the records of the assessee for different years and I find that the assessee has neither credited the amount of the VDIS for the year under consideration in the books, nor has he given any intimation of such credit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ened." Mr. S.N. Soparkar, the learned senior advocate appearing on behalf of the petitioner, submitted that the reasons recorded by the respondent are based on fresh assessment order dated March 28, 2002 for the assessment year 1997-98, framed by the respondent in pursuance of the original assessment having been set aside by the Commissioner of Income-tax (Appeals). However, the said assessment order could not have formed the basis for arriving at a reason to believe that any income has escaped assessment for the year under consideration in the light of the fact that the sum of Rs. 2 crores was admittedly declared for the assessment year under consideration under the VDIS and formed part of total disclosure of Rs. 817 lakhs. That, the Commissioner of Income-tax having issued necessary certificate under section 68(2) of the Finance Act, 1997, regarding the fact of payment of tax on the declared income and thus accepting the declaration, it was not open to the respondent to go behind the same and state that the conditions of section 68(1) of the Finance Act, 1997, were not satisfied. That, even otherwise, the appellate authorities had held that it was not open to the respondent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, it would also indicate "possible escapement of income". In the circumstances, the impugned notice seeking to reopen, cannot be permitted to stand. The reasons recorded must disclose the material and the basis, which reflect the process by which the authority has formed the belief. Even if sufficiency of such reasons cannot be gone into, it is equally well established, the court can always examine whether, on such material as disclosed in the reasons, there was a rational nexus for the formation of belief. In other words, whether a reasonable person could have arrived at such a belief. The reasons recorded here fail the objective test. The respondent-authority is also not sure that any income has escaped assessment-only a possible escapement of income is indicated. That cannot permit him to assume jurisdiction. On the merits of the controversy also, it is necessary to note that in Tax Appeal No, 90 of 2004, this court has accepted the findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal that all entries regarding declaration have been incorporated in the books of account. In the affidavit-in-reply the respondent has referred to his order dated Marc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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