TMI Blog2000 (7) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of this petition are : The petitioner deals in shares, stocks and securities. In its returns of income for the relevant assessment years, the petitioner computed income on the sale of certain shares under the head "Income from capital gains" on the plea that these shares were not acquired for the purposes of business of the company but as an investment by the company. The Assessing Officer did not agree with the petitioner ; treated the receipts from the sale of such shares as profits from business and accordingly taxed the same under the head "Profits and gains of business". The petitioner challenged the said orders. It appears that in the first instance, the Income-tax Appellate Tribunal set aside the assessments in respect of some of the years and restored back the same to the Assessing Officer for fresh assessments in accordance with its directions. Subsequently, assessments in respect of other years were also set aside by the Commissioner of Income-tax (Appeals) with a direction to the Assessing Officer to redo the same as per the directions of the Tribunal. While reassessment proceedings were pending, in the year 1997, the Government of India, respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he light of the said clarification, the petitioner filed its declaration under the Voluntary Disclosure of Income Scheme on December 31, 1997, in respect of the aforenoted assessment years, declaring an additional income of Rs. 4,31,50,728, representing the difference between the income by way of treatment of sale of shares as business income (as computed by the Assessing Officer) and income on account of the same being treated as capital gains (as computed by the petitioner). It appears that in order to determine as to what amount will become refund able to the petitioner, which could be deposited by the Department on the petitioner's account against the tax payable under the Voluntary Disclosure of Income Scheme, on February 24, 1998, respondent No. 2 completed the reassessments in respect of the said assessment years, by taking into consideration the declaration made by the petitioner under the Voluntary Disclosure of Income Scheme. The declaration made by the petitioner is said to have been accepted by the Department inasmuch as a certificate under section 68(2) of the Voluntary Disclosure of Income Scheme was issued to the petitioner on April 7, 1998. As a result of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Committee acting through the Commissioner of Income-tax, Delhi-I, issued clarification that, if set aside assessments are likely to give rise to refunds and the assessee for these set aside assessments only wants to file the Voluntary Disclosure of Income Scheme declaration and use refunds for the part payment for the Voluntary Disclosure of Income Scheme, it would be possible for the Department to make payment of the refunds on behalf of the assessee to the Reserve Bank of India in the Voluntary Disclosure of Income Scheme account of the assessee. This clarification did not entitle you to a refund as such, as legally understood under section 240 of the Income-tax Act, 1961, inasmuch as refund becomes legally due when the assessment is set aside only on making fresh assessment as per law. In your case, it was the duty of the Assessing Officer to merely quantify the amount of tax that be refunded to you in the event a final acceptance a the Voluntary Disclosure of Income Scheme declaration and after such quantification, pay the amount as quantified to the Reserve Bank of India on your behalf to meet your Voluntary Disclosure of Income Scheme liability as per your own request. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad not been finally accepted by the Commissioner of Income-tax and the conditions precedent for such acceptance relating to payment of tax, etc., had not been fulfilled." (emphasis' supplied by us) The action of respondent No. 2 in issuing the notice under section 263 of the Act is challenged mainly on the grounds that : (i) it is without jurisdiction inasmuch as the conditions precedent for exercise of powers under section 263(1) of the Act, namely, the assessment orders passed by the Assessing Officer on February 24, 1998, which were erroneous and prejudicial to the interest of the Revenue, are missing ; (ii) the entire premise of the impugned notice, namely, that instead of completing the assessments the Assessing Officer should have only estimated the amount refundable, is illogical and misconceived because even assuming it was so, this order would have still amounted to "any proceeding under the Act" of the tax due, the refund of the amount would have to be granted in view of section 237 of the Act and, consequently, interest under sections 244 and 244A of the Act would have become payable and, therefore, no prejudice was caused to the Revenue by the assessment orders passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. We have heard Mr. M. S. Syali, learned senior counsel for the petitioner, and Mr. R. D. Jolly, learned senior standing counsel for the respondents. It is contended by Mr. Syali that the assessment orders passed by the Assessing Officer on February 24, 1998, excluding from the total income the amount declared under the Voluntary Disclosure of Income Scheme, in terms of section 68 of the Voluntary Disclosure of Income Scheme, could not be said to be erroneous and prejudicial to the interests of the Revenue because the payment of income-tax along with interest under section 67 of the Voluntary Disclosure of Income Scheme relates back to the date of declaration and, therefore, ultimately on the issue of certificate of declaration on April 7, 1998, the Assessing Officer was duty bound to pass the same orders and in that event the refund due would have attracted interest under section 244(1A) for a longer period. Further, if the petitioner had made payment of tax under the Voluntary Disclosure of Income Scheme from its own pocket instead of the payment being made by the Department, on acceptance of declaration, he would have become entitled to the same amount of refund on fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer is erroneous but is not prejudicial to the interests of the Revenue or if it is not erroneous but is prejudicial to the interests of the Revenue, recourse cannot be had to the provisions contained in section 263(1) of the Act. It is not that every order which is erroneous is also prejudicial to the interests of the Revenue. Neither the expression "erroneous" nor the phrase "prejudicial to the interests of the Revenue" have been defined in the Act. In Black's Law Dictionary (seventh edition), the terms "erroneous", "erroneous assessment" and "erroneous judgment" have been respectively defined as : "involving error ; deviating from the law" : an assessment that deviates from the law and creates a jurisdictional defect, and that is therefore invalid : a judgment issued by a court with jurisdiction to issue it, but containing an improper application of law." In this connection, we may refer to a recent decision of the Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, wherein it has been observed that section 263(1) "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer ; it is only when an order is errone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order is in accordance with law, the decision of the Income-tax Officer cannot be regarded as erroneous merely because in the opinion of the Commissioner it should have been made or written in a different manner. The section does not visualise change of opinion or substitution of the judgment of the Commissioner for that of the Income-tax Officer. It is axiomatic that if the order is not erroneous, it will not vest the Commissioner with the power to invoke section 263(1) of the Act, even if he is of the opinion that the order in question is prejudicial to the interests of the Revenue. Therefore, the first question that arises for consideration is whether the assessment orders passed by the Assessing Officer on February 24, 1998, can be said to be unsustainable in law and thus, erroneous within the meaning of section 263(1) of the Act ? To answer the question, reference to some of the provisions of the Voluntary Disclosure of Income Scheme would be necessary. As noted above, the Voluntary Disclosure of Income Scheme, introduced vide the Finance Act, 1997, is contained in sections 62 to 78, forming part of Chapter IV. It was introduced to grant an opportunity to those who had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of section 67 also provides that if the declarant fails to pay the tax in respect of the voluntarily disclosed income before the expiry of three months from the date of filing of the declaration, the declaration filed shall be deemed never to have been made under the Voluntary Disclosure of Income Scheme. Since a lot of emphasis is laid by learned counsel for the petitioner on the provisions of law contained in section 68, for the sake of ready reference, the section is reproduced below : "68. Voluntarily disclosed income not to be included in the total 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 or section 67. (2) The Commissioner shall, on an application made by the declarant, g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posing to declare under the Scheme and, therefore, in this context the afore-extracted clarification dated December 30, 1997, agreeing to pay on behalf of the assessee the refund due to it was issued by the Commissioner of Income-tax, acting as the Convenor of the Scheme. Therefore, there is no controversy with regard to the time of payment because the certificate dated April 7, 1998, issued under sub-section (2) of section 68 clearly records the dates of payment of tax as March 20, 1998, and March 30, 1998. Similarly, there is no dispute that in terms of section 68 the income, the subject-matter of declaration filed by the petitioner, was not to be included in the total income of the petitioner for any of the assessment years in respect whereof declaration was made. As highlighted above, the main issue is whether the Assessing Officer was justified in passing the assessment orders in respect of the years covered under the declaration on February 24, 1998, giving credit for the income disclosed without waiting for the payment of the tax in terms of section 67 of the Act and issue of a certificate under section 68(2) of the Finance Act or he should have merely quantified and paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untary Disclosure of Income Scheme and on issue of a certificate for the declaration on April 7, 1998, the amount(s) voluntarily disclosed has to be excluded from the total income of the petitioner and, therefore, the Assessing Officer was obliged to give effect to the declaration on or after April 7, 1998. The declaration under the Voluntary Disclosure of Income Scheme has to be given full effect irrespective of its consequence. In other words, the necessary credit for the income declared under the Scheme and the consequent refund could not be denied to the petitioner after April 7, 1998, and if, on account of this adjustment/credit, interest under the Act becomes payable to the petitioner, it cannot be said to be prejudicial to the interests of the Revenue. Needless to add that adjustment in the total income for the relevant assessment year for the income disclosed under the Voluntary Disclosure of Income Scheme and tax paid thereon has to be in terms of section 68 and credit for the tax paid on the other income has to be given under the provisions of the Act. In our view, therefore, the petitioner's declaration under the Voluntary Disclosure of Income Scheme having been ultimate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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