M/s. Jainson v. Income Tax Appellate Tribunal, Kolkata BenchA .Camp at Jashedpur& Ors. Tax Appeal No
Case Details
1 IN THE HIGH COURT OF JHARKHAND AT RANCHI Tax Appeal No. 35 of 2001 M/s. Jainson Vs. Income Tax Appellate Tribunal, Kolkata BenchA .Camp at Jashedpur& Ors. Tax Appeal No. 36 of 2001 With M/s. Jainsons Vs. Income Tax Appellate Tribunal, Kolkata BenchA .Camp at Jashedpur& Ors. CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MRS. JUSTICE JAYA ROY For the Appellant In Both Cases: Ms. A.R.Choudhary For the Respondents In Both Cases: M/s.D.Roshan, Sr.S.C(CE), R.Kumari Reportable Dated 1 st February, 2013 These two Tax Appeals involve identical facts as well as same question of law and as such, they are tagged together for hearing and are heard by taking the facts of T.A No.35/2001. Both the matters are pertaining to the assessment year 199798. As per the facts of T.A No.35/2001, a survey was conducted in the premises of the appellant under section 133A of the Income Tax Act, 1961, on 16th October, 1996 and thereafter, the appellant disclosed its stock, cash etc. under Voluntary Disclosure of Income Scheme, 1997 and submitted his disclosure on 26th December, 1997 declaring his income of Rs.9,72,723/, which is undisclosed income, which includes stock, cash as well as amount of sundry debtors. As per the appellant's application, it has disclosed its undisclosed income of the years 199495, 199596 and also of the year 199697. The appellant claims that it has disclosed undisclosed stock, cash and amount of sundry debtors for previous years, which is pertaining not only to the 2 assessment year in which survey was conducted, but also of three previous years to the date of survey, meaning thereby that, survey was conducted on 16th October, 1996, previous year for this survey is the year 199697 and assessment year pertaining to the survey year is 199798. The appellant's contention is that since disclosure was made on 26th December, 1997, whatever has been disclosed by the assessee on 26th December, 1997 was also including the stock, cash and amount of sundry debtors as on 31st March, 1996. The said stock, cash and amount of sundry debtors, which increased because of disclosure, which were available on 31st March, 1996 as closing balance, became the opening balance for 1st April, 1996, and therefore, stock, cash and amount of sundry debtors as on 31st March, 1996, is for the previous year 199596 and is the opening balance of the assessment year 199697.
Legal Reasoning
Learned counsel for the appellant, Ms. A.R.Choudhary, submitted that as per clause 64(2)(ii), the appellant was not entitled to the benefit of voluntary disclosure of income under clause 64(1) in relation to the income in respect of only one “previous year” to which survey under section 133A of the Income Tax Act was carried out and is entitled to benefit of the Scheme of 1997 in respect to any earlier previous years, meaning thereby that there is exclusion of the benefit of VDIS for one year only and this benefit is not taken away for any previous year to previous years. So also has been made clear by the Circular issued by CBDT and particularly Circular No.755 dated 25th July, 1997. In answer to question no.27, it has 3 been made clear that survey under section 133A(5) of Income Tax Act will also bar a person from making a disclosure for the “previous year in which survey was carried out”. Then it was further made clear in answer to question no.36 that a declaration can be made under VDIS in respect of all previous years except the previous year to the survey and it has also been made clear that even declaration can also be made for the subsequent assessment years. In addition to the above, CBDT Circular No.754 dated 10th June, 1997 made it clear in answer to question no.23 that in respect of survey under section 133A, the declarants are debarred for that previous year only. In sum and substance, contention of the appellant is that in VDIS, there are some restrictions against disclosure of undisclosed income and that has been confined to a particular year only and it has not been restricted to any previous year to previous year/years or even subsequent years' disclosure. The appellant's claim is nowhere that the appellant is entitled to any benefit of VDIS for the previous year 199697 or assessment year 199798. The appellant's contention is that whatever stock, cash and amount of sundry debtors has been accepted under VDIS by a lawful order is required to be accepted as stock, cash and amount of sundry debtors as on the closing date and also as automatic, stock, cash and amount of sundry debtors on the opening date of the subsequent year. Therefore, according to the learned counsel for the appellant, stock, cash and amount of sundry debtors, which were declared for the year 199495 and 199596, are required to be accepted to the stock, 4 cash and amount of sundry debtors even for the assessment year 199798 because of the simple reason that the appellant's application under VDIS has been accepted and it has been accepted by the Revenue that on a particular year, the appellant had a specific amount of stock, cash and sundry debtors in hand. The benefit under VDIS is a specific liability and benefit but what is the consequence, it cannot be denied in fact situation which will depend upon the facts which stand conclusively determined by acceptance of the appellant's disclosure. The appellant is, therefore, claiming enhancement in stock, cash and amount of sundry debtors due to its disclosure of stock, cash and amount of sundry debtors of previous years, which stand increased due to assessee's voluntary disclosure and this income will continue to be in accordance with stock, cash and amount of sundry debtors of the appellant for subsequent years. 2. Learned counsel for the appellant, Ms. A.R.Choudhary, relied upon a Division Bench judgment of this Court delivered in the case of Sri Gyan Chand Jain Vs. Commissioner of Wealth Tax, Bihar (II), Ranchi (Tax Case No.23/1994 and connected matters) decided on 12th December, 2012 (by us) and submitted that the Division Bench, in the said judgment, after considering the judgment of Supreme Court delivered in the case of Commissioner of Wealth Tax Vs. J.K.Cotton Manufacturers Ltd. & Ors. [(1984) 146 ITR 552 (SC)], held, that after lapse of sufficiently a long period, no presumption can be raised that a secret profit earned sometime during the concerned 5 year has continued to be held by the assessee on the valuation date. Hon'ble Supreme Court held, that once it is held that intangible property of the assessee was in existence on a particular date or period of time, which may have been a secret earned profit, then the said secret earned profit is presumed to continue in the hands of the assessee/such person for a reasonable period of time and thereafter, a presumption can be drawn of extinction of the said property. With the help of the judgment of Sri Gyan Chand Jain, learned counsel for the appellant submitted that in view of the reasons given in the above judgment, it is to be presumed that, once it has been accepted by the Revenue that in the previous years, the appellant had some undisclosed stock, cash and amount of sundry debtors, then unless it is proved by the Revenue that stock, cash and amount of sundry debtors were sold out by the appellant, the presumption is required to be taken that the stock, cash and amount of sundry debtors continued in the hands of the appellant for a reasonable period. Here in this case, the existence of stock, cash and amount of sundry debtors in the hands of the appellant is claimed only for three years from 1994 to 1997 only and there is no enquiry conducted by the Assessing Officer to hold that the appellant had sold the undisclosed stock and spent the cash and amount of sundry debtors and that has been sold by the appellant in any previous year and that is also in short period of three years. 3. In addition to the above issue, in T.A No.35/2001, there is one more issue that, in identical facts of the case involved in T.A 6 No.36/2001, the Revenue has already given benefit of reduction of 5% of stock price on account of the damaged goods, which has been denied in T.A No.35/2001. It is submitted that the Assessing Officer has calculated stock value at the time of survey and took the sale price mentioned and did not calculate the stock value considering the reduction in the value of the stock on account of discount on cut pieces and discount due to outdated design or goods which were damaged. 4. Learned counsel for the Revenue, Shri Deepak Roshan, drew our attention to the reasons given by the Assessing Officer in the assessment order, wherein the Assessing Officer, after considering facts of disclosure of the appellant's stock, cash and amount of sundry debtors under VDIS, held that the assessee did not disclose any undisclosed stock, cash and amount of sundry debtors for the year under consideration, i.e. assessment year 199798 and the value of the opening balance of stock declared in the statement of accounts filed with the returns of income shown in the assessment year 199798 is not the subject matter of dispute and this unaccounted stock of the previous year was shown in the concerned year only and the opening balance as on 1st April, 1996 was Rs.19,98,468/ only and accounts of the appellant in this regard has been accepted by the Assessing Officer after going through its statement of accounts and books of accounts produced during the assessment proceeding. However, at this juncture, it will be relevant to mention here that according to the learned counsel for the 7 Revenue, books of account were rejectd but we found that books of accounts had been accepted for this issue only. The Assessing Officer thereafter held, that as per the statement of accounts of the assessee, the undisclosed stock, cash and amount of sundry debtors of earlier years was sold in the respective accounting year itself. Therefore, according to the learned counsel for the Revenue, no presumption can be drawn that the stock, cash and amount of sundry debtors, which were to be disclosed under VDIS on 26th December, 1997, may be pertaining to previous years to previous years, continued to be the stock, cash and amount of sundry debtors for the relevant year and that stock, cash and amount of sundry debtors were not sold/exhausted by the assessee. 5. It is also submitted that the Tribunal also considered the issue in correct prospective and the Tribunal held, that the disclosure made by the appellant was not voluntary and it was a compulsion on the part of the appellant to opt for VDIS when it has been caught with unaccounted income at the time of survey under section 133A on 16th October, 1996. According to the learned counsel for the Revenue, in that situation, the appellant, in fact, to cover up his wrong and to avoid the tax, had opted for VDIS and therefore, was not entitled to the benefit. 6. Learned counsel for the Revenue also submitted that whether the assessee was entitled to 5% or any more reduction in the stock price as has been given in T.A No.36/2001 is a pure question of fact and therefore, it is not a question of law. 8 7. We considered the submissions of the learned counsel for the parties and perused the facts of the case and also considered the VDIS of 1997. As per clause 64 of the Scheme of 1997, every person was given an opportunity to disclose his undisclosed income, which he failed to disclose in the returns under section 139 of the I.T Act or which has escaped assessment by reason of the omission or failure on the part of such person. Upon such disclosure, he is liable to pay tax as given under subclause (1) and (2) of clause 64 itself and such benefit of VDIS is subject to subclause (2) of clause 64 itself, which being relevant is as under: “64(2) Nothing contained in subsection (1) shall apply in relation to (i) the income assessable for any assessment year for which a notice under section 142 or section 148 of the Incometax 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 Incometax Act was initiated or requisition under section 132A of the Incometax Act was made, or survey under section 133A of the Income tax Act was carried out or in respect of any earlier previous year.” (Emphasis supplied) 8. The CBDT, to clarify the purport of subclause (2) above, answered the question in its Circular No.754. The question and answer are as follows: “Q.23. The scope of the scheme should be expanded so as to include cases where (a) action under section 132, 133A has been taken. litigation. (b) appeal is withdrawn, as this will reduce Ans. This is not possible. In respect of survey under section 133A, the declarants are debarred for that previous year only.” 9. The issue of survey and its effect in VDIS has been answered in CBDT Circular No.755 and the relevant questions are question 9 nos.27 and 36, which are as follows: “Q.27. Whether survey under section 133A(5) of the Incometax Act, will also bar a person from making a disclosure? Ans. Yes, for the previous year in which the survey was carried out. Q.36. Survey operations were carried out u/s. 133A of the Incometax Act in case of Mr.'D' on 30.9.1993. Can he make a declaration under VDIS in respect of assessment year 199394 and earlier years? Ans. If the survey operations were carried on 30.9.1993, i.e. “previous year 199394” no disclosure can be made for “assessment year 199495”. The declaration of income can be made for assessment year 199394 and earlier assessement years. The declaration can also be made for assessment year 199596 and subsequent assessment years.” 10. It will be proper to make it clear that the appellant is not seeking any benefit of the VDIS for the assessment year 199798 and is rightly not seeking any benefit because of the reason that the appellant was not entitled to any benefit of the Scheme for the assessment year 199798 because in his premises survey u/s 133 was conducted on 16th October, 1996 as he was debarred from making disclosure of previous year, i.e. 199697. The question, in fact, is that once in the VDIS, the appellant’s prayer for disclosure is allowed and the appellant is charged to tax on undisclosed assets pertaining to the previous years to the previous year, whether the consequence of that disclosure will follow in subsequent years which may include the year in which the appellant may not be entitled to take benefit of voluntary disclosure. Taking benefit of voluntary disclosure is restricted and in the case of the appellant, if we examine the facts in the light of the answer given by CBDT Circular No.755 dated 25th July, 1997, then it comes to the following facts: There was survey under section 133A on 16th October, 1996; the appellant, therefore, could not have made a declaration of VDIS 10 in respect of assessment year 199798 only. The appellant was entitled to make disclosure of its undisclosed income for the previous years (previous to previous year only) as well as for the subsequent assessment year. This legal position cannot be disputed by the Revenue and it appears that because of this legal position only, the appellant’s application for voluntary disclosure was accepted, wherein appellant disclosed its stock, cash and the amount of sundry debtors pertaining to the years 199495 and 199596. This disclosure increased the assessee's stock and other items for the years 199495 and 199596. 11. Now the question arises is that whether, because of that disclosure of stock on 26th December, 1997 pertaining to the years 199495 and 199596 as well as cash and amount of sundry debtors, they shall continue to be good for the year 199798? We are again making it clear that it is not a disclosure of the years pertaining to the year 199798 or the previous year to the year 199798 but it is claim of essential consequence of increase of stock, cash and the amount of sundry debtors in the hands of the appellant, which admittedly was not reflected in the books of accounts of years 199495 and 199596, 199697 and 199798. Therefore, rejection of stock, cash and the amount of sundry debtors for the years 199798 would tantamount to rejection of accepted fact of the Revenue of increase of stock etc. in the years 199495, 199596, which has been accepted by the Revenue under VDIS and accordingly the appellant has been taxed. Once that stock, cash and the amount of sundry 11 debtors was accepted to be in existence in the years 199495 and 199596 (though it is not mentioned in the books of accounts but in fact, it was in existence) cannot be declared to have extinguished in such a short period of time, i.e. from 1994 to 1997 only. The reverse case was under consideration before the Hon’ble Supreme Court in the case of J.K.Cotton Manufacturers Ltd. (supra) followed by the Division Bench of this Court in the case of Sri Gyan Chand Jain (supra), wherein the Revenue sought to hold that once undisclosed property was found, then its existence can be presumed for a very long period, even for a decade or more. That was rejected by Hon’ble Supreme Court in the case of J.K.Cotton Manufacturers Ltd. (supra) and it has been held, that a presumption of existence of undisclosed income in the hand of the assessee can be taken for a reasonable period of time, which may be for 8 years and thereafter, a presumption can be drawn that undisclosed assets or profit which is intangible extinguished. We are making it clear that such presumption is not applicable to the undisclosed assets, like immovable property, which cannot extinguish by passage of time only. Therefore, in this case also, a presumption of existence of the stock, cash and the amount of sundry debtors can be taken at least for the years under consideration, which are only 3 years and therefore, the Revenue under wrong impression that the assessee is claiming the benefit of VDIS for the year 199798, proceeded to reject the appellant’s claim of increase in stock, cash and the amount of sundry debtors for the relevant years, ignoring the fact that such 12 undisclosed assets’ extinction has not been proved, nor any effort has been made by the Assessing Officer to find out whether those stock, cash and the amount of sundry debtors have been sold or utilized and increase of stock, cash and the amount of sundry debtors because of increase in the stock, cash and the amount of sundry debtors due to voluntary disclosure of the appellant under the Scheme of 1997, was not continuing in the hands of the assessee. Therefore, stock, cash and the amount of sundry debtors, on account of disclosure of the appellant on 26th December, 1997, pertaining to the closing date of 31st March, 1996 and pertaining to previous year 199596 and assessment year 199697 be the opening balance as on 1st April, 1996 and effect of increase in the stock, cash and the amount of sundry debtors due to increase of the previous years’ increase in stock, cash and the amount of sundry debtors is required to be given. 12. It will be worthwhile to mention here that Assessing Officer, even after rejecting the books of accounts of the assessee for the purpose of declaring opening stock of the assessee, relied upon the same statement of accounts and books of accounts produced by the assessee and without enquiry, declared that the assessee sold out undisclosed stock of the earlier years in those years itself. The Tribunal in impugned order even went to the extent of declaring that disclosure made was not voluntary but it was a compulsion on the part of the applicant to opt for VDIS as it was caught by the Department with unaccounted income at the time of survey under 13 section 133A on 26th December, 1997. The Tribunal failed to understand the VDIS, which nowhere says and nowhere prohibits any person from disclosing his income, who is under fear of being caught. The Scheme gives benefit upon disclosure of income provided that his disclosure is in accordance with the Scheme of disclosure and once a disclosure is accepted by the Revenue, then it cannot be questioned in subsequent proceedings by holding that the disclosure was not voluntary. Such person, who has disclosed the income under the VDIS of 1997, is not entitled to any benefit, which is also given in the Scheme itself and no more denial can be made to the assessee than what has been denied by the Scheme itself. Once the Scheme permits disclosure of previous years stock, cash and the amount of sundry debtors and there may be presumption of continuation of holding stock, cash and the amount of sundry debtors for a reasonable period in the light of the judgment of J.K.Cotton Manufacturers Ltd. (supra), then the assessee is entitled to take the benefit of increase in stock, cash and the amount of sundry debtors and consequence thereof. Question no.4 is answered in favour of the assessee and it is also held that the Tribunal has committed error of law in observing that the appellant’s disclosure was not voluntary; however, the Tribunal did not hold that the appellant’s case was not covered under the VDIS of 1997. The Tribunal has committed error of law by denying the assessee the benefit of increase in its stock, cash and the amount of sundry debtors due to the appellant’s disclosure under the Scheme of 1997 14 and in fact, the Tribunal failed to appreciate the facts of the case and went astray and proceeded to examine the intention of the appellant in disclosing its undisclosed income and wrongly held, that it was unvoluntary and therefore, the appellant was not entitled to the benefit, which issue, in fact, was not there and is not arising and the issue arising is only whether the appellant was entitled to the benefit of increase in the stock, cash and the amount of sundry debtors of previous years due to disclosure of undisclosed stock, cash and the amount of sundry debtors of previous years. The Tribunal also failed to appreciate the Circular Nos.754 and 755 issued by the CBDT, particularly the answer to the question nos.23, 27 and 36. In view of the above reasons, question nos.1,2 and 3 are also answered accordingly. 13. So far as the issue with respect to giving more benefit of 5% is concerned, that depends upon the facts of each case. 5% reduction in the stock value is concerned, we are of the considered opinion that it was a question of fact and it is not a question of law, nor there can be parity in the facts of the case with that of T.A No.35/2001. Therefore, the question no.5 is answered against assessee in T.A No.35/2001. In T.A No.36/2001 question no.5 is not there. Both the Tax Appeals are allowed accordingly. (Prakash Tatia, C.J.) (Jaya Roy, J.) dey