Vildirect: IncomeTax-caselaws-1999-VIL-240-P&H-DT

1999-VIL-240-P&H-DT

Equivalent Citation: [2001] 250 ITR 738, 159 CTR 13, 109 TAXMANN 283

PUNJAB AND HARYANA HIGH COURT

Date: 06.11.1999

AGGARWAL STEEL TRADERS

COMMISSIONER OF INCOME TAX

BENCH

Judge(s) : N. K. SODHI., N. K. SUD

JUDGMENT

The judgment of the court was delivered by N. K SUD J.-This appeal under section 260A of the Income-tax Act, 1961 (for short "the Act"), is directed against the order of the Income-tax Appellate Tribunal, Chandigarh Bench (for short "the Tribunal"), dated October 7, 1998. The following questions of law had been formulated for consideration vide order dated March 4, 1999 :

"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in sustaining the addition of Rs. 64,000 in view of the provisions of section 40A(3) of the Income-tax Act, 1961, and rule 6DD of the, Income-tax Rules, 1962 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in sustaining the addition of Rs. 3,00,000 ?"

For resolving the controversy it is necessary to advert to the relevant facts. The assessee filed its return of income for the assessment year 198182 on May 8, 1981, declaring an income of Rs. 41,380. The assessment under section 143(3) was framed by the Assessing Officer on March 27, 1986, and an addition of Rs. 6,08,578 was made on account of alleged bogus purchases. The Assessing Officer had also raised another dispute about four payments totalling Rs. 1,42,749 having been made in contravention of section 40A(3) of the Act. However, no separate addition on this score was made on the ground that the same stood covered in the addition of Rs. 6,08,578 on account of bogus purchases.

The assessee filed an appeal before the Commissioner of Income-tax (Appeals) (for short "the CIT(A)") on April 21, 1986, in which both the issues about the bogus purchases as well as payments in contravention of section 40A(3) of the Act were agitated.

During the pendency of the aforesaid appeal, the assessee filed a revised return on March 31, 1987, to take the benefit of the amnesty scheme, then in vogue, and offered an additional amount of Rs. 3 lakhs for taxation. The assessee also submitted that the tax of Rs. 74,700 due on the additional income may be adjusted out of the excess amount already paid by it.

The Commissioner of Income-tax (Appeals) disposed of the appeal of the assessee vide his order dated March 7, 1989. The addition of Rs. 6,08,578 on account of alleged bogus purchases was deleted. The other dispute about the four payments totalling Rs. 1,42,749 made in contravention of section 40A(3) of the Act, was restored to the file of the Assessing Officer for readjudication.

Meanwhile, to regularise the revised return filed by the assessee on March 31, 1987, offering an additional income of Rs. 3 lakhs for taxation under the amnesty scheme, the Assessing Officer issued a notice under section 148 on February 16, 1990. In response to this notice, the assessee furnished a letter on July 9, 1990, in which the validity of the notice was questioned. However, it was also stated that the original return filed may be treated as having been filed in compliance with the said notice.

The Assessing Officer thereafter proceeded to complete the reassessment initiated vide notice under section 148 dated February 16, 1990, and also to give effect to the order of the Commissioner of Income-tax (Appeals) dated March 7, 1989, for readjudicating the issue about the payments made in contravention of section 40A(3). He passed an order under section 143(3) of the Act on July 13, 1990, wherein he once again held that the four payments to the tune of Rs. 1,42,749 had been made in contravention of the provisions of section 40A(3) of the Act and added the said amount to the total income. He also made an addition of Rs. 3 lakhs on the basis of the additional income offered in the return filed under the amnesty scheme.

Aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) on May 27, 1991. The said appeal was disposed of vide order dated July 8, 1991. The addition of Rs. 1,42,749) consisted of the following four payments :

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Date | Amount | Name of the party

10-2-1981 | Rs. 24,000 | Rajnish Trading Company

28-3-1981 | Rs. 61,795 | S and A Steel Industries, Mandi. Gobindgarh.

26-6-1980 | Rs. 17,000 | -do.

13-11-1980 | Rs. 40,000 | Khurmi Steel Corporation, Mandi, Gobindgarh

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The case put up by the assessee was that since the four parties were genuine and the payments had been made to them in cash on their insistence, the same fell within the exceptions provided in the Circular No. 220 (F. No. 206/17/76-ITA-II, dated May 31, 1977) issued by the Central Board of Direct Taxes and as such no disallowance under section 40A(3) could be made. The Commissioner of Income-tax (Appeals) accepted this explanation in respect of the first three payments of Rs. 24,000, Rs. 61,795 and Rs. 17,000. However, he upheld the disallowance of the fourth payment of Rs. 40,000 on the ground that the genuine ness of the same had not been proved. Thus, out of the addition of Rs. 1,42,749 only an addition of Rs. 40,000 was sustained. The Commissioner of Income-tax (Appeals) also deleted the addition of Rs. 3 lakhs on the ground that the Assessing Officer had exceeded his jurisdiction in making the said addition. According to him, when the revised return was filed on March 31, 1987, the appellate proceedings were pending before the Commissioner of Income-tax (Appeals) and as the appellate proceedings were merely a continuation of the assessment proceedings, the Commissioner of Income-tax (Appeals) while deciding the appeal on March 7, 1989, could have himself taken note of the revised return and made the addition on its basis. Thus, according to the Commissioner of Income-tax (Appeals), the Assessing Officer could not reopen the assessment under section 147 to rope in the amount of Rs. 3 lakhs declared in the revised return and the only issue for consideration by the Assessing Officer in the remand proceedings was in respect of addition of Rs. 1,42,749.

Against the order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Tribunal challenging the relief of .Rs. 1,02,749 and Rs. 3 lakhs granted by the Commissioner of Income-tax (Appeals). The assessee filed cross-objections in which the addition of Rs. 40,000 sustained under section 40A(3) of the Act was challenged. The Tribunal vide order dated October 7, 1998, not only confirmed the Commissioner of Income-tax (Appeals) order in upholding the disallowance of Rs. 40,000 made under section 40A(3) but also accepted the Departmental appeal in respect of the payment of Rs. 24,000 which was also held to have been made in contravention of the said provision. The Tribunal found that the assessee had not fulfilled the requirements provided in the Board's circular itself and as such could not be said to be covered by the exceptions provided therein. The Tribunal also restored the addition of Rs. 3 lakhs which had been deleted by the Commissioner of Income-tax (Appeals) on the ground that the assessee had itself declared it in the return filed under the amnesty scheme.

It is in this background that the questions formulated by this court have to be answered. Regarding question No. 1, counsel for the appellant has reiterated his stand as taken before the authorities below and relied on the Board's circular dated May 31, 1977. Shri R.P. Sawhney, standing counsel for the Department, relies upon the order of the Tribunal in support of the disallowance.

We have heard counsel for the parties and perused the records. The only defence of the assessee before the authorities below has been that the transactions fell within the exceptions provided in the Board's circular dated May 31, 1977. No doubt the explanation rendered by the assessee in respect of the payments of Rs. 24,000 and Rs. 40,000 would be covered by the exceptional circumstances as provided in the Board's circular, yet that by itself will not entitle the assessee to claim the relief. There is a further requirement provided in the Board's circular itself for furnishing of a confirmatory letter from the concerned parties. The relevant extract from the said circular is being reproduced below for the sake of convenience :

"It can be said that it would generally satisfy the requirements of rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of rule 6DD(j)."

Admittedly, no such letter in the above terms had been furnished by the assessee. In this view of the matter, this question has to be decided against the assessee and in favour of the Revenue. We, therefore, hold that the Tribunal was justified in sustaining the addition of Rs. 64,000 in view of the provisions of section 40A(3) of the Act read with rule 6DD of the Income-tax Rules.

Coming to question No. 2, learned counsel for the assessee has submitted that the Tribunal has wrongly upheld the addition on the ground that the assessee itself had shown the income of Rs. 3 lakhs in the revised return. It has been contended that the Tribunal seems to have referred to the return filed on March 31, 1987, which was an invalid return and as such was non est in the eyes of law. In response to the notice under section 148 of the Act, the assessee had requested that the original return filed by it be treated as a return filed in compliance with the said notice. Thus, it was argued that there was no return before the Assessing Officer during the reassessment proceedings in which a sum of Rs. 3 lakhs had been offered for assessment. Shri R. P. Sawhney, Senior Advocate, on the other hand, supported the order of the Tribunal. It was contended by him that once the assessee had filed the return under the amnesty scheme offering an additional income of Rs. 3 lakhs for taxation, the Assessing Officer had to accept the same and bring the additional income to tax. No further onus lay on the Assessing Officer to prove the existence of such an income.

We have heard counsel for the parties and perused the records. It is an undisputed fact that the assessee had filed its return on March 31, 1987, offering an additional income of Rs. 3 lakhs to take the benefit of the amnesty scheme which was then in vogue. This scheme had been introduced in June, 1985, and was valid up to March 31, 1987. It offered amnesty from penal consequences to all those persons who came forward to declare their undisclosed income voluntarily. Various circulars had been issued by the Central Board of Direct Taxes in this behalf explaining the scheme and also clarifying the doubts of the assessees. Vide Circular No. 451, dated February 17, 1986, the Central Board of Direct Taxes had answered various questions about the scheme. It would be relevant here to reproduce questions Nos. 1 and 2 and the answers thereto which would resolve the issue in hand.

"Question No. 1.-What will be the procedure required to be followed by the assessee who wants to declare income or wealth in respect of the past years

(a) in cases where the assessments pertaining to those years are already completed ;

(b) in cases where the assessments in respect of those years are pending.

Answer.-In cases where the assessments are already completed, the taxpayer should approach the concerned Commissioner of Income-tax with the full disclosure of the amounts of income and/or wealth concealed in various years and should also file returns for the relevant years. He should also produce evidence of payment of taxes before March 31, 1986. The filing of the returns will be regularised by issue of formal notices under section 148 of the Income-tax Act/section 17 of the Wealth-tax Act. In cases where the assessments are pending, the taxpayer should file revised return before the Income-tax Officer along with evidence of payment of taxes.

Question No. 2.-In respect of completed assessments, the question will arise whether the assessee should merely declare the income relevant to those years and pay the tax according to the rates prevalent in those years on such declared income or whether he is required to file the return of income showing the additional income ?

Answer-As mentioned above, he must file a fresh return of income including the additional income."

Here it needs to be clarified that initially the amnesty scheme was valid tip to March 31, 1986, but later it was extended up to March 31, 1987. Thus, the year in answer to question No. 1 has to be read as 1987 in place of 1986. The above clarifications clearly show that the scheme itself provided for a procedure to regularise the returns filed under the amnesty scheme in cases where the assessment for the relevant assessment year stood already completed. The assessees were required to file the return of income including the additional income and the said returns were to be regularised by issue of a notice under section 148 of the Act. This is pre cisely what has been done in this case. The assessee had filed the return offering the additional income of Rs. 3 lakhs under the amnesty scheme after the assessment for the assessment year 1981-82 had already been completed. The Assessing Officer, therefore, had rightly issued the notice under section 148 to regularise the said return and bring the amount of Rs. 3 lakhs to tax. This action is clearly in accordance with the terms of the amnesty scheme and the assessee cannot possibly object to the additional income under the amnesty scheme being added to its total taxable income. In this view of the matter, we are satisfied that the Tribunal has correctly restored the addition of Rs. 3 lakhs. Thus, this question is also to be answered against the assessee.

In this result, the appeal is dismissed.

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