Vildirect: IncomeTax-caselaws-1992-VIL-152-ITAT-AHM

1992-VIL-152-ITAT-AHM

Equivalent Citation: ITD 041, 212, TTJ 043, 268,

Income Tax Appellate Tribunal AHMEDABAD

Date: 24.01.1992

SHAMA RAISING CHANDEL.

INCOME-TAX OFFICER.

BENCH

Member(s) : B. M. KOTHARI., K. P. T. THANGAL.

JUDGMENT

Per Shri B. M. Kothari, Accountant Member --- All these appeals, relating to above named two assessees, involve consideration of common points. Hence these are disposed of by this common order.

2. The Income-tax Department conducted a search at the premises of Shri V. C. Shroff and Shri A. L. Ghael on 23rd September, 1986 and 24th September, 1986. The proceedings of search revealed that there was a racket which was involved in conversion of substantial amount of black money into white money by issuing bogus bank drafts shown as having been issued from NRE accounts. The parties willing to convert their black money by such device used to pay cash to V. C. Shroff and A. L. Ghael who provided such drafts in white money to those parties by issuing the same as loans or gifts received through such bank drafts of NRE accounts. The drafts so purchased were given to these parties through Shri A. L. Ghael along with a forged certificate prepared under the signature of non-resident donors with the connivance of the bank officials, who showed that the drafts have been given out of NRE accounts standing in the names of various parties. This was done to give colour of a genuine NRE account gift.

3. The appellant, Shri S. R. Chandel had received such bogus bank drafts aggregating to Rs. 2,90,000 in assessment year 1985-86 and Rs. 1,00,000 in assessment year 1987-88. In similar manner the second appellant Shri C. V. Gaba had obtained gifts through such bogus bank drafts aggregating to Rs. 2,70,000 in assessment year 1985-86 and Rs. 1,00,000 in assessment year 1987-88. He also had certain unexplained cash deposits in his bank account amounting to Rs. 54,512 pertaining to assessment year 1987-88.

3.1 About one week after the said proceedings of search in the case of V. C. Shroff and A. L. Gheal, both the abovenamed appellants submitted returns of income for assessment year 1985-86 in which the amount received by such bogus drafts were surrendered as income liable to tax. Estimate of advance tax payable was also furnished in the prescribed form for assessment year 1987-88 in which the amount of such bogus gifts were shown as income liable to tax and tax was paid thereon. Return of income for assessment year 1987-88 in the case of C. V. Gaba was furnished on 31-3-1987 and in the case of S. R. Chandel on 23-2-1988 in which the amount of bogus gifts were shown as income liable to tax. These returns and the estimates of advance tax for assessment years 1985-86 and 1987-88 were submitted under the Amnesty Scheme.

3.2 The ITO, after examining the relevant facts and evidence came to the conclusion that after all the enquiries were concluded by the department in the case of V. C. Shroff and A. L. Ghael, enquiries were started in respect of persons who were given these drafts as loans or gifts. In the meantime these assessees filed the return claiming the benefit of the Amnesty Scheme. Since the amnesty started from 15-11-1985 and the appellants did not voluntarily disclose the amount of such bogus gifts as their income until the action under section 132 was taken in the cases of V. C. Shroff and A. L. Ghael, such disclosure of income in respect of bogus gifts made by these assessees after the aforesaid proceedings and after the further enquiries had started, cannot be said to be in consonance with the intention and spirit of the amnesty scheme. He, therefore, taxed the said amounts of bogus gifts as income from undisclosed sources and levied interest under sections 139(8) and 217 and also initiated penalty proceedings under section 271(1)(c) and under other relevant provisions of law.

4. The appellants preferred appeals against those assessment orders before the CIT (A). The CIT (A) confirmed the findings of the ITO and held that the returns of income furnished by the assessee cannot be treated as returns under the amnesty scheme and are not eligible for immunity from penalty and interest assured in the circulars issued under the amnesty scheme.

5. The ITO also levied penalties under section 271(1)(c) of Rs. 1,54,834 in the case of S. V. Gaba and Rs. 1,71,751 in the case of S. R. Chandel for assessment year 1985-86 which were also confirmed by the CIT (A).

6. ITA Nos. 5520 and 5522 in the case of S. R. Chandel and ITA Nos. 5523 and 5525 in the case of C. V. Gaba are appeals against the orders of the CIT (A) relating to the quantum of income assessed under section 143(3) for assessment years 1985-86 and 1987-88 and ITA Nos. 5521 and 5524 in the case of S. R. Chandel & C. V. Gaba respectively relate to levy of penalty under section 271(1)(c) for assessment year 1985-86.

7. Before us the learned counsel for the assessee contended that it is apparent from a perusal of the assessment orders that these returns were submitted under the amnesty scheme. The amnesty scheme was made effective w.e.f. 15-11-1985 and continued to remain in force till 31st March, 1987. The assessees voluntarily disclosed the amounts of bogus gifts etc. as their income in the returns of income voluntarily submitted under the said amnesty scheme. Such returns were submitted by the assessees on 30th September, 1986 i.e., within a period of less than one week from the date when proceeding of search in the cases of V. C. Shroff and A. L. Ghael were made. No enquiry whatsoever was made in the cases of the present assessees prior to voluntary submission of the returns by them, in which the amounts of bogus gifts were voluntarily shown by them as income liable to tax. The income has been assessed under section 143(3) by accepting the declared income as true and correct. Therefore, the assessees undoubtedly made true and full disclosure of their income in such returns furnished under the amnesty scheme.

7.1 The learned counsel invited our attention towards Circular No. 281/8/86 dated 14-2-1986 clearly saying that no penalty proceedings shall be initiated under section 271 or 273 in respect of any assessment year upto and including assessment year 1985-86, if the Assessing Officer is satisfied that such person has, prior to the detection by the ITO or by the IAC of the concealment of the particulars of income, voluntarily and in good faith made a full and true disclosure of such income between 15th November, 1985 and 31st March, 1986. Subsequently this date was extended from time to time up to 31st March, 1987. He also placed reliance on judgment of Hon'ble Gujarat High Court in the case of Taiyabji Lukmanji v. CIT [1981] 131 ITR 643 to show that where the assessee makes a disclosure of higher income pursuant to advertisement issued by the CBDT, the levy of penalty would not be justified. Reliance was also placed on the judgment of Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 to support his contention that an appeal is maintainable against the levy of penalty under sections 139(8), 215 etc. He also placed reliance on judgment of Hon'ble Supreme Court in the case of D. M. Manasvi v. CIT [1972] 86 ITR 557 to urge that no penalty under section 271(1)(c) could be levied under such facts and circumstances.

7.2 The learned counsel further argued that penalty has been levied in the present cases for alternative defaults, as is evident from the fact that in the concluding para of the penalty order in both these cases penalty has been imposed for concealing the particulars of income or furnishing inaccurate particulars of such income. Levy of penalty for such alternative defaults has been held to be invalid by the ITAT, Ahmedabad in the case of Sunil Kumar & Co. (IT Appeal No. 1683 (Ahd.) of 1988 dated 28-2-1989). Reference application submitted by the department against such order has been rejected by the Hon'ble High Court vide order dated 28th June, 1991.

7.3 The learned counsel also invited our attention towards a recent judgment of Hon'ble Gujarat High Court in the case of K. M. Bhatia v. CIT [IT Reference No. 6 of 1980, dated 4-7-1991] in which the disclosure of income made even after issue of a general notice under section 143(2) was also held to be a voluntary disclosure of income and penalty levied under section 271(1)(c) was cancelled.

7.4 On the aspect that such returns were voluntarily submitted by the assessee suo motu without any detection of any concealment in the cases of the assessee, our attention was invited towards letters dated 29th September, 1986 accompanying the returns of income for assessment year 1985-86. In the returns of income the amounts of such bogus gifts, giving complete details of the bogus bank drafts, were voluntarily and fully surrendered by the assessee as income and the entire amount of tax thereon was promptly deposited before furnishing of such returns. The assessee thus fully satisfied all the requirements of a valid return under the amnesty scheme. He, therefore, urged that the ITO should have accepted the correctness of the returns without issuing any notice for hearing under section 143(1) or under section 143(2) and should not have charged any interest nor should have initiated any penalty proceedings. The levy of interest and penalty is clearly a breach of promise made by the Government in the said amnesty circulars.

7.5 For assessment year 1987-88 it was contended by the learned counsel that the income represented by bogus gifts were surrendered in the estimate of advance tax payable for assessment year 1987-88 which were also furnished in the month of September 1986. Subsequently when the returns of income for assessment year 1987-88 were furnished the said amounts of bogus gifts and/or unexplained bank deposits were duly offered as income in the voluntary return of income submitted under the said amnesty scheme.

7.6 The learned counsel, therefore, urged that the interest charged under various sections and the penalty proceedings initiated and/or levied should be cancelled.

8. The learned Sr. D. R. submitted that the returns of income submitted by the assessees after detection of concealment by the department would not be eligible for grant of any immunity from levy of interest and penalty. The requirements of a Circular No. 439 are that :

(i) return should have been furnished suo motu ; and (ii) it should be furnished before detection by the Department.

In the present case the disclosure made by these assessees is neither suo motu nor prior to detection by the department. While considering the true meaning of the term " prior to detection by the department ", it should be clearly understood that if the department as a whole came to have the knowledge about such a racket indulging in bogus NRE bank drafts, any disclosure made by any individual party involved in the said fictitious transactions cannot validly contend that disclosure of such income was suo moto or voluntary. In fact the department knew everything about such bogus gifts as soon as the complete facts were known to the department as a result of search conducted at the premises of V. C. Shroff and A. L. Ghael. Our attention was drawn towards the decisions in Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 (Mad.) and Lampa Trading Co. v. ITO [1991] 39 ITD 534 (Delhi) to support the contention that the concept of the term voluntarily and in good faith used in the amnesty circulars have to be viewed in a broader perspective. These cases, however, relate to proceedings under section 263. The learned Sr. D. R. thereafter invited out attention towards a circular No. 451 in which various questions and answers have been reproduced explaining the scope and meaning of disclosure of income and wealth covered under the amnesty scheme.

He also relied on the statements of one Shri Raj Gulshan Gaba, recorded on 19-6-1989 and statement of one Shri Vijaykumar Shroff recorded on 23-9-1986 during the course of search conducted at the premises of V. C. Shroff.

8.1 As regards levy of penalty, the learned Sr. D. R. relied upon the detailed reasons mentioned in the orders passed by the learned departmental authorities and submitted that the penalties have rightly been levied and confirmed.

9. We have carefully considered the rival submissions and have also gone through the orders of the departmental authorities as well as various other documents to which our attention was drawn during the course of hearing. We have also carefully gone through all the decisions cited by the learned representatives.

9.1 The position of income declared and assessed in the case of these two assessees is as under :

Shri C. V. Gaba

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Assessment Date of Income declared Date of Income Income year original revised declared assessed return return

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1985-86 30--9--1986 2,86,600 31--3--1987 2,86,800 2,86,800

(including (minor bogus gifts of variation Rs. 2,70,000 vide of Rs. 200 bogus bank drafts) made)

1987-88 30--3--1987 1,54,513 1,34,313

Less 80C 20,200 1,34,313

(representing bogus gifts of Rs. 1,00,000 and unexplained deposits in S. B. A/c Rs. 54,512)

Shri R. S. Chandel

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Assessment Date of Income declared Date of Income Income year original revised declared assessed return return

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1985-86 30--9--1986 3,18,180 31--3--1987 3,20,840 3,20,840

(including bogus gifts vide bogus bank drafts)

1987-88 23--2--1988 1,40,220 1,40,220

(including bogus gifts of Rs. 1,00,000)

It is apparent from a perusal of the facts discussed hereinbefore and the facts discussed in the orders of the departmental authorities that the appellants disclosed the amount of bogus bank drafts etc. as their income liable to tax in the returns of income only after the proceedings of search was conducted in the case of Mr. Shroff and Mr. Ghael. It is also equally true that the appellants made such a disclosure under the fear that after the said raid, the fictitious gifts obtained by them through those persons were likely to be detected and, therefore, they thought it proper to surrender the said amount of bogus gifts as income liable to tax by filing the returns under the amnesty scheme, which fortunately for them was in force during the relevant period. However, this is also an undisputed fact that these appellants had furnished the returns showing the amount of bogus gifts as their income within a period of less than a week after the proceedings of search were conducted at the premises of Mr. Shroff and Mr. Ghael. Until that time when they furnished their returns of income no enquiries had started in their cases. The departmental authorities have not brought any material on record nor the learned Sr. D. R. has pointed out any fact to show that till the time the appellants furnished their returns under the amnesty scheme any query in relation to such bogus gifts was raised in the cases of the present appellants or any specific item of gift relating to these appellants was noticed by the department and enquiries in relation to the bogus gifts received by the assessee were conducted and concluded prior to submission of such returns by the appellants. Various circulars issued under the amnesty scheme requires that such returns should be furnished voluntarily and in good faith and the disclosure of income should be full and true. The returns of income were furnished on 30th September, 1986 prior to issue of any notice under section 139(2) or 148 and prior to issue of any query letter in the case of the appellants and prior to any specific deduction by the assessing authority in the cases of the present appellants. It is a common experience that under all voluntary disclosure schemes and amnesty schemes, the persons who have evaded that in the past, on account of fear, discloses their unaccounted income and wealth in the disclosure petitions or returns submitted pursuant to such amnesty schemes and voluntary disclosure schemes. The element of fear compelling them to come forward for voluntary disclosure of income under such schemes is inherent. As regards full and true disclosure of income is concerned in the present case, where the income ultimately assessed is the same as that returned or disclosed by the assessee, it is apparent that the assessee has made a full and true disclosure of his income in the said returns of income. It is only in those cases where the ultimate assessment made is more than the income disclosed by the assessee that the question whether the assessee honestly believed the income disclosed by him to be true and full can possibly arise. In the present case, the income has been finally assessed at the same amount of income as declared by the assessee in both these years under consideration.

9.2. The contention of the learned Sr. D. R. that since the entire activities of the bogus gifts in question came to the knowledge of the department at the time when search was conducted at the premises of V. C. Shroff and A. L. Ghael and, therefore, these returns submitted by the appellants after search in the cases of those other parties cannot be treated as returns under amnesty scheme cannot be accepted in view of a specific clarification given by the Chairman, CBDT in Circular No. 451 dated 17th February, 1986. Question No. 7 and answer thereto contained in the said circular is reproduced hereunder :

" Q. 7. Where the investigations in the case of persons other than the assessee indicate concealment of income by the assessee and the assessee makes a true and full disclosure of his income, would he be entitled to immunity under these circulars ?

Ans. Yes. "

In view of the aforesaid discussions, we are of the considered opinion that the returns of income submitted by both the appellants for assessment year 1985-86 should be accepted as valid returns submitted under the amnesty scheme and the assessee will be entitled to all the immunities and benefits announced in the various circulars under the said amnesty scheme. Consequently the levy of interest under sections 139(8) and 217 will also have to be cancelled.

9.3 As regards levy of penalty under section 271(1)(c) for assessment year 1985-86, we are of the view that no penalty under the aforesaid section can be validly levied after having accepted the contention that these returns complied with all the conditions of a valid return submitted under the amnesty scheme. Apart from this the penalty under section 271(1)(c) is levied with reference to the act of commission of a default at the time of filing of the return. The intention to conceal is not the subject matter of the provisions of section 271(1)(c). It is only the act of concealing the income or furnishing the inaccurate particulars of income in the return of income, which alone can be subjected to levy of penalty under section 271(1)(c). In the present case, the income which has been finally assessed by the ITO is the same amount of income which was declared by the assessee in the returns submitted for the assessment year under consideration. Hence levy of penalty in the case of both the appellants for assessment year 1985-86 is not justified and the same is, therefore, cancelled.

10. Coming to assessment year 1987-88 the return of income in the case of Shri C. V. Gaba was furnished on 31st March, 1987 i.e., prior to commencement of the assessment year in question. The return of income in the case of S. R. Chandel for assessment year 1987-88 was furnished on 23rd February, 1988. Thus the return in the case of C. V. Gaba filed prior to commencement of the assessment year could not have been validly filed on 31st March, 1987 and that could be validly filed only after the first day of April, 1987. The return in the other case of S. R. Chandel was filed after 31st March, 1987. The period covered by the amnesty circulars expired on 31st March, 1987. Therefore, the returns of income submitted by these appellants for assessment year 1987-88 cannot be regarded as returns submitted under the amnesty scheme and the immunity or benefits provided in the various circulars under the amnesty scheme cannot be made applicable in relation to assessment year 1987-88. However, to the extent advance tax was paid by the assessees, interest under section 217, even if chargeable, will have to be charged after taking into consideration the amount of advance tax already paid by the assessee. The question of charging interest under section 139(8) in the case of C. V. Gaba will not arise as the return had already been furnished on 31st March, 1987 which was made the basis of assessment completed by the the ITO. The levy of interest under section 139(8) in the case of S. R. Chandel seems to be valid as no reasonable cause was explained for delay in submission of the return. The ITO is directed to give consequential relief in the matter of levy of such interest under sections 139(8) and 217 keeping in view all the aforesaid observations.

11. In the result, all the appeals in the case of both the appellants for assessment year 1985-86 are allowed and the appeals for assessment year 1987-88 are treated as partly allowed for statistical purposes

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