Principal Commissioner Of Income Tax Ii vs. Shri Siraj Siddique

ITA-86-2017 1 THE HIGH COURT OF MADHYA PRADESH: INDORE BENCH (DIVISION BENCH) ITA No. 86/2017 Principal Commissioner of Income Tax-II

…….…..Appellant Indore Versus Siraj Siddique (since deceased) ……...Respondent Now by LR: Smt. Shabana Siraj Siddique -------------------------------------------------------------------------------------------- CORAM: Hon’ble Mr. Justice Ajay Kumar Mittal, Chief Justice Hon’ble Miss Justice Vandana Kasrekar, Judge -------------------------------------------------------------------------------------------- Appearance: For the Appellant : Ms. Veena Mandlik, Advocate For the Respondent : Mr. P.M. Choudhary, Sr. Advocate with Mr. Anand Prabhawalkar and Ms. Rashi Gohil, Advocates -------------------------------------------------------------------------------------------- JUDGMENT (Oral) [ 05.12.2019 ] Per: Ajay Kumar Mittal, Chief Justice: This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) has been filed by the Revenue against a consolidated order dated 23.12.2016 passed by the Income Tax Appellate Tribunal, Indore Bench, Indore (for brevity “the Tribunal”) in ITA No.173/Ind/2013 (Revenue’s appeal) and C/O No.56/Ind/2013 (Assessee’s objection) relating to the Assessment Year 1997-98, whereby the order of the Commissioner of Income Tax (Appeals) [in short “CIT(A)”] has been affirmed and appeal filed by the appellant-Revenue has been dismissed. ITA-86-2017 2 2. The appellant has claimed the following substantial questions of law for determination by this Court:- “(i) Whether on the facts and in the circumstances of the case and in law the ITAT was justified in upholding the decision of the Ld. CIT(A) ignoring the very fact that, declaration made by the assessee under VDIS 1997 was ineligible within the meaning of Section 64(2)(ii) of the VDIS 1997? (ii) Whether on the facts and in the circumstances of the case and in law the ITAT was justified in upholding the decision of the Ld. CIT(A) ignoring the very fact that while completing the scrutiny assessment, the AO has pointed out that such declaration made by the assessee was not eligible in view of the judicial pronouncement reported in 262 ITR 397 (Karnataka) and 230 ITR 536 (A.P.) in which it has been held that ‘income detected as a result of search proceedings is not entitled to any benefit under VDIS 1997? (iii) Whether on the facts and in the circumstances of the case and in law the ITAT was justified in ignoring the facts that the issues have not been decided on merits in respect of addition made on account of unaccounted investment of Rs.2,14,21,200/- and profit of Rs.1,33,66,800/- by the AO and additions have been deleted simply on account of declaration of Rs.52 Lakh only in VDIS?” 3. The facts, in brief, necessary for the purposes of adjudication of the present appeal, are that assessee/original respondent - Shri Siraj Siddique, was a Partner in the Firm - M/s Milan Traders having 50% share of profit including remuneration and interest from the Firm. On 29/30th August, 1996, a search under Section 132 of the Act was carried out in the factory of M/s ITA-86-2017 3 Shivraj Tobacco Co., Unnao wherein it was found that the assessee had purchased Pan Masala from M/s Shivraj Tobacco Co. worth Rs.6,68,34,000/- between 01.04.1996 to 29.08.1996 pertaining to the assessment year 1997- 98. Since this amount was not disclosed by the assessee in the return for the assessment year 1997-98, the Assessing Officer issued notice to the assessee under Section 148 of the Act on 27.03.2003. In response to the notice, the assessee submitted his return of income for the assessment year 1997-98, declaring total income of Rs.69,590/-. Thereafter, on being confronted in the scrutiny assessment completed under Section 148/143(3) of the Act on 31.03.2004, the assessee submitted a copy of certificate dated 03.03.1998 issued by the Commissioner of Income Tax, Indore under Voluntarily Disclosure of Income Scheme 1997 (for short “VDIS 1997”) and claimed that he has declared income voluntarily amounting to Rs.52 Lac for the period 1992-93 to 1997-98 under Section 65 of VDIS 1997, therefore, neither the re-opening of the case nor the additions in this regard, were justified. In view of the provisions of Clause (ii) of Sub-section (2) of Section 64 of VDIS 1997, the Assessing Officer observed that income declared by the assessee to the tune of Rs.52 Lac under VDIS 1997 will not be available to be adjusted against unaccounted purchase and sale of Rs.6,68,34,000/-. The Commissioner of Income Tax-II, Indore cancelled the certificate dated 03.03.1998 issued to the assessee under VDIS 1997 vide order dated 31.03.2004. Thereafter, the Assessing Officer passed the assessment order under Section 143(3) read with Section 148 in which addition of profit on unaccounted purchases was estimated at Rs.1,33,66,800/- by applying GP rate of 20% on sales of Rs.6,68,34,000/- ITA-86-2017 4 and unaccounted investment in purchases was added at Rs.2,14,21,200/-. It is pertinent to note here that against the cancellation of the certificate dated 03.03.1998, the assessee filed a writ petition before this Court being W.P. No.501/2004 (Siraj Siddique vs. Income Tax Officer & Another) reported as (2013) 21 ITJ 498 (MP), which was allowed vide order dated 20.09.2012 and the order of the CIT-II, Indore dated 31.03.2004 cancelling the VDIS certificate, was set aside. 4. The Commissioner of Income Tax (Appeals) (in short “the CIT(A)”), relying upon the decision of this Court in Siraj Siddique (supra), vide order dated 17.01.2013 allowed the appeal filed by the assessee and deleted the additions made by the Assessing Officer to the total income of the assessee. Being aggrieved by the order of the CIT(A), the Revenue filed appeal before the ITAT, Bench Indore, Indore. The assessee also filed cross-objections to the appeal of the Revenue. The ITAT, Indore vide order impugned herein has dismissed the appeal of the Revenue and upheld the decision of the CIT(A). In this manner, the present appeal has been filed by the Revenue. 5. Learned counsel for the Revenue relying upon the judgment of Andhra Pradesh High Court rendered in Shankarlal vs. Income-Tax Officer and others reported as (1998) 230 ITR 536 (AP) and Karnataka High Court decision in Mysore Plantations Ltd. vs. Commissioner of Income-Tax and another reported as (2003) 262 ITR 397 (Kar), made a solitary submission that the certificate issued under the VDIS 1997 was erroneous and the Revenue had the power to recall the certificate issued under the VDIS 1997 and accordingly, as the assessee did not fulfill the conditions under the said Scheme, the Tribunal has wrongly granted the ITA-86-2017 5 benefit thereunder. On that basis, it has been urged that the impugned order be set aside and the appeal be allowed. 6. Per contra, learned counsel for the assessee contended that once the order of cancellation of the certificate of VDIS 1997 was set aside by this Court in Siraj Siddique (supra) and in the absence of any challenge by the Revenue to the said order and the said order having attained finality, it does not lie in the mouth of the Revenue to contend that no benefit could be availed by the assessee on the basis of the certificate. In such circumstances, the Revenue was not empowered to recall the certificate issued under the said scheme and neither the CIT (A) nor the Tribunal has committed any error in passing the impugned order. On these premises, it was contended that no substantial question of law arises. 7. We have heard learned counsel for the parties and are of the considered opinion that the present appeal deserves to be dismissed. 8. In the present case, a declaration was made by the respondent- assessee under the VDI Scheme 1997 on 31.12.1997 wherein he disclosed an income of Rs.52 Lac covering the unaccounted purchase from M/s Shivraj Tobacco Company and income earned from Kirana and Pan Masala business in his own name and in the name of Milan Traders in which he was a partner and was having 50% share of profit including remuneration and interest, as declared by him. The other partner in Mayur Stones had also disclosed an amount of Rs.18 Lac under the VDIS 1997 in respect of the said purchases and in this manner, total VDIS disclosure of Rs.70 Lac was made covering the unaccounted purchases from M/s Shivraj Tobacco Company, Unnao. The disclosure of income made by the assessee under the ITA-86-2017 6 VDIS 1997 was also accepted by the CIT-II by issuing a certificate under Section 62 of the Act on 3rd March, 1998. It is, during the course of search made at the premises of M/s Shivraj Tobacco Company on 29/30-08-1996 when it was revealed that unaccounted purchases of Rs.6.68 Crores were made by the assessee, the VDIS certificate dated 03.03.1998 was held to be invalid by the CIT-II and the same was cancelled vide letter dated 31.03.2004. Against the order of cancellation of VDIS 1997 certificate, the assessee approached this Court by filing a writ petition forming subject matter of W.P. No.501/2004. The Court allowed the writ petition and set aside the order of cancellation of VDIS certificate dated 31.03.2004. The learned Tribunal has specifically observed these facts in the light of the order passed by a Division Bench of this Court in W.P. No.501/2004 to return a finding in favour of the assessee vide order dated 23.12.2016 that the assessee was entitled to the benefit of Rs.52 Lac on account of unaccounted transactions by virtue of the VDIS declaration. The findings recorded by the learned Tribunal in the order dated 23.12.2016, read, thus:- “13. We have considered the rival submissions of both the parties, facts and perused the material available on record. We find that a search u/s 132 of the Act was conducted on 29/30-08-1996 in the case of M/s. Shivraj Tobacco Company, wherein unaccounted purchase of Rs.6.68 crores made by the assessee in the name of Milan Traders from the said party were noticed. We also note that there was no search and seizure action carried out in the case of the assessee nor any search warrant was issued in the name of the assessee. We find that the assessee has made a declaration under VDI Scheme 1997 on 31.12.1997, declaring therein undisclosed income of Rs.52 lakhs on account of income earned from kirana and pan masala business in own name as well as in the name of Milan Traders and other partner in Mayur Stones has also disclosed Rs. 18 lakhs under VDIS 1997 in respect of these purchases. Thus, total VDIS disclosure of Rs. 70 lakhs was made covering the unaccounted purchases from M/s. Shivraj ITA-86-2017 7 Tobacco Company, Unnao. It is seen that CIT-II, Indore, has issued a certificate u/s 62 of the Income-tax Act, 1961, on 3rd March, 1998, accepting the disclosure made by the assessee. We find that CIT-II, Indore has cancelled VDIS certificate dated 03.03.1998 vide letter dated 31.03.2004, on the ground that unaccounted purchases made by the assessee were detected during the course of search, hence, VDI Declaration is not valid. As against this, the assessee has filed Civil Writ Petition before the Hon’ble M.P. High Court, wherein the Hon’ble High Court has restored the VDIS certificate dated 03.03.1998 issued by CIT-II, Indore. We have perused the order of Hon’ble High Court dated 20.09.2012, passed in Writ Petition No. 501/2004 setting aside the cancellation of VDI Certificate of CIT-II, Indore wherein para 10 of writ petition reads as under:- “[10] In the present case it is not in dispute that in the petitioner's premises no search or seizure under Section 132 of the Act has been done nor any search warrant has been issued in the name of the petitioner. The search was done in the premises of M/s. Shivraj Tobacco Company, Kanpur on 30/8/1996. As per the respondents during the search, certain transaction done by the petitioner out of book were detected which showed the income of the petitioner much higher than what was disclosed in the VDIS. The petitioner in his statement recorded on 1/8/2002 by the Dy.Director of Income Tax had disclosed that on the transactions found out of books of account in respect of purchase made from Shivraj Tobacco Company, the petitioner had calculated the income and disclosed it under the VDIS 1997.” 14. The perusal of the above para of the order of the Hon’ble High Court shows that the assessee has stated in his statement dated 01.08.2002 recorded by the DDIT that the income from unaccounted purchases made from Shivraj Tobacco Company has been offered by the assessee under VDIS 1997. Therefore, the claim of the assessee that declaration of Rs.52 lakhs made under VDIS 1997, covers the source of investment as well as profit out of unaccounted purchases of pan masala of Rs.6.68 crores from M/s. Shivraj Tobacco Company for which a valid VDIS Certificate has been issued by the CIT-II, Indore. These facts have also been disclosed by the assessee before the Hon’ble High Court, which has been duly considered by the Hon’ble High Court. And after considering the facts, the Hon’ble High Court relying on various case laws has held in paras no.21 to 25, which are reproduced as under:- “[21] In the present case, though the statement of the petitioner recorded by the Dy. Director of Income Tax on ITA-86-2017 8 1.8.2002 indicates that the petitioner had made the disclosure calculating the income on the basis of the purchase which were made from M/s. Shivraj Tobacco Company but there is nothing on record to show that the petitioner had committed any fraud in disclosing the income. On the same amount of sale, the department is calculating higher income whereas the petitioner had disclosed the lower income. Therefore, only on that basis it cannot be held to be a case of fraud. [22] Counsel for respondents has also placed reliance upon the Single Bench judgment of the Karnataka High Court in the matter of Mysore Planatations Ltd. Vs. CIT and another, reported in 262 ITR 397 but that was a case of fraud where the assessee had claimed to have purchased the cylinders from a non-existent entity, therefore, the Court had taken the view that power to recall the certificate in the event of fraud is available. Learned counsel for respondents has also relied upon the Single Bench judgment of this Court in the matter of Smt.Shashi Devi Vs. ITO & Ors reported in (2000) 241 ITR 216 (MP) but that case does not relate to power to cancel the certificate issued u/S 68 of VDIS 1997. [23] It is also worth noting that the Commissioner of Income Tax has cancelled the certificate issued u/S 68(2) of the VDIS 1997 at the instance of the ITO who had initiated the reassessment proceedings and on the same day of passing of the impugned order of cancellation of the certificate, the ITO had passed the order of reassessment. [24] There is yet another reason to set aside the impugned order cancelling the VDIS certificate. The notice for cancellation of the certificate is dated 25.3.2004. In the impugned order itself it is mentioned that the notice was served by affixture and speed post on 26.3.2004. Within 5 days of service of notice, the final order was passed inspite of the specific request of the petitioner to the Chief Commissioner vide Annexure P.13 for grant of reasonable time and proper opportunity before passing any adverse order. [25] Keeping in view the aforesaid aspect of the matter, the impugned order dated 31.3.2004 cancelling the VDIS certificate dated 3.3.1998 issued u/S 68(2) of the VDIS 1997 cannot be sustained and is hereby set aside.” 15. In the light of the findings of Hon’ble Jurisdictional High Court of Madhya Pradesh in the aforesaid writ petition, we are of the considered view that the assessee having been disclosed the income relating to unaccounted purchases made from Shivraj Tobacco Company under VDIS 1997, and same has been accepted by the Commissioner of Income Tax, ITA-86-2017 9 who has duly issued a certificate dated 03.03.1998, hence, no addition on account of the same could be made by the AO. The claim of Revenue that ld. CIT(A) has not decided the issue on merit is devoid of any merit as the ld. CIT(A) has duly mentioned in para 4 of his order (reproduced at para 8 above of this order) stating that as a result action of AO to estimate the income of Rs.1,33,66,800/- and to assess investment on such unaccounted transaction of Rs.2,14,21,200/- is set aside because the assessee disclosed income of Rs.52,00,600 on such unaccounted transaction in the VDIS declaration. In view of that matter, we find that both additions made by the AO are covered in writ petition and also by order of ld. CIT(A). Under these circumstances, we do not find any infirmity in the findings recorded by the ld. CIT(A). Therefore, the grounds of appeal as taken by the Revenue originally as well as revised amended are dismissed. 16. Since the appeal of the Revenue is dismissed, the cross objection filed by the assessee has become infructuous and the same is also dismissed.” 9. The question as to whether the declaration made by the assessee under VDIS 1997 was ineligible within the meaning of Sub-clause (ii) of Sub- section (2) of Section 64 of the VDIS 1997 and the consequent certificate dated 03.03.1998 issued to the asssessee was illegal and therefore, was liable to be cancelled, has already received consideration by a Division Bench of this Court in Siraj Siddique (supra), which was decided in favour of the assessee holding that the certificate once issued, cannot be cancelled unless it is issued contrary to the scheme or ignoring the bar under Sub-clause (ii) of Sub-section (2) of Section 64 thereof or where it is obtained by fraud. The Division Bench found that there was no fraud committed by the assessee so as to attract the bar or prohibition envisaged under the said provision of VDIS 1997. The Division Bench also took note of the single Bench decision of Karnataka High Court in Mysore Plantations Ltd. (supra) relied upon by the learned counsel for the appellant and held that the said judgment was ITA-86-2017 10 distinguishable on facts because that was a case of fraud whereas no fraud was associated with the present assessee. The judgment of the Division Bench in Siraj Siddique (supra) restoring the VDIS 1997 certificate of the assessee having attained finality, the Tribunal did not commit any error in affirming the order of the CIT(A) allowing the appeal of the assessee on that score. In this view of the matter, we do not find that the decision in Mysore Plantations Ltd. (supra) is of any help to the Revenue. 10. So far as the Division Bench decision of Andhra Pradesh High Court in Shankarlal (supra) placed reliance upon by the Revenue is concerned, in the facts and circumstances of that case, a search was conducted in the premises of the assessee and money was seized along with the pledged jewellery. The said judgment deals with Section 64(2) of the Finance Act, 1997 and it only denies the benefit of voluntary disclosure of income that was not returned within the income prescribed in the notice issued under Sections 142 or 148 of the Act and which expired before the commencement of the scheme, or the income which was detected in a search under Section 132 of the Act, or a requisition under Section 132A of the Act or in a Survey under Section 133A thereof, which would say that the undisclosed income other than such detected income in relation to the previous year can still be declared and therefore, it is constitutionally valid. In Siraj Siddique (supra), the Division Bench held that under Section 64(2) of the Finance Act, the certificate can be cancelled only if there was search at the premises of the assessee and since no search was conducted at the premises of the assessee, the certificate cannot be cancelled. Thus, even the Division Bench judgment in Shankarlal (supra) is not applicable in the present case. ITA-86-2017 11 11. Apart from the aforesaid, since the certificate under the VDIS 1997 was issued to the assessee in pursuance to the direction of this Court in Siraj Siddique (supra), the judgments relied upon by the Revenue, do not come to its rescue. Accordingly, we do not find any substantial question of law arises in the present appeal. Consequently, the appeal stands dismissed. ( AJAY KUMAR MITTAL ) ( VANDANA KASREKAR ) CHIEF JUSTICE JUDGE S/ Digitally signed by SACHIN CHAUDHARY Date: 2020.01.27 10:41:44 +05'30'