THOTA VENKATESWARA RAO,KAKINADA vs. INCOME TAX OFFICER, WARD-1, KAKINADA

1. This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No. ITBA/NFAC/ S/250/2023-24/1053763313(1) dated 16.06.2023, arising out of order passed u/s 147 r.w.s.144 of the Income Tax Act, 1961 (in short ‘Act’) dated 16.09.2021 for the Assessment Year (A.Y.) 2017-18. Thota Venkateswara Rao, Kakinada

Brief facts of the case are that the assessee being an individual, filed his return of income for the A.Y.2017-18 on 30.03.2018, admitting total income of Rs.5,99,730/-. The case was thereafter reopened on the basis of information available on record and the assessee had filed a declaration under Income Declaration Scheme (IDS), 2016 on 23.09.2016, by admitting undisclosed income of Rs.1,30,00,000/- for the A.Y.2016-17. The Assessing Officer (AO) observed that the assessee ought to have paid taxes of Rs.58,50,000/- under IDS 2016, but has only paid Rs.14,62,500/- being first instalment and failed to pay the balance tax of Rs.43,87,500/- within the time frame. The Ld.AO, therefore, observed that the income chargeable to tax has escaped assessment for the A.Y.2017-18, therefore, reopened the case u/s 147 of the Act after recording reasons and obtaining necessary approval. Thereafter, notice u/s 148 dated 02.08.2019 was issued and served on the assessee. The Ld.AO invoked the provisions of section 187(3) and also 197(b) of the Income Declaration Scheme in 2016 (IDS) and concluded that tax has not been paid as per IDS 2016 and the undisclosed income shall be chargeable to tax under the Act in the previous year in which such declaration is made. In response to the notice, the assessee submitted that he has already declared the income during the A.Y.2016-17 and Thota Venkateswara Rao, Kakinada hence taxing the same in the A.Y. 2017-18 in accordance with the provisions of IDS is not valid in law. Considering the submissions made by the assessee, the Ld.AO rejected the arguments and proceeded to tax the amount of Rs.1,30,00,000/- u/s 69A r.w.s. 115BBE of the Act.

Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A), considering the submissions made by the Ld.AR partly allowed the appeal, directing the Ld.AO to tax any income under A.Y.2017-18 after giving due credit of taxes paid in A.Y.2016-17.

Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal by raising the following grounds :

The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.

Ground No.1 and 6 are general in nature, which does not require specific adjudication.

With respect to Ground No.2, challenging the reopening proceedings u/s 148 of the Act, the Ld.AR submitted that since the ITO, Ward-2 has already accepted the return filed for the A.Y.2016-17, it amounts to change of opinion for taxing the same amount for the A.Y.2017-18. He, therefore, pleaded that the proceedings initiated u/s 148 of the Act are void-ab-initio and deserves to be quashed. In addition, the Ld.AR also submitted that the assessee has declared Rs.1.3 crores under IDS, 2016 on 23.09.2016 and has paid the first instalment of tax amounting to Rs.14,62,500/-, however, the Ld.AR admitted that the second and third instalments were not paid by the assessee due to insufficient funds. Thereafter, the Ld.AR submitted that the ITO,Ward-2 issued notice for non payment of taxes as declared by the assessee under IDS for the A.Y.2016-17. The Ld.AR further submitted that the assessee offered to admit the undisclosed income of Rs.1.3 crores by filing normal Thota Venkateswara Rao, Kakinada return of income for the A.Y.2016-17. The Ld.AR submitted that the return of income filed by the assessee for the A.Y.2016-17, disclosing the undisclosed income under IDS, 2016 is placed in page No.9 of the paper book. The Ld.AR also submitted that the assessee paid the taxes along with interest due thereon. The Ld.AO has accepted the return of income and passed order u/s 143(3) of the Act. The Ld.AR further submitted that the same ITO, Ward-2 has also accepted the return of income filed by the assessee for the A.Y.2017-18 after passing the order u/s 143(3) of the Act. The Ld.AR argued that the Ld.AO later changed his opinion and thought of invoking the provisions of section 197(b) of IDS 2016, issued notice to the assessee u/s 148 of the Act, stating that there is escapement of income of Rs.1.3 crores as admitted under IDS for the A.Y.2017-18. The Ld.AR further submitted that the AO also failed to give credit to the first instalment paid amounting to Rs.14,62,500/-. The Ld.AR therefore argued that since it is an afterthought of AO, the notice issued u/s 147 of the Act is void-ab-intio and deserves to be quashed. In this connection, he relied on the decision of Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Kelvinator India Ltd. [320 ITR 561].

Per contra, the Ld.DR submitted that as per section 197(b) of the Finance Act, 2016, where the tax is not paid within the time specified as per the provisions of section 187 of IDS 2016, the undisclosed income shall be chargeable to tax under the Income Tax in that previous year in which such declaration is made. The Ld.DR, therefore, submitted that the AO has rightly taxed the undisclosed income declared by the assessee in the A.Y.2017-18. Countering the argument of the Ld.DR, the Ld.AR submitted that as per the provisions of 187 of Finance Act, 2016, if the declarant fails to pay tax in respect of the declaration made u/s 193 on or before the dates specified, the declaration shall be deemed to never have been made under this scheme. He further submitted that the assessee has thereafter declared his income under general filing of the return of income for the A.Y.2017-18, which was also accepted by the Ld.AO. Further, with respect to credit for the taxes paid under IDS, 2016, the Ld.DR submitted that as per provisions of 197 of Finance Act, 2016, any amount of taxes and surcharge paid in present declaration made u/s 193 shall not be refundable. Therefore, the Ld.DR submitted that credit should not be given IDS 2016. Countering the argument of Thota Venkateswara Rao, Kakinada the Ld.DR, the Ld.AR argued that if the amount cannot not be refunded, but can be adjusted against the taxes payable by the assessee. The purpose of the scheme is to tax the assessees for the undisclosed income and in process, the revenue cannot make unjust enrichment.

We have heard both the parties and perused the material available on record. It is an admitted fact that the assessee has declared income under IDS, 2016 and has paid the first instalment amounting to Rs.14,62,500/-. The assessee has admitted an amount of Rs.1,30,00,000/- under the IDS, 2016. It was explained by the Ld.AR that the assessee could not pay the balance amount of tax as declared under IDS, 2016 due to financial difficulties. Thereafter, in response to notice from ITO, Ward-2, the assessee declared the same while filing normal return of income for the A.Y.2016-17 and has paid the taxes, which was not disputed by the revenue. The only contention of the revenue is that as per the provisions of section 197(b) of IDS 2016, the income shall be chargeable to tax under the Act in the previous year in which declaration were made. However, we notice from the records that the Ld.AO has not only requested the Thota Venkateswara Rao, Kakinada assessee to file the return of income, disclosing the income declared under IDS, 2016, while filing the return of income for the A.Y.2016-17, but also made a scrutiny assessment for the A.Y.2016-17, ignoring the provisions of IDS, 2016. The assessee also filed the return of income for the A.Y.2017-18 and the same AO has passed orders u/s 143(3) of the Act. Subsequently the Ld.AO realised that the assessee has violated the provisions of section 197(b) of IDS 2016 and thereby invoked section 147 of the Act for the AY 2017-18. However, the Ld.AO has not invoked the provisions of 197(b) of IDS, 2016 while making scrutiny assessment for the A.Y.2016-17 and A.Y.2017-18. Therefore, in our opinion, we find it to be change of opinion of the Ld.AO for invoking the provisions of section 147 of the Act. Hon’ble Supreme Court in the case of Kelvinator India Ltd. (supra) held as follows :

With respect to Ground No.5 of the appeal, we find merit in the argument of the Ld.AR that the revenue cannot have unjust enrichment, just due to the fact that the assessee could not discharge the obligations particularly as laid down under IDS, 2016. We, therefore, direct the revenue authorities to grant credit for the amount of Rs.14,62,500/- paid by the assessee for the income admitted under IDS. In this connection, reliance placed by the Ld.AR on the decision in the case of Yogesh Roshanlal Gupta Vs. Central Board of Direct Taxes, (2022) 442 ITR 0031(SC), wherein, it was held as follows :

Respectfully following the above, we have no hesitation to direct the revenue authorities to grant credit to the assessee amounting to Rs.14,62,500/- paid as first instalment under IDS 2016 while assessing the income under normal provisions.

In the result, appeal of the assessee is allowed.