Assessing Officer reopened the assessment of A.Y. 1997-98 on the basis of finding that the assessee had not paid tax on the income declared under VDIS, 97 and made the addition of income declared year-wise under VDIS as unexplained investment. It was held that the addition was not justified as the alleged investments were not made in the immediate preceding financial year to the assessment year under consideration.
A reading of VDIS declarations clearly show that no income pertaining to the impugned assessment year i.e. 1998-99 escaped assessment. While so, the Assessing Officer issued reopening notice for the impugned assessment year. It is well settled that there should be live link between the material gathered and that the income that is escaped assessment of that particular year. No reasonable person would come to a conclusion based on these evidences that income of the impugned assessment year has escaped taxation. If the law permits, the Assessing Officer should have issued a reopening notice for the respective assessment year in which the assessee had earned income and in which the assessee had made investments in fixed assets. Thus, on these facts, we have to also hold that the reopening in question is also bad in law.
INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH “E”, MUMBAI.
BEFORE SRI J.SUDHAKAR REDDY (AM) AND SRI RAJPAL YADAV (JM)
[Assessment Year: 1998-99]
|Sri Shankar R. Mhatre
C/o. N.A Kulkarni, 1st floor, Wadal Building, Manpada Road, Dombivili(East)
|The ACIT, Circle-3, 2nd floor. Rani Mansion, Murbad Road, Kalyan (West).
PER SUDHAKAR REDDY, AM:
This is an appeal filed by the assessee directed against the order of the learned CIT(A) dated 13.11.2006 for the assessment year 1998-99. Brief facts are as follows:
2. The assessee filed its original return of income declaring rental income and ‘income from other sources’ as well as agricultural income on 3.9.99 with ITO, Ward 1(5). Kalyan. During the previous year 199798, the assessee wanted to take advantage of VDIS and filed a declaration later, the assessee had not paid taxes due on VDIS declaration. The Assessing Officer received information from the concerned authority i.e. Commissioner of Income Tax-III, Thane, ,that the assessee had not been granted a certificate by the CIT., and that he cannot be allowed the benefit of VDIS-97, in respect of his disclosures made
3. The assessee in the declaration under VDIS-97disclosed assets i.e. land and buildings totally valued at Rs.33,85,000/-, but did not pay the tax on the assets so disclosed. Based on the information received, the Assessing Officer reopened the proceedings under section 147 and issued notice under section 148 dated 24.3.2005. The assessee had, in response to notice under section 148, filed a revised return of income for the assessment year 1998-99 on 20.7.2005 declaring the total income of Rs. 36,30,843/- which included the additional income of Rs. 33,85,000/- under section 69 of the I.T Act; which was subject to a note annexed. The computation of income as per page 3 of the assessment order is extracted for ready reference:-
COMPUTAON OF INCOME
“Net income as per Original return shown.
i) House property 237,236.00
ii) Other sources 8,610.00 245,846.00
Additional Declaration income u/s.69 of the Act. 3,385,000.00
Add: Agricultural income 60,00000
Gross Total income 3,690,846 00
income rounded up 690,850.00
“Please note that this return of income tax, I am revising only because L have made a declaration voluntarily before the CIT that I have earned and invested those fund which relates from last so many years, the years may be beyond the limitation of the acts also. But the tax was remained to be paid. Due to shortfall of funds, now I am rectifying this mistake by revising the return of that periods by offering to pay tax upon such declaration provided not interest or penalty be levied upon such tax. In compliance to the notice issued u/s.148 through challenged its legality this return is revised” (emphasis own)
After considering the detailed submissions of the assessee, the Assessing Officer made an addition of Rs. 33,85,000/- under section 69 of the Act On appeal, the first appellate authority upheld the order of the Assessing Officer. Further aggrieved, the assessee is before us.
4. We have heard Sri NA Kulkarni on behalf of the assessee and Sri D.K. Rao on behalf of the revenue. The assessee challenged the impugned order on the following grounds:
(a) that reopening is bad in law; &
(b) that the addition made under section 69 based on VDIS declaration is bad in law.
5. We first consider the merits of addition made. We can find from computation of income filed by the assessee, that a clear note has been given that, he had earned and invested funds which relate from the last so many years and that the same do not pertain to the impugned assessment year. In short, what was stated here is that the income in question does not pertain to the previous year relatable to the assessment year ‘1998-99. The statement of VDIS Income at page 34 & 35 of assessee’s paper book reads as under:-
ANNEXURE TO FORM OF DECLARATION UNDER VDIS Item NO.5 STATEMENT OF VOLUNTARILY DISCLOSED INCOME
|S.No.||Amt. of income declared figures & words)
|Assessment years to which the income relates||It the income is represented by cash (including bank deposits) jewellery, bullion, in shares, debts due from other persons, commodities or any other assets.|
|Description of assets||Name in which held||Amount Rs.||Remarks|
|1.||Rs.70,000||1983-84||Building||Shankar R. Mhatre||70,000|
|6.||Rs. 2,14,000||1988-89||i) building
Praratibai S. Mhatre Parasharam S. mhatre Shankar R. Mhater
|7.||Rs. 19,000||1989-90||Building||Shankar Raghunath Mhatre||19,000|
|Income from house property|
ANNEXURE TO FORM OF DECLARATION UNDER VDIS Item No 5 STATEMENT OF VOLUNTARILY DISCLOSED INCOME”
|S.No.||Amt. of income declared figures & words)
|Assessmnet years to which the income relates||It the income is represented by cash (including bank deposits) jewellery, bullion, in shares, debts due from other persons, commodities or any other assets.|
|Description of assets||Name in which held||Amount Rs.||Remarks|
|9.||Rs. 45,00||1991-92||Building||Shankar R. Mhatre||5,000
|Rs. 3,85,000/-||Rupees thirty three lacs eighty five thousand only|
6. A. perusal of the above clearly shows that none of these assets have been acquired by the assessee during the previous year relatable to the assessment year 1998-99. While so, the entire income in question is brought to tax during the impugned assessment year. In our considered opinion, this is not legally correct to tax this income in the year under appeal. Looking at the description of the assets, they are buildings in most of the cases and only in two cases reference is made to vehicles. The income from buildings has been declared year wise. While so, the entire income is sought to be brought to tax in a single year, though the statue does not permit the same. Though VDIS declaration clearly shows that the income in question pertains to earlier years, in effect, the Assessing Officer has brought to tax income from house property from assessment years from 1983-84 to 1996-97 and investments made in earlier year, that too without granting statutory deductions in a single year, i.e. Assessment Year 1998-99. The very foundation for bring to tax the income is the declaration given before the CIT by the assessee under VDIS Act. This material has to be taken in its entirety and all facts recorded in such declaration should also be considered in its entirety and law is to be correctly applied to these facts, The years of investment and the years in which income is earned is to be taken as declared, as there is no other evidence with the revenue to enable them to come to a contrary conclusion, Only selected portions of the declarations cannot form part of the evidence for the purpose of addition, Thus, when in the declaration the year of earning of income is stated, the Assessing Officer cannot, without evidence to the contrary, treat this income as that which is earned in a different assessment year . Even otherwise, the addition cannot be sustained under section 69 of the Act” as for invoking Section 69, the primary requirement is that investments had to be made by the assessee in the financial year immediately preceding the assessment year. None of the investments in this case were made in the immediately preceding assessment year neither the income was earned in this case, nor the investment has been made, in the financial year immediately preceding the assessment year. Thus, we have to necessarily delete the above addition on the ground that the income sought to be added does not pertain to the impugned accounting year
7. On the issue of the assessee filing a conditional revised return, we are of the considered opinion that the same cannot be held against the assessee. As earlier stated the assessee had clearly given a note that he has earned and invested those funds in the earlier years, i.e. not in the impugned financial year, and also brought to the notice of the Assessing Officer that the orders in question may be beyond the limitation period prescribed in the Act. Thus, filing of return of income was under protest and without prejudice to his rights and this cannot form the basis of bring to tax the Income of the assessee of earlier years, in this year. Even if it is held otherwise, the filing of the return is a fundamental error of law on the part of the assessee, and that is no ground for bringing to tax, an amount which is not otherwise taxable during the .impugned assessment year under the provisions of the Income-tax Act. It is well settled that there cannot be estoppel against the, statute and Article 265 of the Constitution of India in unmistakable terms provided that no taxes shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief he is entitled to when tax is levied or collected without authority of law. The Jurisdictional High Court in the case Nirmala L Mehta vs A. Balasubramaniam, CIT, Bombay reported in 269 ITR 1 at page 11 place tam F onwards observed as follows:
“The problem arose because the petitioner in her return for the assessment year 1988-89 filed on June 30, 1988, offered the prize money of the lottery to tax rather a fundamental error of law on the part of the assessee, but that error of law once detected by the petitioner, It was urged before the Commissioner of Income-tax that the prize money earned by the petitioner could not be taxed under the Income-tax Act, 1961 It is true that it was at a later stage that such contention was raised by the petitioner, but the said contention was a pure question of law and the Commissioner of Income-tax ought to have considered the said contention on its merits and ought not to have declined to entertain it on the ground of delay There cannot be any estoppel against the statute, article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law.
The Constitution Bench of the Supreme Court in Amalgamated Coalfields Ltd. V. Janapada Sabha AIR 1961 SC 964, held thus (page 965):
“It may be stated at the outset that the tax now impugned has been imposed by the local authority from March 12, 1935, and that the first occasion when its validity was attacked was in only 1957, though if the petitioners are right in their submissions their acquiescence might not itself be a ground for denying them relief Before however we set out the points urged by the learned Attorney General in support of the petition, it would be convenient if we narrate briefly the history of the levy of this tax. “
The Supreme Court, thus, held that acquiescence to an illegal tax for a long time is not a ground for denying the party the relief that he is entitled to.”
The Hon’ble Kerala High Court in the case of CIT Vs. D.K.B. AND CO had held that it is a well settled proposition in law that there cannot be estoppel against the statute. At page 625 it is held as follows:
“It is the settled position in law that there cannot be estoppel against a statute. There is no provision in the statute which permits a compromise assessment. The above position was indicated by the apex court in Union of India v. Banwari Lal Agarwal  238 ITR 461. It cannot be laid down as a principle of universal application that whenever an assessment has been completed by accepting the offer of an assessee, no penalty can be imposed.”
The Hon’bie Calcutta High Court in the case of Mayank Poddar (HUF) vs. Wealth Tax Officer 262 ITR 633 held as follows:
“4 We have heard the learned counsel for the parties at length. In our view whether an item of property is chargeable to tax or not is dependent on the true construction of s. 3 of the WT Act, in the strict sense it is enacted. There cannot be any ambiguity in a charging section. If two views are possible, the one beneficial to the assessee is to be adopted. Unless a property is chargeable under the charging section, no tax can be levied thereupon”
“10. thus, unless the definition of ‘net wealth’ r/w the definition of ‘asset’ as provided in s. 2(m) and s. 2(ea), respectively, includes a building let out to a tenant used for commercial purposes, the same cannot be subjected to wealth-tax. Even if the assessee had included the same in his return, that would not preclude the assessee from c1aiminq the benefit of law. There cannot be any estoppel aqainst statute. A property, which is not otherwise taxable, cannot become taxable because of misunderstanding or wrong understanding of law by the assessee or because of his admission or on his misapprehension. If in law an item is not taxable, no amount of admission or misapprehension can make it taxable. The taxability or the authority to impose tax is independent of admission. Neither there can be any waiver of the right by the assessee. The Department cannot rely upon any such admission or misapprehension If it is not otherwise taxable.” (emphasis own).
Thus even if it is held that the assessee had suo motu filed his return of income declaring additional income, it is no ground for bring to tax the income not pertaining to the year to tax in this year as made by the assessing officer. Thus for all these reasons we have to necessarily hold that the addition in question has to be deleted for the reason that it does not pertain to the impugned previous year relevant to the assessment year 1998-99 and the assessing officer has no authority to tax the same in this year.
8. Coming to the issue of reopening, we have to necessarily hold that there is no application of mind by the Assessing Officer on the material and information received by him from the Commissioner of Income tax-III, Thane. VDIS declarations clearly state that the income in question and the investments pertain to the assessment years 1983-84 to 1990-91 and 1991-92 to 1996-97 respectively. A reading of VDIS declarations clearly show that no income pertaining to the impugned assessment year i.e. 1998-99 escaped assessment. While so, the Assessing Officer issued reopening notice for the impugned assessment year. It is well settled that there should be live link between the material gathered and that the income that is escaped assessment of that particular year. No reasonable person would come to a conclusion based on these evidences that income of the impugned assessment year has escaped taxation. If the law permits, the Assessing Officer should have issued a reopening notice for the respective assessment year in which the assessee had earned income and in which the assessee had made investments in fixed assets. Thus, on these facts, we have to also hold that the reopening in question is also bad in law.
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 24.8.2007