2010 (12) TMI 108 - HC - Income Tax

Reassessment Unexplained money assessee had made a declaration under the VDIS whereby he declared the value of jewellery and the same was declared to have been acquired in the course of the assessment years 1986-87 and 1987-88, i.e., assessment years other than the assessment year under consideration. - declaration becoming invalid for failure to pay tax Held that - Reassessment for AY 1998-99 on basis of disclosure Permissible In the present case, the declaration was made onDecember 31, 1997, relating to the financial year 1997-98 relevant to the assessment year 1998-99. The Assessing Officer was, thus, justified in initiating proceedings for reassessment under section 148 of the Act and holding that the valuables found were liable to be added to the income of the assessee for the assessment year 1998-99 in the absence of valid explanation. The addition could be set aside if the explanation of the assessee was found to be acceptable. It could not have been said that no reassessment could at all be made on the basis of declaration showing the assessee the owner of the valuables in the financial year merely because the declaration stated that acquisition of valuables was much earlier. Such declaration by itself was not enough to rebut the statutory presumption under section 69A unless the assessee substantiated the same.

Summary

Issues:
1. Validity of reassessment proceedings under section 147/148 for the assessment year 1998-99 based on unexplained investment in jewellery.
2. Justification for addition of unexplained assets to income for the assessment year 1998-99.

Issue 1 - Validity of reassessment proceedings under section 147/148:
The judgment addresses the common question raised regarding the justification of treating the initiation of proceedings under section 147/148 as unjustified and untenable for the assessment year 1998-99. The cases involve declarations made under the Voluntary Disclosure of Income Scheme, 1997 (VDIS) by the assessee, where unexplained investments in jewellery were found. The Assessing Officer (AO) invoked section 69A, raising a statutory rebuttable presumption in favor of unexplained investment. The Tribunal set aside the initiation of reassessment proceedings, emphasizing that the declaration of undisclosed income related to financial years 1985-86 and 1986-87, not the assessment year in question. The Tribunal held that the material available did not support the reassessment for the year 1998-99, rendering the initiation of proceedings under section 147/148 unjustified and untenable.

Issue 2 - Justification for addition of unexplained assets:
In one case, the Commissioner of Income-tax (Appeals) deleted the addition of unexplained assets, citing that the assets were acquired in the financial year 1980-81, not the assessment year 1998-99. The Tribunal upheld the deletion based on jurisdictional grounds, without delving into the merits. The debate centered on section 69A, where unexplained money or jewellery, if not recorded in the assessee's books of account, can be added to the income of the year in which they are found unless a satisfactory explanation is provided. The Revenue argued that the statutory presumption under section 69A could stand unless rebutted by the assessee, emphasizing that the burden of proof lay on the assessee to show that the income did not relate to the year in which it was found.

The judgment clarifies that a valid declaration made under the VDIS, if tax is paid, excludes the disclosed income from the total income of the declarant for any assessment year. However, if tax is not paid, the declaration is treated as never made. Such a declaration can serve as material for reassessment under section 148, and unexplained assets can be deemed as income for the year in which they are found, subject to the assessee providing an acceptable explanation to rebut the statutory presumption under section 69A. The Court held that the Tribunal's view, which disregarded the need for the assessee to substantiate their explanation, was unsustainable. Consequently, the question was answered in favor of the Revenue, allowing the appeals and remanding the matter to the Tribunal for a fresh decision on the merits in accordance with the law.