2012 (3) TMI 329 - HC - Income Tax

Reopening - Commissioner of Income Tax Delhi-III issued a certificate under Section 68(2) of the VDIS on 13.01.1998 and in this certificate mentioned the fact inter alia that for the assessment year 1997-98 a sum of Rs.7, 23, 490/- has been declared as business income under the VDIS - It appears that in the year 2005 the respondents filed their counter affidavit before the Allahabad High Court to the writ petition on the ground of lack of territorial jurisdiction and accepting the plea the Allahabad High Court dismissed the petitioner s writ petition by order dated 19.10.2007 - It was next contended that the reasons recorded for re-opening the assessment show that on a perusal of the return filed by the petitioner for the assessment year 1998-99 it was observed that in the previous year the petitioner had shown a taxable profit of Rs.42, 79, 340/- but no return was found to have been filed by the petitioner for the assessment year 1997-98 and it was for this reason that notice under Section 148 of the Act was issued on the ground that income chargeable to tax for the assessment year 1997-98 had escaped assessment the petitioner was entitled to the deduction under Section 80-O of the Act in respect of its consultancy income of Rs.71, 11, 695/- which has been declared in its profit and loss account for the year ended 31.03.1997 - the assessee deducted 50% of Rs.71, 11, 695/- which comes to Rs.35, 55, 848/- as deduction under Section 80-O. If this figure is reduced from the profit figure of Rs.42, 79, 340/- the balance comes to Rs.7, 23, 492/-. It was on this basis that the petitioner declared income of Rs.7, 23, 490/- for the assessment year 1997-98 under the VDIS - aDecided in favor of the assessee

Issues Involved:
1. Validity of reopening assessment under Section 148 of the Income Tax Act, 1961.
2. Impact of Voluntary Disclosure of Income Scheme (VDIS) on reopening of assessment.
3. Jurisdiction of the Income Tax Department to issue notice under Section 148.
4. Confidentiality and admissibility of declarations under VDIS.
5. Validity of reasons recorded for reopening assessment.

Issue-wise Detailed Analysis:

1. Validity of reopening assessment under Section 148 of the Income Tax Act, 1961:
The petitioner, M/s. Northern Exim (P) Ltd., challenged the reopening of its assessment for the assessment year 1997-98 under Section 148. The petitioner argued that since it had disclosed its income under the VDIS for the said year, there was no scope for further assessment. The court examined the reasons recorded by the Deputy Commissioner of Income Tax for reopening the assessment, which were based on the observation that the petitioner had shown a taxable profit of Rs.42,79,340/- for the assessment year 1997-98 but had not filed a return for that year. The court found the reasons recorded factually incorrect as the petitioner had already disclosed the income under VDIS and was under no obligation to file a return under Section 139(1).

2. Impact of Voluntary Disclosure of Income Scheme (VDIS) on reopening of assessment:
The petitioner contended that once a declaration is made under VDIS, the provisions of Section 147/148 cannot be invoked. The court noted that the VDIS, formulated by the Finance Act, 1997, allowed taxpayers to disclose previously undisclosed income and pay tax on it. The court clarified that there is no provision in VDIS excluding the applicability of Section 147/148. However, the court emphasized that the validity of action under Section 147 must be examined based on the reasons recorded for reopening the assessment.

3. Jurisdiction of the Income Tax Department to issue notice under Section 148:
The petitioner argued that the notice under Section 148 was without jurisdiction as the income for the assessment year 1997-98 had already been disclosed and taxed under VDIS. The court examined the reasons recorded for reopening the assessment and found them inadequate and factually incorrect. The court held that the Assessing Officer could not have had a reason to believe that income had escaped assessment, thus lacking jurisdiction to issue the notice under Section 148.

4. Confidentiality and admissibility of declarations under VDIS:
The petitioner argued that the notice under Section 148 violated the confidentiality provisions of Section 72 of VDIS. The court noted that Section 72 ensures the secrecy of declarations made under VDIS, except in limited circumstances. The court found that the notice under Section 148 was in contravention of these secrecy provisions, further supporting the petitioner's case against the reopening of assessment.

5. Validity of reasons recorded for reopening assessment:
The court scrutinized the reasons recorded by the Deputy Commissioner of Income Tax for reopening the assessment, which were based on the observation of a taxable profit of Rs.42,79,340/- for the assessment year 1997-98. The court found that the petitioner had declared a taxable income of Rs.7,23,490/- under VDIS after permissible deductions under Section 80-O of the Income Tax Act. The court concluded that there was no escapement of income and the reasons recorded were factually incorrect. Consequently, the court quashed the notice issued under Section 148 and the subsequent proceedings.

Conclusion:
The court allowed the writ petition, quashing the notice under Section 148 and the subsequent reassessment proceedings. The court held that the income for the assessment year 1997-98 had been validly disclosed and taxed under VDIS, and there was no escapement of income warranting reopening of the assessment. The court emphasized the importance of accurate and valid reasons for reopening assessments under Section 148 and upheld the confidentiality provisions of VDIS.

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