2011 (11) TMI 441 - HC - Income Tax

Income escaping assessment - assessee was a partner in a firm wherefrom he was getting taxable income by way of salary for services rendered as working partner and interest on excess maintained in the capital account - Even though income was accounted for six years prior to the financial year 1997-98, the assessee admittedly did not file a proper application under the V.D.I, scheme or remitted the tax on the due date - the income disclosed is nothing but cash and gold held by the assessee - The unexplained cash and gold are assessable under Section 69A in the assessment year relevant for the previous year in which disclosure is made which in this case is 1998-99 as the disclosure was made on 31.12.1997 - Decided against the assessee

Summary

Issues:
1. Appeal against order confirming income escaping assessment under Section 147 of the Income Tax Act for the assessment year 1998-99.
2. Interpretation of the Voluntary Disclosure of Income Scheme, 1997.
3. Assessment of undisclosed income based on disclosure made by the assessee.
4. Applicability of Section 69A for unexplained cash and gold.
5. Penalty proceedings under Section 271(1C) and interest under Section 234A and 234B.

Analysis:

1. The appellant, a partner in a firm, filed an appeal against the Tribunal's order confirming income escaping assessment under Section 147 for the assessment year 1998-99. The appellant had disclosed income under the Voluntary Disclosure of Income Scheme, 1997, for six years prior to the financial year 1997-98. The Assessing Officer invoked Section 147 based on this disclosure, leading to the assessment. The first appeal was allowed by the C.I.T.(Appeal) but the department appealed to the Tribunal, which ruled in favor of the department.

2. The Senior counsel argued that the assessment should have been based on the disclosure made by the assessee, covering income for six financial years, including the financial year 1997-98. However, the High Court noted that the disclosed income was in the form of cash and gold, not deposits or income based on accounts. As the assessee did not comply with the V.D.I. Scheme conditions, the Officer had the authority under Section 147 to conduct an income escaping assessment, even though based on the assessee's information.

3. The High Court upheld the assessment under Section 147 read with Section 69A of the Income Tax Act, stating that the assessment was appropriate. The undisclosed cash and gold were deemed assessable under Section 69A for the assessment year 1998-99, as the disclosure was made on 31.12.1997. The Court found that the Tribunal's order was not based on the correct reasons but upheld it for the stated reasons.

4. Regarding penalty proceedings under Section 271(1C), the Court opined that there was no basis for penalty as the assessment was solely based on the disclosed income without any additional additions. As for interest demanded under Section 234A and 234B, the Court directed that interest should be charged only with reference to the assessment year 1998-99. If a penalty was imposed, the appellant could produce a copy of the judgment for rectification and recall of the order.

In conclusion, the High Court affirmed the assessment under Section 147 and Section 69A, dismissed the penalty proceedings, and specified the calculation of interest under Section 234A and 234B for the relevant assessment year.