2012 (7) TMI 752 - HC - Income Tax

Search - undisclosed income - Assessee explained that initial investment made by him in his proprietary firm was declared under provisions of Voluntary Disclosure of Income Scheme, 1997 Held that - search was conducted in case of assessee prior to voluntary disclosure, as per section 64(2) of the Finance Act, 1997 - no immunity to the appellant Search Held that - Authorities were competent to conduct search in the premises of the partners of the firm when the names of all the partners were specifically mentioned in the warrant of authorization - appeal is dismissed.

Issues Involved:

1. Validity of the warrant of authorization issued in the name of the firm for conducting a search in the premises of the partner and making an assessment under section 158 BC of the Income Tax Act.
2. Validity of the declaration under the Voluntary Disclosure of Income Scheme (VDIS), 1997, in light of section 64(2) of the Finance Act, 1997.

Issue-wise Detailed Analysis:

1. Validity of the warrant of authorization issued in the name of the firm:

The appellant contended that no warrant of authorization was issued in his individual name, which could lead to a valid search and subsequent assessment under section 158 BC of the Income Tax Act. The Tribunal, however, found that the name of the appellant was clearly mentioned in the combined warrant of authorization issued in the name of the firm, M/s. Mahavir Construction Company, Dhamtari. It was held that there is no requirement under law to issue separate search warrants for each partner when a combined search warrant includes all names. The Tribunal relied on the precedent set in Smt. Anita Parakh v. Commissioner of Income Tax, where a combined warrant was deemed sufficient.

Furthermore, it was argued that even if the search was illegal, the material collected during the search could still be used against the assessee in the assessment proceedings, as supported by the Supreme Court's decisions in Pooran Mal v. Director of Inspector and State of Punjab v. Baldev Singh.

The Tribunal concluded that the authorities were competent to conduct the search in the premises of the partners of the firm, as the names of all partners were specifically mentioned in the warrant of authorization. Thus, the first substantial question of law was answered affirmatively in favor of the department.

2. Validity of the declaration under the VDIS, 1997:

The appellant declared an initial investment of Rs. 4,00,000/- under the VDIS, 1997, and obtained a certificate from the Commissioner of Income Tax. However, the Assessing Officer (AO) held that since a search was conducted against the appellant, he was debarred from making a declaration under section 64(2) of the Finance Act, 1997. The AO declared the appellant's declaration null and void and treated the amount as taxable undisclosed income.

The CIT (A) initially held that the AO was incorrect in taxing the sum of Rs. 4,00,000/-, as the declaration accepted by the Commissioner under the VDIS, 1997, was final and conferred immunity upon the declarant. However, the Tribunal reversed this decision, holding that the appellant was not eligible for immunity under the VDIS, 1997, since the search was conducted under section 132 of the Act, making him ineligible for declaring undisclosed income for any earlier years prior to the search.

The Tribunal's decision was based on the fact that the name of the appellant was included in the search warrant, and he participated in the assessment proceedings. The Tribunal found that the declaration of undisclosed income made by the appellant under the VDIS, 1997, on 13.12.1997, did not confer immunity as per the provisions of the scheme and the Finance Act, 1997.

Ultimately, the Tribunal's findings were upheld, affirming that the authorities were correct in denying the appellant's claim for immunity under the VDIS, 1997. The second substantial question of law was also answered affirmatively in favor of the department.

Conclusion:

The appeal was dismissed, with both substantial questions of law answered in favor of the department. The Tribunal's findings were deemed just and proper, affirming the validity of the search and the denial of immunity under the VDIS, 1997.

← Previous Next →