2013 (2) TMI 270 - HC - Income Tax

Voluntary Disclosure of Income Scheme, 1997 - appellant disclosed its stock, cash etc. of the years 1994-95, 1995-96 and also of the year 1996-97 - whether, because of disclosure of stock on 26th December, 1997 pertaining to the years 1994-95 and 1995-96 as well as cash and amount of sundry debtors, they shall continue to be good for the year 1997-98? - whether the appellant was entitled to the benefit of increase in the stock, cash and the amount of sundry debtors of previous years due to disclosure of undisclosed stock, cash and the amount of sundry debtors of previous years - Held that - Presumption of existence of the stock, cash and the amount of sundry debtors can be taken at least for the years under consideration, which are only 3 years and therefore, the Revenue under wrong impression that the assessee is claiming the benefit of VDIS for the year 1997-98, proceeded to reject the appellant s claim of increase in stock, cash and the amount of sundry debtors for the relevant years, ignoring the fact that such undisclosed assets extinction has not been proved, nor any effort has been made by the AO to find out whether those stock, cash and the amount of sundry debtors have been sold or utilized and increase of stock, cash and the amount of sundry debtors because of increase in the stock, cash and the amount of sundry debtors due to voluntary disclosure of the appellant under the Scheme of 1997, was not continuing in the hands of the assessee. Therefore, stock, cash and the amount of sundry debtors, on account of disclosure of the appellant on 26th December, 1997, pertaining to the closing date of 31st March, 1996 and pertaining to previous year 1995-96 and assessment year 1996-97 be the opening balance as on 1st April, 1996 and effect of increase in the stock, cash and the amount of sundry debtors due to increase of the previous years increase in stock, cash and the amount of sundry debtors is required to be given. AO even after rejecting the books of accounts of the assessee for the purpose of declaring opening stock of the assessee, relied upon the same statement of accounts and books of accounts produced by the assessee and without enquiry, declared that the assessee sold out undisclosed stock of the earlier years in those years itself. The Tribunal in impugned order even went to the extent of declaring that disclosure made was not voluntary but it was a compulsion on the part of the applicant to opt for VDIS as it was caught by the Department with unaccounted income at the time of survey under section 133A on 26th December, 1997. The Tribunal failed to understand the VDIS, which nowhere says and nowhere prohibits any person from disclosing his income, who is under fear of being caught. The Scheme gives benefit upon disclosure of income provided that his disclosure is in accordance with the Scheme of disclosure and once a disclosure is accepted by the Revenue, then it cannot be questioned in subsequent proceedings by holding that the disclosure was not voluntary. Once the Scheme permits disclosure of previous years stock, cash and the amount of sundry debtors and there may be presumption of continuation of holding stock, cash and the amount of sundry debtors for a reasonable period in the light of the judgment of J.K. Cotton Manufacturers Ltd. (1994 (2) TMI 3 - SUPREME COURT), then the assessee is entitled to take the benefit of increase in stock, cash and the amount of sundry debtors and consequence thereof - Tribunal also failed to appreciate the Circular Nos.754 and 755 issued by the CBDT - in favour of the assessee

Issues Involved:
1. Applicability and benefits of the Voluntary Disclosure of Income Scheme (VDIS) 1997.
2. Presumption of existence of undisclosed assets for subsequent years.
3. Reduction in stock value due to damaged goods.

Issue-wise Detailed Analysis:

1. Applicability and benefits of the Voluntary Disclosure of Income Scheme (VDIS) 1997:

The appellant disclosed its undisclosed income under the VDIS 1997, which included stock, cash, and sundry debtors for the years 1994-95, 1995-96, and 1996-97. The appellant contended that the disclosure made on 26th December 1997 should include the stock, cash, and sundry debtors as on 31st March 1996, and these should be considered as the opening balance for 1st April 1996, thereby affecting the assessment for the year 1997-98.

The appellant argued that under clause 64(2)(ii) of the VDIS, the benefit of voluntary disclosure was not applicable only for the "previous year" in which the survey under section 133A of the Income Tax Act was conducted, but was available for earlier years. This was supported by CBDT Circulars No.754 and No.755, which clarified that the bar on disclosure was limited to the year of the survey and not to previous years.

2. Presumption of existence of undisclosed assets for subsequent years:

The appellant relied on the Division Bench judgment in Sri Gyan Chand Jain Vs. Commissioner of Wealth Tax and the Supreme Court judgment in Commissioner of Wealth Tax Vs. J.K. Cotton Manufacturers Ltd., which held that undisclosed income or assets presumed to exist at a particular time could be presumed to continue for a reasonable period unless proven otherwise by the Revenue. The appellant argued that since the Revenue accepted the undisclosed stock, cash, and sundry debtors for the years 1994-95 and 1995-96 under VDIS, these should be presumed to continue for the subsequent years, including 1997-98, unless proven sold or exhausted by the Revenue.

3. Reduction in stock value due to damaged goods:

In T.A No.35/2001, the appellant claimed a reduction in stock value by 5% due to damaged goods, which was allowed in a similar case (T.A No.36/2001) but denied in the present case. The appellant argued that the Assessing Officer calculated the stock value based on the sale price without considering discounts for cut pieces, outdated designs, or damaged goods.

Judgment Analysis:

The court examined the VDIS 1997, particularly clause 64(2), and CBDT Circulars No.754 and No.755. It was established that the appellant was not entitled to the benefit of VDIS for the assessment year 1997-98 due to the survey conducted on 16th October 1996. However, the appellant was entitled to disclose undisclosed income for previous years and subsequent assessment years.

The court held that the undisclosed stock, cash, and sundry debtors disclosed under VDIS for the years 1994-95 and 1995-96 should be presumed to continue for a reasonable period, including the assessment year 1997-98, unless proven otherwise by the Revenue. The Revenue failed to provide evidence that these assets were sold or exhausted.

Regarding the reduction in stock value due to damaged goods, the court held that it was a question of fact and not a question of law. Therefore, the appellant's claim for a 5% reduction in stock value was not upheld in T.A No.35/2001.

Conclusion:

The court allowed the appeals, holding that the appellant was entitled to the benefit of increased stock, cash, and sundry debtors due to the voluntary disclosure under VDIS for previous years, which should be presumed to continue for subsequent years, including 1997-98. The claim for a reduction in stock value due to damaged goods was not upheld as it was a factual issue.

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