2022 (2) TMI 941 - HC - Income Tax

Revision u/s 263 by CIT - benefit of Income Declaration Scheme Rules 2016 - whether Tribunal committed substantial error in holding that once the income offered is accepted by the IDS, the Department cannot revise the assessment order by invoking the power under Section 263 ? - HELD THAT - This Court finds that Chapter IX of the Finance Act, 2016 is a complete code by itself. It provides an opportunity to an assessee to offer income, which was not disclosed earlier, to tax. Chapter IX provides for a special procedure for disclosure and charging income to tax. It lays down the procedure for disclosure of such income; the rate of income tax and the penalty to be levied thereupon and the manner of making such payment. Under the said scheme the competent authority has been vested with the power to accept the declaration made by the assessee and such power to be exercised only upon being satisfied with such disclosure. It is well settled that a statutory authority has to function within the limits of the jurisdiction vested with him under the statute. Thus, once the declaration is accepted by the PCIT such authority is estopped from taking any steps which would in effect amount to reopening and/or revising the decision already taken on such declaration. The said scheme was introduced in order to encourage an assessee to make a disclosure of the income not disclosed earlier. PCIT in the instant case invoked its power under Section 263 in respect of an item of income which was declared in terms of the said scheme. All particulars were available before the PCIT in respect of such income and the PCIT upon being satisfied, accepted such declaration. Thus, if the contention of the revenue is accepted that the PCIT has power to invoke Section 263 of the I.T. Act, the same, in our considered view, would frustrate the object behind introduction of such Scheme. The PCIT was not justified in invoking the power under Section 263 of the I.T. Act as it would amount to revising a decision taken by the PCIT on such declaration by the assessing officer which is not contemplated under the Income Tax Act. Thus, all materials were available before the PCIT when the declaration made under Section 183 of the Finance Act were considered and accepted. Therefore, the assumption of jurisdiction by the PCIT under Section 263 of the Act is wholly without jurisdiction. - Decided against revenue.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Legality of the Income Tax Appellate Tribunal's (ITAT) decision regarding the Income Declaration Scheme (IDS), 2016.
3. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.
4. Applicability of Section 68 of the Income Tax Act.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The High Court acknowledged the delay of 420 days in filing the appeal by the appellant/revenue. It was determined that the appellant was entitled to the benefit of the Supreme Court's order extending the period of limitation for filing appeals. Consequently, the delay in filing the appeal was condoned.

2. Legality of the ITAT's Decision Regarding IDS, 2016:
The ITAT had ruled that once the income offered under the IDS, 2016 is accepted by the Department, an order under Section 143(3) of the Income Tax Act cannot be revised. The Tribunal found that the items of addition directed by the PCIT were part of the IDS application and not part of the order passed under Section 143(3) of the Act. The High Court upheld this view, stating that once the declaration under IDS is accepted and the taxes are paid, the assessment order cannot be revised under Section 263 of the Act as it would contradict the spirit of the IDS.

3. Jurisdiction of the PCIT under Section 263 of the Income Tax Act:
The High Court examined whether the PCIT could invoke powers under Section 263 to revise the assessment order after the declaration under IDS was accepted. It was noted that the IDS is a comprehensive code that provides a special procedure for disclosure and charging of income to tax. Once the declaration is accepted, it attains finality, and the PCIT is estopped from revising the decision on such declaration. The High Court concluded that the PCIT's assumption of jurisdiction under Section 263 was without authority, as it would undermine the finality and purpose of the IDS.

4. Applicability of Section 68 of the Income Tax Act:
The revenue contended that the ITAT overlooked its duty to scrutinize documentary evidence in depth to determine the assessee's liability under Section 68 of the Income Tax Act. However, the High Court found that the PCIT's presumption of commission payments to stock brokers was not based on direct evidence linking the assessee. The PCIT's reliance on statements from other stock brokers during search operations was insufficient to justify the revision of the assessment order. The High Court observed that the declaration under IDS had already been processed and accepted, and any attempt to revise it would be contrary to the scheme's provisions.

Conclusion:
The High Court dismissed the appeal filed by the revenue, affirming the ITAT's decision. The substantial questions of law were answered against the revenue, and the connected application was also dismissed. The judgment emphasized the finality of declarations made under the IDS and the limitations on the PCIT's powers to revise such declarations under Section 263 of the Income Tax Act.