2022 (7) TMI 283 - HC - Income Tax

Disclosure of income under VDIS - set off of tax under VDIS with advance tax (including TDS) in regular course - assessee i.e. petitioner is an employee of United India Insurance Company, he gave the incorrect reason that there was a delay in payment of income-tax within the prescribed limit under Section 139 (1) due to the non-availability of the TDS certificate - Commissioner has dismissed the revision on the ground that the nature of assets of income disclosed under VDIS as well as in the regular IT returns is different. - description of assets shown in the VDIS applications is not at all match with the source of income shown in the return. No TDS has been deducted or advance tax has been paid with respect to assets declared under VDIS and now filing belated return of these to assessment years, the petitioner is avoiding income-tax by deducting the income disclosed in the VDIS HELD THAT - The voluntarily disclosed income is not liable to be included with regular income declared in the return under section 139 as tax paid under VDIS is not liable to be refunded at any cost. The income tax return submitted under Section 139 is not liable to be reopened after availing of the VDIS. The source of income shown for voluntary disclose income and income source shown in the return under Section 139 is altogether different. Under Section 64 of the Finance Act only those persons are entitled to give declaration in respect of income chargeable under the tax under the Income Tax Act for any assessment year, firstly for which he has failed to furnish return under Section 139, secondly, which he has failed to disclose in a return of income furnished by him under the Income Tax Act before the date of commencement of the scheme, thirdly, which has escaped assessment by reason of the omission or failure. As per clause sub-clause (a), in this case, the petitioner did not furnish any return under Section 139 before 31.12.1997, therefore, in voluntarily disclosed income, he ought to have disclosed his all income from all the sources because till 31.12.1997, he did not disclose his any of the income by submitting the return under Section 139. He submitted the return under section 139, after 31.12.1997 i.e. 23.01.1998 to bring his case within clause 64 (1) (b). As submitted belated IT returns under section 139 but as per the requirement of section 64 (1)(b) that ought to have been filed before the date of commencement of the scheme. Since he did not submit any return under section 139 before this scheme, therefore involuntarily disclosed income, he ought to have disclosed his entire income. He cannot be permitted to commit mischief with the Act or VDIS by disclosing part of his income in VDIS and thereafter part of his income by submitting belated return in case of Earnest Business Services (P) Ltd ( 2017 (3) TMI 1185 - BOMBAY HIGH COURT has rightly held that both the tax altogether different and there cannot be any adjustment between them. Section 70 and 71 mandate that the income disclosed in VDIS shall not be included income under section 139 means income which had already been disclosed and that assessment is not liable to be reopened. The petitioner in order to avail the undue benefit of this scheme has filed the belated return by contending that the filing of such belated return is permissible and claimed the deduction of income as well as the refund of the tax.

Summary

Issues Involved:
1. Timeliness of filing income tax returns for the assessment years 1993-94 to 1997-98.
2. Validity and applicability of the Voluntary Disclosure of Income Scheme, 1997 (VDIS).
3. Eligibility for tax refund based on the VDIS and subsequent income tax returns.
4. Interpretation of Sections 68, 69, and 70 of the Finance Act, 1997.
5. Legitimacy of deductions and refunds claimed by the petitioner.

Issue-wise Detailed Analysis:

1. Timeliness of Filing Income Tax Returns:
The petitioner failed to file income tax returns for the assessment years 1993-94 to 1997-98 within the prescribed time under Section 139(1) of the Income Tax Act. The returns were filed belatedly on 23.01.1998. The petitioner attributed the delay to the late issuance of certificates under Section 203 of the Income Tax Act by the employer. However, the Commissioner dismissed this reason, noting that the petitioner was an employee of United India Insurance Company and had received Form 16 for the relevant years in a timely manner.

2. Validity and Applicability of VDIS:
The Central Government introduced the VDIS under Chapter IV of the Finance Act, 1997, allowing individuals to disclose undisclosed income for any assessment year up to 31st December 1997. The petitioner availed of this scheme, disclosing income for the assessment years 1993-94 to 1997-98 and paying the requisite tax. The income disclosed under VDIS was from sources like cash, debtors, shares, and bank accounts. The petitioner argued that this income should not be included in the total income for the respective assessment years as per Section 68 of the Finance Act, 1997.

3. Eligibility for Tax Refund:
The petitioner claimed refunds for the assessment years 1996-97 and 1997-98, arguing that the income disclosed under VDIS should be excluded from the total income, resulting in no tax liability. However, the Commissioner rejected this claim, stating that the petitioner was attempting to benefit under both the Income Tax Act and VDIS, which is not permissible. The Commissioner emphasized that the nature of assets disclosed under VDIS did not match the income sources in the regular returns, and no TDS or advance tax was paid for the assets declared under VDIS.

4. Interpretation of Sections 68, 69, and 70 of the Finance Act, 1997:
Section 68 specifies that voluntarily disclosed income shall not be included in the total income for any assessment year if certain conditions are met. Section 69 states that voluntarily disclosed income shall not affect the finality of completed assessments, and Section 70 disallows any refund of tax paid under VDIS. The court noted that these sections collectively indicate that tax paid under VDIS is distinct from regular income tax, and the income disclosed under VDIS should not be included in regular income for tax purposes.

5. Legitimacy of Deductions and Refunds Claimed:
The petitioner deducted the income disclosed under VDIS from the total income in the returns filed for the assessment years 1996-97 and 1997-98, claiming refunds. The court found this approach contrary to the intention of VDIS, which was to allow disclosure of undisclosed income without reopening regular assessments. The court held that the petitioner could not claim deductions or refunds based on the VDIS disclosures as it would undermine the scheme's purpose and violate the provisions of Sections 68, 69, and 70 of the Finance Act.

Conclusion:
The court dismissed the writ petition, upholding the Commissioner's order dated 29.03.2001. The court concluded that the petitioner was not entitled to claim refunds based on the deductions of income disclosed under VDIS from the regular income tax returns. The court emphasized that the tax paid under VDIS is non-refundable and distinct from regular income tax, and the petitioner could not benefit from both schemes simultaneously.