2013 (8) TMI 732 - AT - Income Tax

Block assessment - Section 158BC and 158BD - amount in the Bank Account and fixed deposit as unexplained credit - validity of initiation of proceedings u/s 158BC and applicability of the provisions of section 68 -Held that - a mere declaration by someone under VDIS is not sufficient being a satisfactory explanation of cash credit appearing in the books of the assessee which is subjected to further verification and examination to find out the true nature and source of such amount. Further, the declaration made by the claimants can be considered only with respect to those cases where the declaration under the VDIS as well as the deposits in the Bank Account are in the same name. A declaration made by a person under the VDIS of certain amount and then made a claim regarding the deposit with the Bank which is not in the name of such person cannot be considered as an explanation u/s 68 of the Income Tax Act. Therefore, the declaration under VDIS can be considered for further examination and verification for the purpose of explanation in respect of deposits in the Bank Account and FDR only with respect to the cases where the declaration and deposit are in the same name and not in the fictitious name. Appraisal report is not a relevant and cogent material to be considered for assessment purposes. What is the material is the evidence and information as well as books of account detected during the course of the search and seizure proceeding and subsequent investigation. Deduction u/s 80P - Held that - where the addition has been made u/s 68 with respect to the undisclosed deposits, therefore, the benefit of Section 80P is not available on such unexplained income. Matter remanded back with the direction to AO that, if the deposit and the declaration in the VDIS are in the same name and pertains to the same time/year then it can be considered as an explanation subject to verification of the correct name and identity of the depositor. The declaration of income under VDIS post search and seizure action but name of the declarant does not match with the name of the depositors in the account, the same would not be considered as relevant evidence.

Summary

Issues Involved:
1. Validity of initiation of proceedings under sections 158BC and 158BD.
2. Applicability of Section 68 regarding unexplained cash credits.
3. Relevance of declarations under the Voluntary Disclosure of Income Scheme (VDIS).
4. Eligibility for Section 80P benefits for cooperative banks.

Detailed Analysis:

1. Validity of Initiation of Proceedings Under Sections 158BC and 158BD:
The assessee challenged the initiation of proceedings under sections 158BC and 158BD, arguing that no incriminating material was found during the search and seizure on 6.2.1997, thus contending that they had no undisclosed income and were not liable to submit a return under section 158BC. The Assessing Officer (AO) rejected this contention, framing the block assessment under sections 158BC and 158BD, and made additions under Section 68 for unexplained deposits. The CIT(A) upheld the validity of these proceedings, rejecting the legal objections raised by the assessee.

2. Applicability of Section 68 Regarding Unexplained Cash Credits:
The AO added Rs. 17,09,00,881 as unexplained cash credits under Section 68, asserting that the assessee failed to explain the genuineness and identity of the depositors. The CIT(A) granted partial relief, deleting the addition for amounts where depositors had declared income under VDIS, but sustained Rs. 2.61 crores where the assessee could not provide records. The Tribunal noted that the declaration under VDIS alone is not conclusive evidence for explaining cash credits in another's books, requiring further verification and examination. The Tribunal remitted the issue back to the AO for detailed examination of the genuineness and source of the deposits, particularly where declarations under VDIS matched the deposit names and periods.

3. Relevance of Declarations Under the Voluntary Disclosure of Income Scheme (VDIS):
The Tribunal emphasized that immunity under VDIS applies only to the declarant and not to other persons. The Supreme Court's decision in Jamuna Prasad Kanhaiya Lal Vs. CIT was cited, stating that VDIS declarations do not prevent the AO from investigating the true source of credits. The Tribunal directed the AO to verify if the VDIS declarations and the bank deposits were in the same name and period, and to consider them as explanations only if they matched and were genuine.

4. Eligibility for Section 80P Benefits for Cooperative Banks:
The assessee argued that the block assessment for the period prior to 1.6.1995 should be exempt under Section 80P, which provides benefits to cooperative banks. The Tribunal clarified that Section 80P benefits apply only to income from business activities related to the members of the cooperative bank, not to unexplained income. Thus, the benefit of Section 80P was deemed inapplicable to the unexplained deposits added under Section 68.

Conclusion:
The Tribunal set aside the CIT(A)'s order, remitting the matter back to the AO for a thorough examination of the deposits' genuineness and sources, particularly in light of the VDIS declarations. The AO was instructed to verify the correct names and identities of the depositors and decide the issue accordingly. Both sets of cross-appeals filed by the assessee and the revenue were allowed for statistical purposes.

Order Pronounced on 8.5.2013.