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TMI Blog1981 (1) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 1963-64 and Rs. 10,060 for the assessment year 1964-65 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the stamp charges for obtaining the hundi loans should be held as disallowable, the stamp charges being Rs. 7,905 for A.Y. 1962-63, Rs. 10,850 for A.Y. 1963-64 and Rs. 11,940 for A.Y. 1964-65 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that imposition of penalties under section 271(1)(c) was justified for, (a) assessment year 1962-63, (b) for assessment year 1963-64, and (c) assessment year 1964-65 ? " The facts leading to this reference are as follows : We are concerned with the assessment years 1962-63, 1963-64 and 1964-65. The assessee is a registered firm and it had started its business as a dealer in timru leaves. Later on, it extended its business to bidi leaves and also to manufacture of bidis. It has its business branches at various places with head office at Nadiad in Gujarat but its business is spread over West Bengal, Uttar Pradesh, Assam, Gujarat, etc. It was the case of the assessee that it had borrowed substantial amounts from Multani m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan of Rs. 22,00,000 to Raja Chandrachur Prasad Singh, and fixed deposits to the extent of Rs. 75,00,000 were not to be covered by this item of Rs. 73.20 lakhs voluntarily disclosed by the assessee. On January 18, 1966, the assessee filed another voluntary disclosure form. This was done under s. 24 of the Finance (No. 2) Act of 1965 declaring an amount of Rs. 31.70 lakhs and according to col. 8 of the Form regarding this disclosure, this amount of Rs. 31.70 lakhs was made up as follows: Rs. 23.45 lakhs hundi loans; and 8.25 lakhs cash, which was realised by the assessee, by conversion of hundi loans from Multani bankers. After these disclosures the three assessments under reference came up before the ITO and the ITO held that for the assessment year 1962-63, interest, brokerage and stamp charges regarding hundi loans totalling to Rs. 56,53,966 were not allowable as deduction. Similarly, for the assessment years 1963-64 and 1964-65, the items of brokerage, interest and stamp charges regarding hundi loans were disallowed by the ITO. Against this decision of the ITO the assessee took the matter in appeal to the AAC and that officer held that interest, brokerage a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in respect of these hundi loans, aggregating to Rs. 73.20 lakhs. In our opinion, the correct approach in order to answer the questions referred to us is to find out what exactly was done by the assessee when it disclosed the two items, one of Rs. 41.50 lakhs, and the other of Rs. 31-70 lakhs, aggregating to Rs.73.20lakhs, for the assessment years relevant to the Samvat years 2009 to 2020. As we have pointed out above, the first letter was addressed by the assessee-firm to the CBR and that letter was dated September 15, 1964, addressed to J. P. Singh, Chairman, Central Board of Revenue, New Delhi. It was in connection with the assessment of the assessee for the assessment years relevant to the Samvat years 2009 to 2013 corresponding to the assessment years 1954-55 to 1958-59. In this letter, there was no definite disclosure of any amount as income with reference to hundi loans. The firm mentioned: " We maintain that all the borrowings are genuine borrowings but in order to cut short the matter, though we are quite prepared to place before your honour as also before the Income-tax Officer everything that we have got in our possession or power in support of our contention, nev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n interest payment in Samvat year 2020 was shown as " nil" and the total amount at the foot of that list was shown to be Rs. 41.50 lakhs. Annexure " C " at p. 319 of the paper book is the form duly filled in for making voluntary disclosure of undisclosed income under cl. 68 of the Finance Act, 1965. It was made clear that the assessee was declaring the amount of Rs. 41.50 lakhs representing income of the firm. It was made clear in col. 8 that the amount which remained to be paid was Rs. 24,90,000, that is, sixty per cent. of the amount which was disclosed. Along with this form a statement was annexed and the statement was in these terms : " Since the Samvat year 2009 the declarant's business of manufacture and sale of biris has increased and the firm was obliged to borrow loans due to increased requirements. The declarants have undisclosed income. Considerable part of loan borrowed are, however, genuine. Declarants have also introduced their undisclosed income on hundi loans from time to time from and after the Samvat year 2009. This along with interest claimed thereon for all these years and on which tax was not paid in all amount to nearly Rs. 41,50,000. It would be difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and also agreed to make payment of tax at sixty per cent. thereon and this amount covered the amount of hundi loans outstanding as on 30th September, 1965, namely, Rs. 23.45 lakhs. According to the assessee, in the letter, the total amount of hundi loans outstanding on November 4, 1964, this is, Aso Vadi Amas Samvat year 2020, is Rs. 73.20 lakhs. In this letter of October 5, 1965, the assessee stated: " We enclose a statement from S. Y. 2009 to S. Y. 2020 showing the loan accounts in respect of Multani merchants, various banks, and other parties from whom our firm had obtained loans for business purposes. The position at the end of S. Y. 2020 (Aso Vadi Amas), i. e., 4-11-65, will be as under: Rs. (1) Multani merchants 73.20 lakhs. (2) Raja Saheb (i. e., Raja Chandrachur Pratap Singh) 22.00 lakhs The position as on 30-9-65 is as under :-- Rs. (1) Multani merchants 23.45 lakhs (2) Raja Saheb 22.00 lakhs." " Thus there remains the loan amount of Multani merchants only, Rs. 23.45 lakhs, which is already covered in the settlement amount of Rs. 41.50 lakhs. However, we have given the above position at the end of S.Y. 2020, i.e., 4-11-65, which is Rs. 23.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggregate amount of Rs. 31.70 lakhs was disclosed on January 18, 1966. The correspondence which we have set out herein above makes it clear that when the assessee declared the amount of Rs. 41.50 lakhs under what is called the ad hoc scheme or what may be more appropriately called as declaration under s. 68 of the Finance Act of 1965, it made it clear that the amount of Rs. 41.50 lakhs was inclusive of interest on hundi loans and that it was declaring this amount from Samvat years 2009 to 2019 relevant to assessment years 1954-55 to 1964-65. At several places, as we have shown by underlining from the quotation from the statement annexed to the declaration under cl. 68 of the Finance Act of 1965, the assessee made it very clear and specified that the amount of Rs. 41.50 lakhs was inclusive of interest on hundi loans. The assessee wrote a letter on October 5, 1965, and in that letter the assessee-firm again specified that the aggregate amount of Rs. 73.20 lakhs which it was prepared to offer for the years from Samvat year 2009 to Samvat year 2020, consisted of Rs. 41.50 lakhs which it had already declared in May, 1965, and the further amount of Rs. 31.70 lakhs which it was declarin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment so that there should not remain any matter pending in respect of loans and borrowings and pending assessments up to and including assessment year 1965-66. This offer of the assessee was ultimately accepted because the counter-offer was only on two items which were to be left out of the overall settlement regarding borrowings, the two items being the loan of Rs. 22,00,000 from Raja Saheb and the amount of Rs. 75,00,000 of fixed deposits. Barring these two items, there was complete settlement arrived at between the assessee-firm and the department regarding all borrowings from whatever source and particularly in respect of hundi loans borrowed by the assessee or shown as borrowings by the assessee during the Samvat years 2009 to 2020. In view of this position, it is clear that in respect of assessment years which are under reference before us, namely, assessment years 1962-63, 1963-64 and 1964-65, it was not open to the department to seek to bring to tax any item pertaining to the borrowings from any party whatsoever unless those items touched the borrowings of Rs. 22,00,000 from Raja Saheb and the borrowings on fixed deposits aggregating to Rs. 75,00,000. Barring these two ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 5, 1965, from the assessee and January 18, 1966, from the ITO, when taken together, go to show that the overall settlement regarding the amount of Rs. 73.20 lakhs covered the earlier declaration of Rs. 41.50 lakhs also and since all matters relating to loans and borrowings for pending assessments up to and including assessment year 1965-66 were covered by the settlement, even the question of interest and other items relating to hundi loans would be covered for assessment years 1962-63, 1963-64 and 1964-65. Apart from this aspect, there is another angle from which the question can be looked at and it is this. Under the Finance Act of 1965, cl. 68, provision was made for voluntary disclosure of income and under sub-s. (6), cl. (a), " any amount declared by any person under this section in respect of which the tax referred to in sub-s. (3) is paid shall not be included in his total income for any assessment under any of the Acts, mentioned in sub-s. (5) if he credits in books of account, if any, maintained by him for any source of income or in any other record, the amount declared as reduced by the tax paid thereon under this section ". Amongst the Acts which are mentioned are th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch lesser amount and, therefore, interest was rightly disallowed by the ITO when he assessed the income of the assessee in the light of the three declarations for assessment years 1962-63, 1963-64 and 1964-65. In our opinion, it would be contrary to law and contrary to the arrangement arrived at between the department and the assessee if the department were allowed to go back upon the arrangement arrived at between the parties and to seek to bring to tax any amount in respect of the loans and borrowings for Samvat years 2009 to 2020, other than the amount of Rs. 73.20 lakhs. The assessee was contending that some of these amounts which were included in the sum of Rs. 73.20 lakhs were genuine transactions and genuine borrowings but for the sake of convenience and in order to avoid a long drawn out inquiry and the procedure of disclosure which was being complained of in the years corresponding to Samvat Years 2009 to 2020, and once that was accepted, in our opinion, it was not open to the department to go into any question regarding these loans and borrowings for the years 2009 to 2020. The inquiry could not be permitted, otherwise no such agreement could ever be reached by an assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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