ORDER
P.K. Bansal, Accountant Member
1. This appeal has been filed by the Assessee against the order of the Assessing Officer passed under Section 154 of the Income-tax Act, 1961 by which the Assessing Officer withdrew the deduction allowed to the assessee for a sum of Rs. 1.5 crores in the assessment order passed under Section 158BD read with Section 158BC, dated 29-5-1998.
2. The brief facts of the case was that there was search and seizure under Section 132 of the Act in the case of Shri Nilesh B. Patel, Director of the company in which various documents were seized relating to the assessee-company, therefore, a notice under Section 158BD read with Section 158BC was issued on 2-5-1997 to the assessee. The assessments under Section 158BD read with Section 158BC was completed in the case of the assessee on 29-5-1998 working out the undisclosed income at Rs. 1,93,42,629 while working out the undisclosed income, the assessee pointed out that it made disclosure under Section 65 of the VDIS, 1997 before the CIT for a sum of Rs. 150 lakhs in respect of various income relating to the assessment years 1989-90 to 1996-97. This declaration was filed before the CIT on 21-7-1997. The CIT has duly accepted the declaration vide Certificate No. CIT-I-VDIS-97/6605 and has issued the Certificate dated 24-7-1997 and, therefore, the Assessing Officer excluded the sum of Rs. 1,50,00,000 from the total undisclosed income and determined the net undisclosed income at Rs. 43,42,629 in the following manner:–
10.0 On considering all the different seized material and the working given by the assessee-company in respect of the disclosure under VDIS ’97, in view of the discussion in para-8 above, I find that the correct amount of the gross application on the basis of working submitted based on different annexures, ‘Statements and assets up to the period 31-3-1996 works out to Rs. 267.67 lakhs, which is duly shown in the working of VDIS ’97 and the notes to the declaration made by the Assessee Company under VDIS ’97. Out of the above total application of Rs. 267.67 lakhs the assessee has disclosed income of Rs. 150 lakhs under VDIS ’97 net by Investments in assets shown in the certificate of the Hon’ble CIT, Gujarat-I, Ahmedabad. The details of the net income of Rs. 150 lakhs investment in different assets as disclosed by the assessee-company are given in its notes on disclosure under VDIS ’97, and also in the certificate issued by the Hon’ble CIT, Gujarat-I, Ahmedabad, dated 24-7-1997. A copy of the certificate, issued by the Hon’ble CIT, Gujarat-I, Ahmedabad, is attached to this order as Annexure-A.
Considering the above, the total Act works out as under:-
(i) Net amount offered as per VDIS '97 Rs.
(as discussed in paragraph 9 above) 1,50,00,000
(ii) Further income (as discussed in
paragraph 8 above) as under:
(a) Salary 15,32,000
(6) Expenses as per A-1/4 1,20,000
(c) Road as per A-1/8 11,00,000
(d) Expenses as per A-1/36 2,56,729
(e) Expenses as per A-1/19 61,400
(f) Valuables 27,59,300
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1,93,42,629
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10.2 As regards the disclosure made under VDIS’97, I refer to Section 68 of the Finance Act, 1997, which provides that the amount of voluntary disclosed income shall not be included in the total income of the declarant for any assessment year under the Income-tax Act, once the taxes have been paid on such income and the Hon’ble CIT has issued certificate; to him with reference to the declaration made. Hence, such income I cannot form part of the total income of the Assessee Company. Therefore, exclude such income of Rs. 1,50,00,000 from the total income in para 10.1 above. Therefore, the balance amount of Rs. 43,42,629 will be charged to tax under Section 158BD of the Income-tax Act.
3. The Assessing Officer subsequently issued notice under Section 154 of the Act and after noting that there was search and seizure at the residential and office premises of the Directors of the assessee and simultaneously survey under Section 133A of the Income-tax Act, 1961 in the case of assessee-company on 23-6-1996 rectified the assessment order passed under Section 158BD read with Section 158BC withdrawing deduction of Rs. 1.5 crores holding that the deduction from the undisclosed income of Rs. 1.5 crores declared by the assessee under the VDIS was wrongly allowed as the sum was subject-matter of search under Section 132 of the Act. The reliance was placed on the decisions of Hon’ble Madras High Court in the case of CIT v. Peirce Leslie & Co. Ltd. .
4. The Id. AR, before us, contended that there were no search in the case of assessee, there was survey under Section 133A only in the case of assessee. The assessment order passed under Section 158BD read with Section 158BC of the Act, the assessee has disclosed the income under VDIS, 1997 in pursuance of the clarification made by the CBDT to the ASSOCHAM at the meeting of the representative of the ASSOCHAM, Shri A.K. Batyal, Member (Investigation) and Shri V. Pasupathy, Member (Law), CBDT held on 23-7-1997 at New Delhi in respect of question No. 6. During the course of said meeting, it had been categorically stated that disclosure can be made in the cases where no direct search is initiated under Section 132 of the Act. Our attention was invited to such question and answer. Our attention was also drawn to CBDT’s Circular No. 755, dated 25-7-1997 specifically to question No. 36, which is reproduced as under:–
Q. No. 36 : Survey operations were carried out under Section 133A of the Income-tax Act, in case of Mr. D on 30-9-1993. Can he make a declaration under VDIS in respect of the assessment year 1993-94 and earlier years?
Ans. No. 36: If the survey operations were carried out on 30-9-1993, la. “previous year 1993-94”, no disclosure can be made for “assessment year 1994-95”. The declaration of income can be made for the assessment year 1993-94 and earlier assessment years. The declaration can also be made for the assessment year 1995-96 and subsequent assessment years.
5. On the basis of this question and answer, the assessee was competent enough to disclose the income under the VDIS and, Accordingly, the assessee has disclosed the income under VDIS, 1997. It was, further, contended that the Assessing Officer under the impugned order passed under Section 154 quoted question No. 29 from the CBDT’s Circular No. 755, dated 25-7-1997 (supra) erroneously. A reading of this question, shows that it is referable to a person covered under Section 132 of the Act. However, this is not the case of the assessee-company, the assessee-company is a Ltd. company cannot reside at any place. The Registered Office of the assessee was not covered under Section 132 or 132A of the Income-tax Act. The Assessing Officer has wrongly presumed that the order passed under Section 158BD of the Act tantamounts the application of provision of Section 132 of the Act. In this regard, our attention was drawn towards paragraph No. 3.3 of the impugned order which reads as under:–
3.3. … It may be pointed out that provisions of Section 158BD of the Act lay mechanism through which a person who has not been searched, can be brought under the purview of Chapter XIV-B if undisclosed income has been detected in his case. Therefore, once a notice under Section 158BD has been issued upon an assessee, the other provisions of Chapter XIV-B of the Income-tax Act dealing with search and seizure cases will apply accordingly. Further, the assessee was surveyed under Section 133A on the date of search, therefore, even on that count also he is hit by the provisions of Section 64(2)(ii) of the VDIS, 1997.
6. It was vehemently submitted that the cases under Section 158BD of the Act cannot be treated as cases in which the search and seizure taken place. Therefore, provisions of VDIS, 1997 are applicable to an assessee in whose case action under Section 132 or under Section 132A of the Act is not taken, but an order under Section 158BD is passed. It cannot be regarded a person who had been subject to proceedings under Section 132 or Section 132A. Section 158BD states that to those proceedings, the provisions of this Chapter that Chapter XIV-B shall apply, but does not state that the provisions relating to Chapter XIII-C le. search and seizure provisions will apply. The Certificate issued under VDIS is still effective. The Assessing Officer does not have any jurisdiction to disturb the valid Certificate issued by the CIT. By an order under Section 154, the Assessing Officer has tried to enter into the shoes of the CIT. Referring to the decision of Hon’ble Madras High Court as relied by the Assessing Officer it was contended that this decision was not applicable. In that case, for quantification of the capital gain on depreciable assets, the Assessing Officer in the original assessment order had allowed the benefit of substitution of market price of the assets as at January 1994 which the law did not permit and, therefore, High Courts decision on this point was against the taxpayer. So, the Hon’ble Madras High Court held that there was a mistake of the law committed in the original assessment order apparent from record. Reference was placed on the decision of Hon’ble Allahabad High Court in the case of Bhagwat Prasad Poddar v. CIT for the proposition of the law that where there had been no action taken against the petitioner under Section 132 of the Act or under Section 132A of the Income-tax Act, 1961. The assessee was fully eligible to make a declaration under Section 64 of the Scheme and for which Certificate issued under Section 68 Sub-section (2) grants immunity to the assessee. This decision, in our opinion, will not assist as decision included survey under Section 133A also, even though the facts are entirely different. Reliance was also placed on the decision of Hon’ble Gujarat High Court in the case of CIT v. Mayank Rotoplasl Industries [2002] 253 ITR 442. Reliance was also placed towards the decision of Hon’ble Andhra Pradesh High Court in the case of Shankar lal v. ITO . Reliance was also placed on the decision of Hon’ble Gujarat High Court in the case of Nitin P. Shah v. Dy. CIT for the proposition of the law that the Assessing Officer cannot ignore or questioned Certificate issued by the Commissioner accepting the declaration under the VDIS. Alternatively, it was contended that the deductibility of the income disclosed under the VDIS is highly debatable. In view of the clarification issued by the Board and the fact that the Assessing Officer himself has accepted, the income as disclosed under the VDIS after applying its mind to the facts and circumstances of the case. Thus, there cannot be a mistake apparent on record and order passed under Section 154 of the Act must be quashed.
7. On the other hand, the Id. DR contended that the VDIS was not applicable to the assessee as the assessee was subject to the assessment under Section 158BD of the Act under Chapter XIV-B of the Act. Chapter XIV-B applies to the assessment relating to the search cases. Thus, mistake was crept in the order. The Assessing Officer rightly rectified the order, under Section 154 of the Act when he noted the mistake apparent on record. The material found during the course of search, was directly related to the assessee and, therefore, the assessee was not competent to make disclosure under the VDIS, 1997. Reliance was placed on the order of the Assessing Officer, especially to the Circular No. 755 issued by the CBDT dated 25-7-1997, question No. 29 of this Circular states as under:–
Q.No. 29 : A search under Section 132 of the Income-lax Act bars a person from making a disclosure in respect of the previous year in which the search took place and also for any earlier previous year. In case, a search warrant is issued in the name of one person, can others who also reside at the same premises and whose statements may have been recorded during the course of the search, make a disclosure of their income?
Answer : Yes, but not in respect of income, assets, etc., seized during the course of the search or discovered as a result of the search.
8. Reliance was placed on the decision of Hon’ble Madras High Court as relied on by the Assessing Officer.
9. We have carefully considered the rival submissions, gone through the order of the Authorities below. We have also looked into the case law relied on before us. We find that in this case, there was no search and seizure taken place in the case of the asscssee. The action under Section 132 or 132A of the Act was taken in the case of the Directors of the assessee-company. Chapter XIV-B laid down the special procedure for assessment of search cases. Section 158BD authorizes the Assessing Officer to frame the assessment in respect of the other person with respect to which no search has been carried under Section 132 or assets were not requisitioned under Section 132A, but during the course of the search under Section 132 or requisition of assets under Section 132A of the Act, the Assessing Officer got satisfied that any undisclosed income belonging to the other person is found. The provisions of Section 158BD is not applicable to a person in whose case the search has taken place under Section 132 or assets have been requisitioned under Section 132A of the Act. We have gone through the CBDT’s Circular No. 755, dated 25-7-1997 specially the question No. 29 and answer thereto as has been relied on by the Assessing Officer as well as by the Revenue. In view of this question, a person in whose case search has taken place is barred from making disclosure. Other persons who reside on the same premises and whose statements have been recorded during the course of search are also barred from the disclosure under the VDIS in respect of the income, assets, etc. seized during the course of the search or discovered as a result of the search. The meaning of the word ‘discovered’ itself is debatable. There is no finding given by the Assessing Officer whether the assessee-company reside at the same premises where the search has taken place in the case of the Directors.
Whether any statement has been recorded during the course of the search on behalf of the assessee-company. Since the word ‘and’ had been used in Question No. 29, therefore, both the conditions that ‘the other persons in whose case search warrant is not issued must reside at the same premises’ and ‘their statements must be recorded during the course of search’ must be complied with only then question No. 29 can be applied.
10. Now coming to the question No. 6, which relates to the clarification made by the CBDT to the ASSOCHAM in the meeting held on 23-7-1997, at New Delhi, this question-answer is directly related to the VDIS. For the clarity, this question-answer is reproduced as under:–
Q.6 Section 64(2)(ii) prohibits disclosure of income in respect of the previous year in which a search under Section 132 was initiated or in respect of earlier previous years. This implies restriction in the case of a person in whose case search proceedings are initiated under Section 132 by issue of search warrant. Keeping this in view, can disclosure be made for the earlier years, in a case which is inter-connected with some search proceedings, but where no direct search is initiated or no search warrant is issued under Section 132?
Ans: Yes, there would be no bar for disclosure in such cases where no direct search is initiated under Section 132.
11. The said question-answer clearly permits that the disclosure can be made in cases where no direct search is initiated under Section 132. This is a undisputed fact that in the case of assessee, no search was initiated under Section 132 of the Act. The assessee has disclosed the income under the VDIS, 1997 which was duly accepted by the CIT and the Certificate issued by CIT is in force. The Certificate issued under the VDIS has not been withdrawn by the Commissioner of Income-tax. In our opinion, the Assessing Officer is not competent to make any comment on the illegality of the disclosure made under the VDIS specially when the disclosure has been duly accepted by the Commissioner of Income-tax. The Assessing Officer while passing the order under Section 158BD of the Act has allowed the deduction for the income duly disclosed by the assessee under the VDIS and gave the immunity to the assessee referring to the provisions of Section 68 of the Finance Act, 1997 which is clear from paragraph Nos. 10 to 10.2 of the assessment order passed under Section 158BD of the Act which are reproduced hereinabove in the preceding paragraph. We are also of the view that the case of the assessee is duly covered by the decision of Hon’ble Gujarat High Court in the case of Nitin P. Shah v. Dy. CIT for the proposition of the law that the Certificate of the Commissioner accepting the declaration under the VDIS cannot be ignored and questioned by the Assessing Officer. For the applicability of the Section 154 of the Act, it is necessary that the mistake must be apparent on record and the mistake may be a mistake of law or mistake of fact. Until and unless a mistake is apparent on record, the order passed by the Assessing Officer cannot be rectified. In this case, we find that the issue whether the assessee is entitled for the deduction of the Income-tax disclosed under the VDIS while determining the undisclosed income under Chapter XIV-B is anyhow is not the issue where the law is settled in favour of Revenue and there cannot be only one view that the Assessee cannot make disclosure under the VDIS, 1997 under the facts and circumstances of the case. Therefore, the issue is clearly debatable. Therefore, it cannot be held that a mistake had crept in the order passed under Section 158BD of the Act apparent on record. We, therefore, quash the order passed by the Assessing Officer under Section 154 of the Act as in our opinion, the Assessing Officer was not having the jurisdiction to pass the rectifying order under Section 154 of the Income-tax Act, 1961 and the view taken by the Assessing Officer in the order passed under Section 158BD is also possible view on merit.
12. In the result, the appeal of the assessee is allowed.