NILESH HEMANI v. COMMISSIONER OF INCOME-TAX — 1998 DIGILAW 499 (CAL)

Y. R. MEENA, J. ( 1 ) BY this petition, the petitioner has challenged the notice issued under Section 158bc of the Income-tax Act, 1961, and prayed that the notice be quashed and further prayed that the amount of Rs. 1,35,00,000 be returned to the petitioner. ( 2 ) THE case of the petitioner is that the petitioner has been carrying on business as importer and also carrying on business of dealing in shares for the last several years. In 1997, a Voluntary Disclosure Scheme (hereinafter called "the Scheme"), came into force with effect from July 1, 1997. Under that Scheme any person could make a declaration in respect of any income chargeable to tax under the Income-tax Act, 1961 (hereinafter referred to as "the Act"), which has not been subject to tax earlier. Section 67 (1) of the Scheme provides that the declarant could file a declaration without paying the tax but such tax has to be paid within three months from the date of filing of the declaration with simple interest at the rate of 2 per cent, per month for the period from the date of filing of the declaration to the date of payment of tax and document in proof of such payment is to be filed within the said period of three months. ( 3 ) THE petitioner filed the declaration on October 3, 1997, disclosing the amount of Rs. 1,35,00,000 which was not taxed earlier. The case of the petitioner is that the said amount of Rs. 1,35,00,000 is lying in locker No. 175 of the Allahabad Bank, Peddar Road Branch, Mumbai, and that he requested the Departmental authority to adjust the tax payable on the said amount, out of the amount lying in the said locker of the bank, but the request has not been accepted regarding adjustment of tax out of money in the locker. Thereafter, the petitioner managed the tax amount on his own and paid the tax within three months as required under the Scheme. ( 4 ) THE case of the petitioner that once he disclosed the concealed income under the Scheme, no notice under Section 158bc of the Act should be issued to tax that income once again, ignoring the provisions of the Scheme. ( 4 ) THE case of the petitioner that once he disclosed the concealed income under the Scheme, no notice under Section 158bc of the Act should be issued to tax that income once again, ignoring the provisions of the Scheme. Therefore, the case of the petitioner is that notice should be quashed and the amount found in the said locker should be returned to the petitioner. ( 5 ) COUNSEL for the Revenue submits that there was a search under Section 132 of the Act at the residence of the petitioner, which is shared by the other members of the family of the petitioner, on October 1, 1997. During search it came to the notice of the authorised officer that the locker No. 175 stands in the names of Dhirajlal J. Hemani, Smt. Manjula D. Hemani, Nilesh D. Hemani and Smt. Meena N. Hemani. Therefore, four more search warrants were issued. Dhirajlal did not disclose the locker No. 175 of the Allahabad Bank before it came to the notice of the search party. ( 6 ) HE further submitted that a prohibitory order under Section 132 (3) has been passed on October 1, 1997, itself, by the authorised officer, prohibiting Dhirajlal J. Hemani, Smt. Manjula D. Hemani, Nilesh D. Hemani, Meena N. Hemani, Parag D. Hemani and Smt. Babita D. Hemani from removing, parting with or otherwise dealing with the articles lying in any locker of the bank. One more order under Section 132 (3) of the Act was passed specifically in respect of locker No. 175 of the Allahabad Bank and served on the bank manager on the same date. It could not be served on October 2, as it was a holiday. This order could not be served on the petitioner and other members of his family as they were not available for service of that order. ( 7 ) THE grievance of the petitioner is that when the concealed income is disclosed under the Voluntary Disclosure of Income Scheme, 1997, the petitioner is entitled to the benefit of the provisions of the Scheme, 1997. ( 8 ) WHETHER the petitioner is entitled for benefit under the Voluntary Disclosure Scheme ? Counsel for the petitioner heavily placed reliance on the opinion expressed on an application of the petitioner, by the Member of the Central Board of Direct Taxes, Mr. ( 8 ) WHETHER the petitioner is entitled for benefit under the Voluntary Disclosure Scheme ? Counsel for the petitioner heavily placed reliance on the opinion expressed on an application of the petitioner, by the Member of the Central Board of Direct Taxes, Mr. A. K. Batabyal, that is, annexure-1, letter dated November 17, 1997, which reads as under :"please refer to your petition dated 22nd October, 1997, with reference to a search that was conducted in a locker in the Allahabad Bank, Peddar Road Branch, Mumbai. This is to confirm that your case is not hit by the provisions of Section 64 (2) (ii) of the VDIS, 1997. However, since there is no provision for release of seized cash until assessment proceedings are completed, the cash seized cannot be released to you. Therefore, you have to arrange for payment of taxes on the amount declared by you. " ( 9 ) COUNSEL for the petitioner submits that when the member of the Board has opined that the provisions of Section 64 (2) (ii) are not attracted in case of the petitioner, the petitioner is entitled for the benefit of the Scheme 1997, in respect of the amount of Rs. 1,35,00,000. ( 10 ) THE pertinent question is whether the opinion of the member of the Central Board of Direct Taxes is binding on the Assessing Officer, though it may be contrary to the provisions of the Scheme. My answer will be obviously in the negative. Therefore, before we proceed further, it is to be seen whether the opinion of the member of the Board is in conformity with the provisions of Section 64 (2) (ii) of the Scheme coupled with the provisions of the Income-tax Act, 1961. ( 11 ) CLAUSE (ii) of Sub-section (2) of Section 64 of the Scheme reads as under :" (2) Nothing contained in Sub-section (1) shall apply in relation to-- (ii) the income in respect of the previous year in which a search under Section 132 of the Income-tax Act was initiated or requisitioned under Section 132a of the Income-tax Act was made, or survey under Section 133a of the Income-tax Act was carried out or in respect of any earlier previous year. " ( 12 ) SECTION 65 of the Scheme provides the procedure as to how the declaration should be made. " ( 12 ) SECTION 65 of the Scheme provides the procedure as to how the declaration should be made. Sub-section (1) of Section 65 provides that a declaration under Sub-section (1) of Section 64 shall be made to the Commissioner and shall be in such form and shall be verified in such manner as may be prescribed. The declaration shall be signed, where the declaration is by an individual, which should be signed by himself. Therefore, unless the declaration is signed in the form prescribed for the Scheme and submitted to the Commissioner, there is no declaration under the Scheme in the eye of law. ( 13 ) THE material on record shows that there was no declaration prior to October 3, 1997, by the petitioner. The declaration in the eye of law, under the Scheme, the declaration has been submitted only on October 3, 1997. While the locker No. 175 stood in the name of the petitioner, his father and other members of the family, came to the notice of the authorised officer on October 1, 1997, during search proceedings and that the locker has not been disclosed either by his father or by the petitioner, even the key of locker No. 175 was not handed over, therefore, arrangements were made to break open the locker, on the opening of locker currency notes worth Rs. 1,35,00,000 were found in the locker. ( 14 ) IT is also important to note that search warrants in the case of the petitioner were signed on October 3, 1997, as well as the petitioner has disclosed his income on the same day, but at what time search warrants are signed, and what time the declaration is made, there is no material on record to give finding whether the declaration under the scheme was made prior to the signing of the search warrant. But it is a fact that fresh search warrants are also issued on October 3, 1997 and the order under Section 132 (5) issued on October 1, 1997. ( 15 ) WHEN the assessee claims that he has made a declaration prior to the initiation of search proceedings the burden lay on him to prove it. In view of the material on record, the petitioner has failed to show that he has disclosed the concealed income prior to the initiation of search proceedings. ( 15 ) WHEN the assessee claims that he has made a declaration prior to the initiation of search proceedings the burden lay on him to prove it. In view of the material on record, the petitioner has failed to show that he has disclosed the concealed income prior to the initiation of search proceedings. Mere claim in the petition that the petitioner has disclosed the concealed income prior to the initiation of search proceedings in his case is not enough. ( 16 ) IT is interesting to note that the petitioner has disclosed Rs. 1,35,00,000 concealed income on October 3, 1997, which was lying in locker No. 175, Allahabad Bank, but in his statement recorded on October 14, 1997, he has not uttered even a word about that amount. If he is the sole operator of the locker No. 175 not only he should know the amount in it but he has concealed the fact that as he had made a disclosure on October 3, 1997, of Rs. 1,35,00,000, which was lying in the locker. The petitioner failed to show that he has disclosed the concealed income before initiation of proceedings under Section 132 of the Act. ( 17 ) FURTHER, it is noticed that the search warrant under Section 132 of the Act, issued in the case of Dhirajlal was signed on September 30, 1997, and during search on October 1, 1997, it came to the notice of the search party that Dhirajlal is one of the owners of locker No. 175, that contained concealed income. In continuance of search proceedings a prohibitory order under Section 132 (3) was issued on October 1, 1997, by the authorised officer. In such circumstances it cannot be said that no proceedings were initiated under Section 132 of the Act before disclosure. ( 18 ) THE provision of Section 64, Sub-section (2) (ii), refers to the income that is concealed and not subjected to tax earlier and not to the person. Admittedly, the amount of Rs. In such circumstances it cannot be said that no proceedings were initiated under Section 132 of the Act before disclosure. ( 18 ) THE provision of Section 64, Sub-section (2) (ii), refers to the income that is concealed and not subjected to tax earlier and not to the person. Admittedly, the amount of Rs. 1,35,00,000 was not subjected to tax and was for the first time disclosed by the petitioner on October 3, 1997, but it came to the notice of the authorised officer of the Department that there is a concealed income lying in locker No. 175 with the Allahabad Bank, Peddar Road Branch, Mumbai, and also that the amount lying in the locker was not disclosed by Dhirajlal or by any member of his family prior to October 1, 1997, till it came to the notice of the authorised officer. Therefore, once a prohibitory order is issued, in respect of an amount lying in locker No. 175, under Section 132 (3) it cannot be said that in respect of that concealed income no search proceeding was initiated under Section 132. Clause (ii) of Sub-section (2) of Section 64 of the Scheme refers to income and not the person. If any search is initiated and the order is issued in respect of that undisclosed income after that initiation of proceedings under Section 132, no benefit can be extended to the person who disclosed such income after issue of the order under Section 132 (3) of the Act. ( 19 ) FURTHER, if Dhirajlal, Manju and Meena has nothing to do with the locker, why locker No. 175 has been taken in the names of Dhirajlal, Manju, Nilesh and Smt. Meena D. Hemani. It is also not known that this locker has been operated by the petitioner alone or operated by some other members of the family. There is no certificate to this effect from the bank manager, nor any material has been placed on record. I also cannot go into the question which requires enquiry into the facts, in a petition under Article 226 of the Constitution. In these circumstances, the possibility also cannot be ruled out that the other members of the family in whose name this locker stands has/have share in the money (Rs. 1,35,00,000 ). ( 20 ) WHETHER the petitioner can disclose the concealed income of his father against whom, search is being conducted. In these circumstances, the possibility also cannot be ruled out that the other members of the family in whose name this locker stands has/have share in the money (Rs. 1,35,00,000 ). ( 20 ) WHETHER the petitioner can disclose the concealed income of his father against whom, search is being conducted. It is true that normally a person who discloses any concealed income under the Scheme does not require to disclose the source. But at the same time no person, including near relation of the person, can disclose the concealed income of a person, against whom the search proceedings has already been initiated not only that concealed income in the locker has come to the notice of the authorised officer on October 1, 1997, while the disclosure has been made on October 3, 1997. The search proceeding in the case of Dhirajlal initiated, when the search warrant signed on September 30, 1997, Dhirajlal is one of the owners of the locker No. 175, Allahabad Bank, Peddar Road, Mumbai. In these circumstances, the petitioner cannot be allowed to disclose the concealed income of his father or in the case of any other member of his family. ( 21 ) THE impugned notice reads as under :"in pursuance of the provisions of Section 158bc of the Income-tax Act, 1961, you are requested to prepare a true and correct return of your total income including the undisclosed income. . . . . . in respect of. . . . . of. . . . . . which. . . . . . you. . . . as individual/huf/. . . . . . . /company/ aop/body of. . . . . individuals/local authority are assessable for the block period mentioned under Section 158bc of the Income-tax Act, 1961. . . . . . which should be in the prescribed Form No. 2b and be delivered in this office within. . . . days of service of this notice, duly verified and signed in accordance with the provisions of Section 140 of the Income-tax Act, 1961. " ( 22 ) A perusal of this notice further shows that the notice nowhere refers to the amount of Rs. 1,35,00,000. The notice only requires the petitioner to prepare a true and correct return of his total income including his undisclosed income for block assessment years. " ( 22 ) A perusal of this notice further shows that the notice nowhere refers to the amount of Rs. 1,35,00,000. The notice only requires the petitioner to prepare a true and correct return of his total income including his undisclosed income for block assessment years. In view of the facts discussed above, it will be open to the Assessing Officer to proceed with the notice under Section 158bc of the Act. To sum up : (1) The petitioner has failed to prove that he disclosed the concealed income before initiation of proceedings under Section 132 of the Act. (2) Search warrants issued in the case of the petitioner on third is in continuation of search proceeding initiated on October 3, 1997 in the case of Dhirajlal. (3) Clause (ii) of Sub-section (2) of Section 64 refers to concealed income, the order issued on October 1, 1997, under Section 132 (3) in respect of concealed income, the proceeding under Section 132 initiated on October 1, 1997. (4) The petitioner cannot be allowed to disclose concealed income, on October 3, 1997, of his father, against whom the search proceedings are initiated on September 30, 1997. (5) The impugned notice nowhere refers Rs. 1,35,00,000, it only requires that the petitioner should file the true and correct return of his income for block assessment years 1988-89 to 1997-98. ( 23 ) IN the result, I find no merit in this petition. The petition fails and is consequently dismissed.