SEN, J - (1.) THIS is a direct reference under S. 257 of the Income-tax Act, 1961 made by the Income-tax Appellate Tribunal, Jabalpur (for short, the Appellate Tribunal), at the instance of the assessee. The reference is necessitated due to divergence of opinion, as, reflected in the various decisions of different High Courts, with respect to the scope and effect of the Voluntary Disclosure Scheme under S. 24 of the Finance (No. 2) Act, 1965 ('the Act', for short).
(2.) THE assessee, Messrs. Jamnaprasad Kanhaiyalal, is a partnership firm. THE firm consists of 4 partners, namely, Kanhaiyalal and his 3 major sons, Rajkumar, Swatantrakumar, and Santoshkumar with his minor son Satishkumar admitted to the benefits of the partnership. In the course of assessment proceedings for the assessment year 1967-68, the relevant accounting year of which was the year ending Diwali, 1966, the Income-tax officer (ITO, for short) noticed in the books of account of the assessee five cash credits of Rs. 9,250 each, in the names of five sons of Kanhaiyalal, as detailed below : JUDGEMENT_441_3_1981Html1.htm THE ITO accordingly called upon the assessee to explain the genuineness as well as the source of the cash credits. On being questioned, Kanhaiyalal the Managing partner disavowed all knowledge as to the capacity of the creditors to advance the amounts in question. On the contrary, he admitted that the creditors had no independent source of income of their own. In fact, he further stated that he could not explain the source of the cash credit. It was, contended before the ITO that the creditors having made voluntary disclosures under the Voluntary Disclosure Scheme and the disclosures made by them having been accepted by the Commissioner of Income-tax and tax paid thereon, the amount of Rs. 46,250 could not be treated as income of the assessee from undisclosed sources. The ITO, however, held that the disclosures made under the scheme granted immunity from further taxation only to the declarant, and not to a person to whom the income actually belonged. He further held that the assessee having failed to prove the genuineness and source of the cash credits, the amount of Rs. 46,250 credited in the books of account of the assessee in the names of the creditors, who had no income of their own must be treated as the assessee's income from undisclosed sources. According to him, such cash credits were created in their names after making false declarations under the Scheme, with a view to avoid a higher rate of taxation. He accordingly made an addition of Rs. 46,250 as assessee's income from undisclosed sources. The Appellate Assistant Commissioner disagreed with the ITO, holding that when an amount was disclosed by a person under S. 24 of the Act, there was an immunity not only as regards the declarant, but there was also a finality as to the assessment. In his view, the entire statement of Kanhaiyalal had to be ignored, as it was not clear in what capacity the questions were put to him and the answers elicited because any investigation into the source of the deposits was prohibited and illegal under the Act. He accordingly held that the acceptance of the voluntary disclosures made by the creditors in question to the Commissioner and the payment of tax thereon precluded the Department from disputing that the income belonged to the said creditors and as the same income cannot be taxed twice once in the hands of the creditors and again in the hands of the assessee, the order passed by the ITO in that behalf was unsustainable. The Appellate Assistant Commissioner, therefore, directed the deletion of Rupees 46,250. The Department went up in appeal before the Appellate Tribunal.
(3.) THE Appellate Tribunal, however, disagreed with the Appellate Assistant Commissioner and upheld the decision of the ITO. It was of the opinion that the ITO was justified in treating the cash credits appearing in the books of account of the assessee in the names of the creditors as unexplained cash credits, since it was found that the income declared by the creditors did not belong to them, and there was nothing to prevent the same being taxed in the hands of the assessee to which it actually belonged. According to the Tribunal the immunity under S. 24 of the Act was conferred on the declarant only, and there was nothing to preclude an investigation into the true nature and source of the credits. THE Appellate Tribunal, after taking into consideration the statement of Kanhaiyalal, and having regard to the age of the creditors and the fact that none of them had any independent source of income at any time, held that the ITO was justified in holding that the assessee failed to discharge the burden of proof under S. 68 of the Income-tax Act, 1961 in regard to the nature and source of the cash credits and, therefore, it had to be treated as the assessee's income from undisclosed sources. THEreupon, the assesee applied to the Appellate Tribunal under S. 256 of the Income-tax Act, 1961 to refer the question of law arising out of its order, to the Madhya Pradesh High Court for its opinion. There being a conflict of opinion between the different High Courts as to the true nature of the immunity granted under S. 24 of the Act, the Appellate Tribunal has made a reference under S. 257 of the Income-tax Act, 1961 to this Court, of the following questions of law, for its opinion, namely: 1. Whether on the facts and in the circumstances of the case, it was open to the Revenue Authorities to investigate into the genuineness of the five credits aggregating to Rs. 46,250 and record a finding in regard thereto, when the Disclosure petitions made by the five creditors under Section 24 of the Finance (No. 2) Act, 1965, had been acted upon by the Revenue Authorities? 2. If the answer to the first question is in the negative and in favour of the assessee, whether the addition of Rupees 46,250 to the income of the assessee as representing its income from undisclosed sources, for the assessment year 1967-68, is valid and justified in law? ;