1981 PLP (Trib (PTD)

GHULAM MURTAZA KHAN (MEMBER).-- The Department in this case has assailed the legality of the order of the learned Appellate Assistant Commissioner and has alternatively disputed the deletion of the addition of Rs. 56,00,000 made by the Income‑tax Officer.

2. Brief facts of the case as may be relevant for purposes of disposing of the objections of the Department are as under. The respondent's firm deals in the supply of pesticides and in the import and sale of unserviceable ships. The original assessment in this case was made under section 23(3) of the Income‑tax Act on a total income of Rs. 2,15,

088. Later on the assessment was reopened under section 34 because the Department believed that the income from dealings in scrape had not been truly declared by the respondent. ' In response to notice, issued under section 34, the respondent repeated the income of Rs. 1,66,247 as was originally declared. While the re‑assessment proceedings were in process, the Government announced the scheme for declaration of undisclosed income and for this purpose section 30 was introduced in the Finance Act, 1976. The Central Board of Revenue also made rules by virtue of powers conferred by rule 7 of the Vth Schedule to the Income‑tax Act. The Central Board of Revenue also issued instructions in the form of circular dated 14th July, 1976. Both the Income‑tax (Declaration of Undisclosed Income) Rules, 1976 and the, Central Board of Revenue Circular appear in (1976) 34 Taxation 49 of the Statutes section.

3. In pursuance of the provisions of section 3‑C and Fifth Schedule of the Income‑tax Act, the respondent filed a declaration of undisclosed income amounting to Rs. 4,25,

000. After filing this declaration the respondent disputed the powers of the Assessing Officer to proceed under the normal provisions of section 23(3) of the Income‑tax Act because the clause 5 of the Fifth Schedule as also paragraph 4 of the Central Board of Revenue's circular dated 14‑7‑1976 clearly indicate that where an assessee had filed a return of income but assessment had not been made, the income chargeable for that year was to be the income returned plus the undisclosed income declared for that year. The respondent also made reference to the paragraph 17 of the Circular where it is laid down that if it was discovered that the Declaration, filed was incorrect or inadequate, the tax payer would be liable to prosecution before the Special Judge (S J). It was emphatically argued that once a declaration under section 30 was made, the Department could either accept it or if the declaration was considered to be false or insufficient, then the prosecution proceedings were to be initiated against the declarant before the Special Judge but the Department could not proceed under the general provisions of the Act to make assessment by making additions under the provision of section 13 of the Income‑tax Act to the declared income. The Income‑tax Officer did not agree with the contentions of the respondent, and for the detailed reasons given in his order, he discarded the trading results and made an addition of Rs. 56,00,000 being concealed income from dealings in two ships as referred to above.

4. The assessee‑respondent took the matter before the learned Appellate Assistant Commissioner who after examining the facts of the case and the relevant provisions of section 3‑C, Fifth Schedule and the Circular of Central Board of Revenue, came to the conclusion that the Scheme of section 3‑C read with Fifth Schedule provided the tax payer with an amnesty for making declaration of undisclosed income. If the Department felt that the declaration filed by a particular person was not true then the prosecution proceedings were to be initiated before the S. J. who, besides sentencing him to imprisonment, could also impose fine equal to the income or profit not disclosed. The learned Appellate Assistant Commissioner therefore, held that making the assessment under the general procedure provided in the Income‑tax Act to the complete exclusion of the specific provisions of section 3‑C of the Fifth Schedule was totally wrong because the Department was obliged under the law to finalise it according to the provisions of para. 19 of the Circular and if it consider that the declaration made by the assessee‑respondent was false, the Department should have taken recourse to filing of a prosecution case as provided in para. 5 of the Fifth Schedule. With these observations the learned Appellate Assistant Commissioner deleted the addition of Rs. 56,00,000 made by the Income‑tax Officer to the declared income.

5. The Department has now come before this Tribunal challenging the legality of the order of the learned Appellate Assistant Commissioner in deleting the addition made by the Income‑tax Officer, by contending that the clause 5 of the Fifth Schedule as also paragraph 19 of the Central Board of Revenue's Circular were not applicable in the case of the respondent. Through detailed enquiries, the Department had established that there was supression of income and all relevant information had been collected before filing of the declaration and in fact the proceedings for finalisation of proceedings under section 23 were in band when the respondent made a declaration. The learned Departmental Representative further elaborates his point by contending that paragraph does not help the respondents case because this paragraph give any guarantee to the assessee for accepting the declaration. On the contrary, the proceedings already initiated under section 34 could continue, culminating in an order under section 23 and other consequence provided in the Act. As regards the learned Appellate Assistant Commissioner's discussion regarding the merits of the case and the propriety of making an addition of Rs. 56 lac to the declared income, the learned Departmental Representative refers to the peculiar circumstances obtaining in this case which indicated underhand dealings between the parties and earning a huge profit which the Department legitmately subjected to tax under the general provisions of the Act.

6. We have heard both the sides and have also given careful consideration to the facts of the case. We first take up the grievance regarding the legality of the learned Appellate Assistant Commissioner' order in deleting the additions because section 3‑C read with Fifth Schedule and the Central Board of Revenue's Circular etc., did not provide for making normal assessment in such cases. For the sake of convenience we refer to clause 2 of the Vth Schedule which provides that every person who is chargeable to income‑tax under the provisions of section 3‑C shall furnish a declaration of his undisclosed income to the Income‑tax Officer in the for as prescribed by the Central Board of Revenue. Clause 5 of this Schedule provides that any person who fails, to declare his undisclosed income or has not declared his undisclosed income fully and truly shall be proceeded against before a Special Judge under section 54‑A of the Income‑tax Act and he will be punishable for imprisonment for a term which may extend to five years and also with fine which shall be equal to the income or profits not disclosed. Paragraph 19 of the Central Board of Revenue's Circular dated 14‑7‑1976 has been relied upon by the learned Appellate Assistant Commissioner, which is reproduced hereunder "

19. Disposal of pending income‑tax and sales tax assessments.‑Where assessment for any year for which declaration has been made is pending, the Income‑tax Officer will finalise that assessment on the basis of the returns. He may, however, make such additions to the returned income out of the expenditure claimed in the trading and profit and loss account as may be inadmissible under the law or of income claimed to be exempt under the law and which the Income‑tax Officer holds to be taxable."

7. A perusal of the provisions contained in section 3‑C, the clause (2) of the Vth Schedule and the instructions of the Central Board of Revenue contained in the Circular do not provide either expressly or in implied terms that in a case where a declaration has been made under section 3‑C the Department had a right to reject such declaration and proceed to make assessment under the normal provisions contained in the Income‑tax Act in the absence of any such provision and the preponderance of material available in the Vth Schedule and Central Board of Revenue's Circular to the effect that if the declaration is not considered to be true, then the Department could prosecute the tax payer before a Special Judge. In fact the only exception where an assessment under the general provision of Income‑tax Act could be made, is available in clause 8 of the Vth Schedule, which is reproduced hereunder: "

8. Exception.‑Nothing in section 3‑C and this Schedule shall apply to any person whose case has been assigned or transferred to the Commissioner of Income‑tax (Investigation) by the Central Board of Revenue, on section 5, unless the Central Board of Revenue, on application by such person and on such conditions as it deemed fit to impose, permits him to make a declaration under this Schedule."

8. A plain reading of this clause brings out the fact very clearly that the provisions of section 3‑C and Vth Schedule would not be applicable only in respect of those persons whose cases have been assigned or transferred to the Commissioner of Income‑tax (Investigation) by the Central Board of Revenue. Such persons, whose cases have been transferred to the investigations charge, could avail the benefit of the provisions of section 3‑C only with the permission of the Central Board of Revenue. If this case had been in the investigation charge and the tax payer s application for taking benefit of section 3‑C had also been refused by the Central Board of Revenue then alone the Department could make a normal assessment under section 23(3)/23(4) of the Income‑tax Act by making suitable additions to the declared trading results. We have perused the orders of the Income tax Officer and we find that for not providing the benefit of section 3‑C of the Income‑tax Act and for proceeding under the general law, the Income tax Officer had given the following reasons:

"This point was considered by the appropriate authorities and it was found that keeping in view the definite information available on record, the assessee had not disclosed his undisclosed income fully and truly. Since the assessee has failed to avail the concession and amnesty granted by the Government by not declaring fully and truly his undisclosed income, therefore, the assessment is made under normal law."

9. It is patent that the reason given by the Income‑tax Officer does not justify the action taken by him. It has been clearly provided in clause 5 of the Vth Schedule that if any person fails to declare his undisclosed income or has not declared his undisclosed income fully and truly then the remedy lies in prosecuting such person but there is no provision anywhere in the Vth Schedule, the Rules or the Circular which authorises or empowers the Assessing Officer to proceed under the general provisions of law. The learned Departmental Representative's contention that assessment proceedings could continue in this case under the general provisions of section 34/23 notwith standing the procedure laid down by section 3‑C of the Income‑tax Act, read with Vth Schedule is obviously untenable. The learned counsel appearing on behalf of the respondent on the other hand drew our attention to a decision of the Indian High Court reported as (1962) 44 I T R 66 where in the Hon'ble Court made the following observations:- "It is axiomatic that the statutes have to be read as a whole and that the Schedule to the Act is as much part of the Act as any other provision thereof. Rules of interpretation even require that if any enactment in a Schedule other than one merely of form, contradicts an earlier clause: it is the Schedule that would prevail." When judged in the light of the proposition laid down by the learned Judges we find considerable force in the contentions of the learned counsel simply because section 3‑C has to be read and becomes operative through Schedule V of the Income‑tax Act, it does not mean that the general provisions of law can take precedence over the specific provisions of section 3‑C of the Act read, with Schedule V. In fact, keeping in view the background which resulted in the enactment of section 3‑C and Schedule V of the Act, we have no manner of doubt in our mind that these special provisions of law brought on the statute book to deal with certain situation, namely disclosure of undisclosed income will have to be followed in entirety if a tax payer complies with the required conditions laid down in this behalf to the exclustion of the general provisions of making assessments. In this connec tion the learned counsel while emphasising the fact that in respect of these assessees who have filed declarations under section 3‑C read with Schedule V, the Department is bound to follow the entire scheme and procedure as laid down under this specific enactment, the rules and the Central Board of Revenue's Circulars etc. on the subject. In support of his contention the learned counsel relies upon the observations made by the Hon'ble Sind High court in one of their judgments reported as P L D 1978 Kar. 723 The learned Judges observed as follows: ". . . It is well known and settled proposition of law that where a power is given to do a certain thing in a certain manner, must be done in that manner or not at all. Other methods of performance of that act are necessarily forbidden." Relying on this observation of the learned Judges, we must agree with the contentions of the learned counsel that once the respondent's case falls within the purview of section 3‑C, the Department is bound to follow the entire procedure laid down therein. More specifically, if the declaration is not found to be correct, it does not lie with the Department to proceed under the general law but they are, under the law, bound to prosecute the tax payer before the Special Judge as provided in clause 5 of the Vth Schedule. Lastly, in support of the submissions made hereinabove, the learned counsel cites the decisions of this Tribunal, one of them being I. T. A. No. 1194/KB of 1978‑79 decided on 14‑10‑1979 and earlier decision reported as (1979) 39 Taxation 35 (Trib.).

10. The learned Appellate Assistant Commissioner had dealt with this aspect of the matter in detail and we agree with his findings that the course adopted by the Department was not in accordance with the law. In this view of the matter we are clearly of the opinion that the order passed by the Income‑tax Officer was without jurisdiction and deserves to be cancelled. The learned Appellate Assistant Commissioner instead of cancelling this order for the reasons given hereinabove, has ‑only deleted the addition of Rs. 57,00,000 made by the Income‑tax Officer. The order of the learned Appellate Assistant Commissioner is accordingly modified. so as to annul the impugned assessment order. We would however, by way of abundant caution and to dispel the apprehension expressed by the learned Departmental Representative, like to add that notwithstanding the annulment of assessment, it would be open to the Department to adopt any legal proceedings as it may deem necessary and is competent to proceed.

11. In the result, the appeal is disposed of as indicated above. Order accordingly.