1. ' Whether, on the facts and in the circumstances of the case and in view of the declaration made by the creditors, viz., Smt. Swati Devi Jhunjhunwalla and Smt. Bhagwati Devi Tibrewalla, under the Finance (No. 2) Act of 1965 and accepted by the Commissioner of Income-tax, the Tribunal was justified in holding that the credits standing in the names of the :said creditors were correctly included by the Income-tax Officer in the total income of the assessee-petitioner as income from some undisclosed sources '
2. The Income-tax Appellate Tribunal, Gauhati Bench, Gauhati (' the Tribunal ' for short), has referred the above question along with the statement of the case for the opinion of this court; the Tribunal had refused to refer the question but the assessee moved this court and obtained a rule calling upon the Tribunal to refer the question as formulated by this court.
3. Facts leading up to the reference : The assessee is an individual. For the assessment year 1962-63, relevant to the previous year, Ramnavami year 2018, the Income-tax Officer (' ITO ' for short), noticed the following cash credit entries in the assessee's books of account:
In the account of B. S. Jhunjhunwalla-l
In the account of Smt. Swati Devi Jhunjhunwalla-2
In the account of Smt. Parameswari Devi
In the account of Dhanajay Majumdar
In the account of Sohanlal Brahman
In the account of Dalamchand Maheswari
In the account of Dwarka Prasad Agarwalla
4. The aforesaid B.S. Jhunjhunwalla-1 is the son of the assessee, given in adoption to his father-in-law. Swati Devi-2 is the assessee's mother-in-law. Shrimati Bhagwati Devi is the wife of the assessee. The ITO called upon the
assessee to explain the sources of the aforesaid entries. The assessee stated that the credit in the name of B.S. Jhunjhunwalla had been made out of gift made to him by his adoptive mother (Swati Devi); the latter confirmed it in a separate letter to the ITO. Regarding the other entries the assessee informed the ITO that those belonged to his wife, Bhagwati, but she had deposited them in benam. The two ladies did not appear before the ITO though called upon. The ITO held that there was no reliable evidence as to the source and genuineness of the entries and treated them as the assessee's income from ' some undisclosed sources '. The matter was taken to the AAC before whom additional evidence was placed. The assessee claimed that in respect of the amount of Rs. 28,000 reflected in entry No. 1 Smt. Swati Devi had made a voluntary disclosure before the Commissioner which was accepted ; it was a part of the voluntary disclosure of Rs. 40,000 and ' in the declaration ' she had indicated that the sum of Rs. 28,000 was available in the books of account ' as paid ' to the assessee. She paid Rs. 11,000 as tax. The said amount though appearing in the name of Shri B.S. Jhunjhunwalla, in fact belonged to her, which she had claimed as her income and paid tax on it. As regards the other entries it was claimed by the assessee that Smt. Bhagwati Devi had made a voluntary disclosure before the Commissioner of Rs. 1,25,000, which included all these items. The disclosure indicated where the amounts were available, details of previous year or years in which the income had been earned and the amount pertaining to each year. The AAC was satisfied that Smt. Swati Devi and Smt. Bhagwati Devi had made such declarations, had claimed the amounts as their total income and earned income, and paid tax on them. The AAC accepted the contentions and directed deletion of the entire addition of Rs. 66,785. The department preferred an appeal to the Tribunal and questioned the validity of the appellate order.
5. The Tribunal held that the Appellate Assistant Commissioner, for short 'AAC', had approached the matter from a wrong angle. It cogitated on the effect of the ' voluntary disclosure made by the ladies ', examined the copies of the disclosure petitions filed by Smt. Swati Devi and Smt. Bhagwati Devi under Section 24 of the Finance (No. 2) Act, 1965. The Tribunal held that the amount of taxes due on the disclosed income had been paid by the ladies. The Tribunal found that Bhagwati Devi had disclosed all the items except the first item which was, however, included in the petition of Smt. Swati Devi. The Tribunal held that neither Section 68 of the Finance Act, 1965, nor Section 24 of the Finance (No. 2) Act, 1965, required the Commissioner to make any enquiry whatsoever, touching or concerning the sources of the income disclosed or any matter connected therewith. It held that there was no provision in the Acts as alluded, imposing any obligation on the Commissioner to make any enquiry when
such disclosures were made, to find out as to the correctness of the sources of the income or whether the incomes were those of the declarants or not. It held:
'Therefore, the mere fact that Smt. Swati Devi Jhunjhunwalla disclosed the amount of Rs. 28,000 which is entered in the books of the assessee in the name of B.S. Jhunjhunwalla or that Smt, Bhagwati Devi Tibrewalla in her declaration mentioned the amounts standing in the books of the assessee in the names of Smt. Swati Devi and other firm (sic) persons, it does not mean that these amounts did not belong to the assessee or that the assessee had discharged the onus. '
6. Regarding the question of onus it relied on several decisions of the Supreme Court and held that the burden was on the assessee to explain the credit entries in his account, to show their nature and sources, and, in the absence of satisfactory explanation it was open to the revenue to infer that such entries represented undisclosed income of the assessee. It also considered the decision of this court in Tolaram Daga v. CIT and distinguished it on facts. It held that the amount which stood in the account of B.S. Jhunjhunwalla was being claimed by Smt. Swati Devi, the amount standing in the account of Smt. Swati Devi was being claimed by Smt. Bhagwati Devi and Parameswari Devi, Dhananjay Majumdar, Dalamchand Maheswari, Sohanlal Brahman and Dwarka Prasad Agarwalla were fictitious persons and it was Smt. Bhagwati Devi who had claimed to be the real owner of those credits. As such, it held that it could not be said that the accounts were relevant and prima facie proof of the entries as to the correctness thereof and further held that the other accounts of the assessee had not been totally accepted by the authorities below. It relied on Northern Bengal Jute Trading Co, Ltd. v. CIT : 70ITR407(Cal) and in particular on the following observations (p. 416):
' The receipts or cash credits in the books of account of the assessee-firm are prima facie evidence in favour of holding them as assessee's income and the initial onus cannot be said to be discharged by mere production of a letter from a third party admitting such money as their money. Such a course will open wide the flood-gate of tax evasion. '
7. It concluded that some of the names in the credit entries reflected in the books of account were fictitious persons, in the sense that they did not own these transactions. It was not satisfied that the transactions were genuine, concluded that the mere fact that by their letters the ladies had claimed that they had included the amounts in their respective disclosure petitions, did not absolve the assessee from the onus of proving that those transactions were genuine and in the absence of such proof the ITO was justified in holding that the amounts represented the assessee's own income
from undiclosed sources. It did not accept the view taken by the AAC and reversed his order. The assesses prayed for a reference but the prayer was turned down. The matter was agitated by the assessee before this court in Civil Rule No. 5(M) of 1971 and claimed that the question referred was a fit question for consideration, prayed for a direction to the Tribunal to state a case and to refer the question to this court for its decision. The petition was allowed ; the Tribunal being directed by this court, stated the case and referred the above question for eliciting the opinion of this court. On a perusal of the statement of the case, it appears to us that the Tribunal held that the assessee had failed to explain the sources of the deposits. It considered the claims of the ladies concerned. It held the claims to be vague, discrepant; the statements of the ladies did not establish that the amounts belonged to them, the assessee and/or the ladies had failed to establish the sources from which they had derived the money and accordingly rejected the assessee's version that the assessee had received the money from the two ladies. In the result, the question referred to us shall have to be viewed only with respect to the Tribunal's findings that the disclosures made by the ladies could not and did not amount to proof that the amount belonged to them and merely on the basis of the disclosure petitions the assessee could not discharge the onus of explaining the cash credit entries.
8. The points that fall for our consideration are:
(i) What is the effect of acceptance by the Commissioner of the voluntary disclosure of income by an individual under the Finance (No. 2) Act, 1965, hereinafter referred as ' The Finance Act ' ?
(ii) Whether, in the assessment proceedings of an assessee, declarations of certain persons under 'The Finance Act' disclosing certain amounts as their income, is relevant and admissible as a piece of evidence ?
(iii) Whether the claim of an assessee that the credit entries reflected in his books of account are money respresenting the earned income of ' a declarant ' who made voluntary disclosure under the Finance Act is open to investigation by the revenue in order to examine the correctness of the explanation of the assessee Whether the production of the declaration and certificate under Section 24(15) of the Finance Act that the declarant voluntarily disclosed the amounts under the Act precludes the I.T. authorities from investigating the correctness of the claim or the explanation of the assessee ?
9. On behalf of the assessee, it has been contended by Sri Sen that no sooner did the Commissioner accept the voluntarily disclosed income under the Act, those became the 'total income' of the declarants and were deemed to be their ' earned income '. In the instant case, according to the counsel for the assessee, the declarants had paid the taxes on the amounts
and the department was not entitled to question the Commissioner's order of such acceptance and to institute a further enquiry as to the sources or genuineness of the entries in respect of the amounts covered by the voluntary disclosures.
10. Mr. G.K. Talukdar, the standing counsel for the revenue, submits that the voluntary disclosures were accepted by the Commissioner without any enquiry or satisfaction as to whether the disclosed amounts in fact represented the income of the declarants ; the procedure envisaged under the the Finance Act were summary; it granted specific immunities to the declarants but there is nothing in the Finance Act or in any other law forbidding an enquiry into the genuiness of the declarations in subsequent proceedings in relation to a person other than the declarants.
11. In our opinion, the answer to the question posed depends entirely on the interpretation of the provisions contained in the Act and in particular Section 24 of the Finance Act. Section 24 deals with ' voluntary disclosure of income' and consists of 16 sub-sections. Sub-section (1) permitted a person to make a declarantion in respect of amounts representing income chargeable to tax for any assessment year commencing on or before April 1, 1964, for which he had failed to furnish a return within the time allowed or failed to disclose in any return of income filed by him on or before August 19, 1965, or which had escaped assessment by reason of the omission or failure on the part of such person to make a return. Subsection (2) requires that the declaration should be made to the Commissioner containing the name, address and signature of the person making the declaration and incorporating full information, inter alia, of the amount of income declared, where available and when so earned and also the place and name in which it was held. On such declarations being made the amounts so disclosed were chargeable to income-tax in accordance with Sub-section (3). Sub-section (3) reads i
' (3) Income-tax shall be charged on the amount of the voluntarily disclosed income--
(a) where the declarant is a person other than a company, at the rates specified in Paragraph A, and...
of Part I of the First Schedule to the Finance Act, 1965 (10 of 1965), as if such, amount were the total income of the declarant so, however, that--
(i) the proviso to the said Paragraph A or, as the case may be, the second proviso to the said Paragraph F shall not apply ;
(ii) where the declarant is a person other than a company, the voluntarily disclosed income shall be deemed to be earned income....'
12. On the amounts of the voluntarily disclosed income, income-tax was charged as if the amount were the total income of the declarant and where
the declarant was a person other than a company, the voluntarily disclosed income was deemed to be ' earned income '.
13. The Commissioner on receipt of the declarations was to forward them to the ITO together with a copy of the order passed by him under Sub-section (4); the ITO was to determine the amount payable in accordance with Sub-section (3) and was required to serve upon the declarant a ' notice of demand ' Under Section 156 of the I.T. Act, 1961. Under Sub-section (4), within 30 days of the receipt of a declaration, the Commissioner if he was satisfied that the whole or any part of the amount of income declared therein had been detected or was deemed to be detected by the ITO prior to the date of declaration, was required to make an order in writing to that effect regarding his reasons therefor and forward a copy thereof to the declarant. However, no such order could be passed without giving a hearing to the declarant. Under Sub-section (5), the declarant had a right to move an application to the Board against an order passed under Sub-section (4). The Board, after giving the declarant an opportunity of being heard, could pass such order as it thought fit. Such orders rendered by the Board under Sub-section (6) were final and could not be called in question ' before any court of law or any other authority '. Sub-sections (9) to (12) lay down the liabilities imposed and immunities granted to a declarant. The amount of income-tax paid by a declarant was not refundable on any count and the declarant had no right to cause any reopening of assessment or reassessment made, or to claim any set-off or relief in any appeal, reference, revision or other proceedings [vide Sub-section (9)]. Sub-section (10) provides that the amount of the voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year under any of the Acts mentioned in Sub-section (9), i.e., Indian I.T. Act, 1922, I.T. Act, 1961, Excess Profits Tax Act, 1940, Business Profits Tax Act, 1947, Super Profits Tax Act, 1963, and Companies (Profits) Surtax Act, 1964, if he had credited such amounts in the books of account, if any, maintained by him or in any other record [vide Sub-section (10)]. Sub-section (11) provides that notwithstanding anything contained in the Act or in any other law for the time being in force, 'nothing contained in any declaration made under this section shall be admissible as evidence against the declarant for the purpose of any assessment proceeding or any proceeding relating to imposition of penalty or for the purpose of prosecution under any of the Acts mentioned in Sub-section (9) or the Wealth-tax Act, 1957, in respect of any amount specified in an order made by the Commissioner under Sub-section (4) or, if such amount is altered by an order of the Board under Sub-section (6), then, such altered amount'.
14. Declarations or the records of any proceedings are treated as confidential under Sub-section (12)(a). Sub-section (13) provides that Section 154 of the I.T.
Act, 1961, is applicable for rectification of any mistake in any order under the Act.
15. It will be seen that the Commissioner was required to make an order in writing only under one contingency, namely, when he found that some amounts voluntarily declared had already been detected by the ITO prior to the date of the declaration. Such orders were subject to appeal or revision to the Board and all orders made by the Board under Sub-section (6) were made final and not subject ' to be called in question before any court of law or any other authority '. In so far as the acts of the authorities, including the Commissioner, we do not find any provision made in the section providing for any enquiry in whatsoever form for ascertaining the correctness of the statement made in the declarations. We are not concerned, in the instant case, with any orders passed by the Commissioner under Sub-section (4) and/or by the Board under Sub-section (6) of the Act. In our opinion, the scheme entitles a person to make a voluntary disclosure of income in writing giving certain details in the absence of any material before the Commissioner that the amounts or part thereof declared in a voluntary disclosure had been detected by the ITO prior to the date of the declaration, the acts of the Commissioner and/or the revenue were merely automatic or more or less ministerial in nature. On submission of the declaration and in the absence of any information that any part of the amount had been detected by the ITO prior to the date of the voluntary declaration, the Commissioner was only to forward the declaration to the ITO for the purpose of determination of the amount of tax payable and for issuance of the notice of demand. Neither enquiry nor investigation was required to be made as to the source of the income or whether the declarant was liable to income-tax on the amount disclosed. The declaration so made was to be taken at its face value and acted upon. The amount of income so declared was treated to be the declarant's ' total income ' and deemed to be his 'earned income'. It is true that under Sub-section (15) the Commissioner is required to grant certificate to the declarant setting forth the particulars of the voluntarily disclosed income and the amount of income-tax paid by the declarant but there is no provision making the declaration or the certificate as ' final '. Nor do we find any provision forbidding any court or authority, to question the correctness of the declarations. Therefore, apparently the certificate granted by the Commissioner cannot be treated as final so much so that it cannot be questioned before any court of law or before any authority. The amount declared by a declarant by a fiction of law is treated as ' the total income of the declarant '. Similarly by the deeming provision the voluntarily declared income has been made ' the earned income ' of the declarant. In any view of the matter there is nothing in the Act that such declarations or
certificates are final or conclusive and are not subject to scrutiny in respect of proceedings against persons who are not declarants. The immunities granted to the declarants are specified in Sub-sections (9), (10) and (11). Under Sub-section (10), the voluntarily disclosed income is not liable to be included in the total income for any assessment year provided the declarant has credited the amount in his books and has intimated the credits so made to the ITO. None of the exceptions, concession or protection afforded to the declarants put an embargo on the revenue to investigate the true nature and sources of the voluntarily disclosed income, when the proceeding relates to persons other than the declarants.
16. We are of the opinion that if an assessee sets up a claim that the credit entries reflected in his books of account in the name of such declarants are the income earned by ' the declarants ', the explanation is always open to investigation. Neither the certificate nor the factum of submission of any voluntary declaration under the Finance (No. 2) Act, 1965, precludes the revenue from examining the correctness of the explanation offered by an assessee as to the source of the income and/or whether the amount represented the income of the declarant. In the result, we hold that in an assessment proceeding of this nature, the voluntary declaration made by a declarant and the certificates granted by the Commissioner are all relevant and admissible. We have no hesitation in holding that the Tribunal was correct in treating them as a relevant and admissible piece of evidence. We are also of the opinion that such declarations or certificate are neither final nor conclusive and that the Tribunal was correct in holding that they were not conclusive. The Tribunal was justified in holding that while considering the explanation of the assessee the revenue was entitled to be satisfied amongst other matters, as to whether the amount reflected or shown in the books of account of the assessee were the income earned by ' the declarants ' or were the income derived by the assessee from some undisclosed sources. Herein, we find that the declarant, Smt. Bhagwati Devi, had disclosed and claimed all the items to be her income, excepting the first item, namely, that appearing in the name of Sri B.S. Jhunjhunwalla. Similarly, we find that in her petition Smt, Swati Devi claimed the amount which is shown in the name of Sri B.S. Jhunjhunwalla. Although Swati Devi claimed the amount to be hers, the amount has been shown in the cash credit account in the name of Shri B.S. Jhunjhunwalla. The Tribunal also found that Smt. Bhagwati Devi in her statement claimed the amounts standing in the names of Smt. Swati Devi, Smt. Parameswari, Sri Dhananjay Majumdar, Sri Dalamchand Maheswari, Sri Sohan Lal Brahman and Sri Dwarka Prasad Agarwalla to be her income. The Tribunal has rightly held that the contents of the
declarations did not support the entries. Further, Smt. Parameswari Devi, Shri Dhananjay Majumdar, Shri Dalamchand Maheswari, Shri Sohanlal Brahman and Shri Dwarka Prasad Agarwalla, whose names appear in items 3, 4, 5, 6 and 1, did not put forward their claims. Therefore, we find that in respect of item No. I the person in whose name the deposits have been shown, namely, Shri B.S. Jhunjhunwalla, does not claim the amount. Similarly, the persons in whose names the entries 2 to 7 have been shown do not claim that they were the depositors. On appreciation of evidence the Tribunal found the explanation of the assessee to be untenable. The conclusions arrived at are questions of fact and based on appreciation of evidence made available to the Tribunal.
17. As a result of the foregoing discussion, we arrive at the conclusion that the concessions, privileges or protection afforded to the declarants Under Section 24 of the Finance (No. 2) Act, 1965, are provided in Sub-sections (9) to (11) of Section 24, The concessions or protections neither preclude an investigation as to the nature and source of the voluntarily disclosed income nor are the concessions available to persons claiming that the credit entries appearing in his books of account in the name of the declarants represented money earned by the declarants. The certificate granted Under Section 24(15) does not preclude the revenue from examining the correctness of the explanation given by the assessee in respect of the credit entries in his books of account. The fact of declaration and payment of tax on it are admissible materials, but the revenue will in law be entitled to be satisfied, inter alia, that the entries are in fact the income of the declarants and/or the income derived by the assessee from some undisclosed sources.
18. On behalf of the revenue the learned standing counsel has placed reliance on Pioneer Trading Syndicate v. CIT : 120ITR5(All) and Manilal Gaffoorbhai Shah v. CIT : 95ITR624(Guj) . We respectfully agree with the conclusions reached by the Allahabad High Court and the Gujarat High Court. On behalf of the assessee reliance was placed on Rattan Lal v. ITO : 98ITR681(Delhi) . We respectfully differ from the view expressed by the Delhi High Court. Suffice it to say that the reasonings put forward to us were not before their Lordships and the reasons set forth in the judgment do not appeal to us.
19. Accordingly, we answer the question referred to us in the affirmative, i.e., in favour of the department and against the assessee. The Commissioner will be entitled to costs which we assess at Rs. 300.
20. The same question has been referred by the Income-tax Appellate Tribunal, Gauhati, for our decision in the instant case. The facts are also similar. A short synopsis of the facts leading up to the reference is set out.
21. For the assessment year 1962-63, corresponding to the previous year ending 2018 R.N., the assessee, a registered firm, filed a return on July lt 1965, with the profit and loss account according to which the net profit was Rs. 32,350. The ITO called for explanations from the assessee in respect of the following cash credits:
Mahesh Kumar Tibrewalla.
Raghu Nath Agarwalla.
22. In respect of the first entry the assessee filed an affidavit sworn by Shri Sagarmal claiming that he had given the amount of loan to the assessee out of his income from his contract business carried on by him with the partnership of Mahesh Kumar Tibrewalla. The ITO found that the creditor was only a chowkidar of the assessee-firm and there was no evidence in support of his claim that he had any business or had the capacity to lend the money. In so far as the second entry was concerned the assessee contended that the amount in fact belonged to the first creditor (Shri Sagarmal Passari), who had made a disclosure of the same under the Finance (No. 2) Act, 1965, hereinafter referred to as 'the Finance Act'. Similarly, as regards the third creditor, the assessee claimed that the money really belonged to Shri Mahabir Prasad Tibrewalla who had made a similar disclosure under the Finance Act. As regards the fourth creditor it was claimed that the money really belonged to one Jugal Kishore Tibrewalla who had made a similar disclosure. The ITO held that the disclosures so made did not preclude him from examining the genuineness of the transaction and further held that the cash credits remained unexplained and added them all as the income of the assessee from undisclosed sources. The assessee appealed. The AAC, in so far as the first item was concerned, held that the creditor, Shri Sagarmal, had enough funds to provide the loan. In so far as the other items were concerned, the AAC held that they had been disclosed ia the disclosure petitions under the Finance Act and allowed the appeal. The revenue appealed to the Tribunal. The Tribunal considered the financial capacity of Shri Sagarmal and concluded that he could have saved only Rs. 4,000. In so far as the other items were concerned, the Tribunal held that notwithstanding the claim of disclosure the revenue had jurisdiction to examine the genuineness of the transaction. The learned Tribunal considered the question whether Shri Sagarmal could deposit his funds in the name of Shri Mahesh Kumar Tibrewalla with the assessee-firm. It arrived at the conclusion that the disclosure petition of Shri Sagarmal was not conclusive and the assessee had failed to discharge the onus of proving that the entries were genuine. Similarly, it held
that the factum of disclosure by the two creditors under the Finance Act per se did not lead to the conclusion that the income was not that of the assessee-firm derived from undislosed sources. The learned Tribunal considered the capacities and capabilities of the depositors to lend money as well. It held that the entries were fictitious and the entries were not reflected in the names of the persons who claimed the amounts in the entries.
23. We have just dealt with the question referred to us in Income-tax Reference No. 39/75. For the reasons alluded to in our judgment, we have no hesitation in answering the question in the affirmative, that is, in favour of the department and against the assessee.
24. In the result, we hold that, on the facts and circumstances of the case, the Tribunal was justified in holding that the credits standing in the names of the creditors were correctly included by the ITO in the total income of the assessee as income from undisclosed sources. The Commissioner will be entitled to costs which we assess at Rs. 300.
25. I agree.