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Chhotabhai Jethabhai Patel and Co. Vs. Commissioner of Income-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 119 of 1976
Judge
Reported in(1981)22CTR(Guj)173; [1982]134ITR201(Guj)
ActsFinance Act, 1965 - Sections 24(2) and 68; Income Tax Act, 1961 - Sections 271(1)
AppellantChhotabhai Jethabhai Patel and Co.
RespondentCommissioner of Income-tax, Gujarat
Appellant Advocate J.M. Thakore, Adv.
Respondent Advocate N.U. Raval, Adv.
Excerpt:
(i) direct taxation - disclosure - sections 24 (2) and 68 of finance act, 1965 and section 27 (1) of income tax act, 1961 - order holding that assessee not entitled to interest, stamp charges, brokerage in respect of hundi loans as they were bogus loans challenged - assessee made disclosure of certain amount under voluntary disclosure schemes - said amount surrendered for assessment purposes as per agreement between assessee and department - department accepted said amount as overall figure for all such loans and borrowings in all aspects - department not allowed to go back upon arrangement arrived at between parties and seek to bring to tax any amount in respect of loans and borrowings other than said amount - impugned order set aside. (ii) penalty - whether tribunal justified in holding.....divan, c.j.1. in this case at the instance of the assessee, the following four questions have been referred to us for our opinion: '1. whether, on the facts and in the circumstances of the case, and keeping in view the disclosure petitions of the assessee, the tribunal was justified in holding that the interest claimed to have been paid in respect of hundi loans which were disclosed by the assessee under the two voluntary disclosure schemes should be disallowed as under: (a) for a.y. 1962-63 rs. 5,37,895 (b) for a.y. 1963-64 rs. 5,81,989 (c) for a.y. 1964-65 rs. 6,29,060 2. whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that the commission claimed to have been paid by the assessee to obtain the above hundi loans should be held as.....
Judgment:

Divan, C.J.

1. In this case at the instance of the assessee, the following four questions have been referred to us for our opinion:

'1. Whether, on the facts and in the circumstances of the case, and keeping in view the disclosure petitions of the assessee, the Tribunal was justified in holding that the interest claimed to have been paid in respect of hundi loans which were disclosed by the assessee under the two voluntary disclosure schemes should be disallowed as under:

(a) for A.Y. 1962-63 Rs. 5,37,895 (b) for A.Y. 1963-64 Rs. 5,81,989 (c) for A.Y. 1964-65 Rs. 6,29,060 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the commission claimed to have been paid by the assessee to obtain the above hundi loans should be held as disallowable, the commission being Rs. 8,166 for A.Y. 1962-63, Rs. 8,525 for A.Y. 1963-64 and Rs. 10,060 for the assessment year 1964-65

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the stamp charges for obtaining the hundi loans should be held as disallowable, the stamp charges being Rs. 7,905 for A.Y. 1962-63, Rs. 10,850 for A.Y. 1963-64 and Rs. 11,940 for A.Y. 1964-65

4. Whether, on the facts and in the circumstance of the case, Tribunal was justified in holding that imposition of penalties under section 271(1)(c) was justified for, (a) assessment year 1962-63, (b) for assessment year 1963-64, and (c) assessment year 1964-65 ?'

2. The facts leading to this reference are as follows: We are concerned with the assessment years 1962-63, 1963-64 and 1964-65. The assessee is a registered firm and it had started its business as a dealer in timru leaves. Later on, it extended its business to bidi leaves and also to manufacture of bidis. It has its business branches at various places with head office at Nadiad in Gujarat but its business is spread over West Bengal, Uttar Pradesh, Assam, Gujarat, etc. It was the case of the of the assessee that it had borrowed substantial amounts from Multani money-lenders and that these loans were taken against hundis. The loans were in two broad sub-divisions. One sub- division was hundi loans, where the peak reached was Rs. 86.75 lakhs in October, 1960, and the other sub-division was of deposits of about Rs. 75 lakhs. The ITO made some additions against deposits but we are not concerned with the questions of deposits for the purposes of this reference. In the course of assessment proceedings for these three years, the ITO was conducting some investigations and against this background the assessee addressed a letter dated September 15, 1964, to the CBR. In this letter, the assessee stated that though borrowings were genuine, with a view to settle the matter and if a fair and reasonable amount was fixed, they were prepared to pay the tax so that the assessee could carry on its business peacefully thereafter. Subsequently, the assessee addressed another letter dated April 9, 1965, to the Commissioner of Income-tax on similar lines. A list was enclosed with the letter of April 9, 1965, showing hundi loans of the aggregate amount of Rs. 41.50 lakhs due to Multani merchants which loans were apparently the principal amounts without interest so far as Samvat year 2020 was concerned. Then a regular voluntary disclosure petition was made on May 31, 1965, addressed to the Commissioner and this was considered as an application under s. 68 of the Finance Act of 1965 declaring Rs. 41.50 lakhs as the amount together with interest. This declaration was accepted by the Commissioner and he gave a certificate dated November 25, 1965, to the effect that Rs. 41.50 lakhs had been declared and a sum of Rs. 24,90,000, being income-tax, was paid by the assessee on November 20, 1965. Thereafter, there was some further correspondence and, ultimately, a letter dated October 5, 1965, was addressed by the assessee to the Commissioner and the Commissioner replied by his letter dated January 18, 1966. By the letter of October 5, 1965, the assessee mentioned that as regards the assessment year 1965-66, that is, corresponding to the accounting year, Samvat year 2020, the assessee was further disclosing an amount of Rs. 31.70 lakhs and, thus, for the assessment year corresponding to Samvat years 2009 to 2020 it was declaring an aggregate amount of Rs. 73.20 lakhs. There were two items of inquiry which were not covered by this disclosure, namely, a loan of Rs. 22,00,000 to Raja Chandrachur Prasad Singh, and fixed deposits to the extent of Rs. 75,00,000 were not to be covered by this item of Rs. 73.20 lakhs voluntarily disclosed by the assessee. On January 18, 1966, the assessee filed another voluntary disclosure form. This was done under s. 24 of the Finance (No. 2) Act of 1965 declaring an amount of Rs. 31.70 lakhs and according to col. 8 of the Form regarding this disclosure, this amount of Rs. 31.70 lakhs was made up as follows: Rs. 23.45 lakhs hundi loans; and 8.25 lakhs cash, which was realised by the assessee, by conversion of hundi loans from Multani bankers.

3. After these disclosures the three assessments under reference came up before the ITO and the ITO held that for the assessment year 1962-63, interest, brokerage and stamp charges regarding hundi loans totalling to Rs. 56,53,966 were not allowable as deduction. Similarly, for the assessment years 1963-64 and 1964-65, the items of brokerage, interest and stamp charges regarding hundi loans were disallowed by the ITO. Against this decision of the ITO the assessee took the matter in appeal to the AAC and that officer held that interest, brokerage and cost of stamp claimed by the assessee were really the amounts paid to self and were rightly added back since they were disallowed and he, therefore, confirmed these disallowances for the three assessment years.

4. Against the orders passed by the AAC the assessee took the matter in further appeal before the Tribunal. The ITO also was dissatisfied with certain aspects of the orders passed by the AAC and he also went in appeal for the three years under reference but the points raised in the appeals filed by the ITO are not relevant t the questions that have been referred to us for our opinion. Over and above these six appeals, three by the assessee and three by the ITO, there were three more appeals against the orders passed by the IAC in the penalty proceedings and the three appeals filed by the assessee against the orders of the AAC were also taken up for hearing and the Tribunal by one order disposed of all the nine appeals together. The four questions, which have been referred to us at the instance of the assessee, arise out of the order of the Tribunal in respect of these nine appeals. As can be seen, question No. 1 refers to the amount of interest on these hundi loans of the three assessment years under reference. Question No. 2 refers to the brokerage or commission claimed by the assessee in respect of these hundi loans for each of the three assessment years. Question No. 3 refers to the stamp charges in respect of these hundi loans for each of the three years under reference, and question No. 4 refers to the question of penalty under s. 271(1)(c) of the I.T. Act, 1961, in respect of the assessment years 1962-63, 1963- 64 and 1964-65, in connection with these hundi loan transactions.

5. As the order of the Tribunal makes it clear, the main consideration which weighed with the Tribunal was that on its own showing the assessee firm had disclosed these hundi loans aggregating to Rs. 41.50 lakhs up to the end of Samvat year 2019 and a further amount of Rs. 31.70 lakhs for Samvat year 2020, relevant to the assessment year 1965-66. These sums aggregate to Rs. 73.20, lakhs for all the assessment years from the relevant Samvat years 2009 to 2020 as bogus loans and, according to the Tribunal, since the assessee on its own showing had used its own money through the mechanism of hundi loans, it was not entitled to interest, stamp charges, brokerage or commission, in respect of these hundi loans, aggregating to Rs. 73.20 lakhs.

6. In our opinion, the correct approach in order to answer the questions referred to us is to find out what exactly was done by the assessee when it disclosed the two items, one of Rs. 41.50 lakhs, and the other of Rs. 31.70 lakhs, aggregating to Rs. 73.20 lakhs, for the assessment years relevant to the Samvat years 2009 to 2020. As we have pointed out above, the first letter was addressed by the assessee-firm to the CBR and that letter was dated September 15, 1964, addressed to J. P. Singh, Chairman, Central Board of Revenue, New Delhi. It was in connection with the assessment of the assessee for the assessment years relevant to the Samvat years 2009 to 2013 corresponding to the assessment years 1954-55 to 1958-59. In this letter, there was no definite disclosure of any amount as income with reference to hundi loans. The firm mentioned:

'We maintain that all the borrowings are genuine borrowings but in order to cut short the matte, though we are quite prepared to place before your honour as also before the Income-tax Officer everything that we have got in our possession or power in support of our contention, nevertheless we would desire, if that is possible, to settle the matter and fix a fair and reasonable amount on which we would be prepared to pay the tax.'

7. Thus, the letter of September 15, 1964, which was the first letter in this connection addressed by the assessee-firm to the direct tax authorities, was without reference to any specific amount of money and it was with reference to assessment years 1954-55 to 1958-59. Thereafter, the second letter which we get is the letter dated April 9, 1965, addressed by the assessee to the Commissioner, Ahmedabad, and it was on the subject of 'opened assessment of M/s. Chhotabhai Jethabhai Patel and Co., of Nadiad for the assessment years S. Ys. 2009 to 2013, corresponding to the assessment years 1954-55 to 1958-59.'

In this letter, the assessee practically reiterated all that it had stated in the letter addressed to J. P. Singh, Chairman, Central Board of Revenue, dated September 15, 1964, and then proceeded:

'Thereafter, nothing further has been done in the matter of going into the question about the genuineness of the borrowings of hundis. The cross-examination of several persons who have loans on hundis has yet to take place. It is our desire not to prolong these proceedings particularly as the main partner of the firm, Shri Manoharbhai Patel, has not recently been keeping good health and had a couple of heart attacks during the last three or four months. It is our desire to settle these questions of borrowings once and for all for S.Y. 2010 to S.Y. 2020, so that there may not be any further trouble about such borrowings. Under these circumstances, we make the following offer by way of settlement of the questions of the borrowings right up to S.Y. 2020.

12. With a view to put an end once and for all and to avoid worry, trouble and expense and in view of the disclosure schemes under clause 68 of the Finance Bill, 1965, we offer that a sum of Rs. 41,50,000 be treated as undisclosed income and we are prepared to pay 60% thereon, i.e., Rs. 24,90,000 in full settlement of all tax liability up to diwali of S.Y. 2020. This will be over and above the income as disclosed in the books.'

8. There seems to have been no response to this letter of April 9, 1965. A list of thirty-three Multani parties showing loans advanced by each of those parties was annexed to that letter of April 9, 1965, and in the last column interest payment in Samvat year 2020 was shown as 'nil' and the total amount at the foot of that list was shown to be Rs. 41.50 lakhs. Annexure 'C' at p. 319 of the paper book is the form duly filled in for making voluntary disclosure of undisclosed income under clause 68 of the Finance Act, 1965. It was made clear that the assessee was declaring the amount of Rs. 41.50 lakhs representing income of the firm. It was made clear in col. 8 that the amount which remained to be paid was Rs. 24,90,000, that is, sixty per cent. of the amount which was disclosed. Along with this form a statement was annexed and the statement was in these terms:

'Since the Samvat year 2009 the declarant's business of manufacture and sale of biris has increased and the firm was obliged to borrow loans due to increased requirements. The declarants have undisclosed income. Considerable part of loan borrowed are, however, genuine. Declarants have also introduced their undisclosed income on hundi loans from time to time from and after the Samvat year 2009. This along with interest claimed thereon for all these years and on which tax was not paid in all amount to nearly Rs. 41,50,000. It would be difficult to separate genuine loans taken on borrowings from money-lenders from the undisclosed income of the declarants and interest thereon brought into the business by the declarants in the form of hundi loans in various names. Over a number of years these have got so mixed up together that it would be difficult to completely separate the same at this distance of time. But, the declarants are sure that out of total borrowings shown as hundi loans, an amount of Rs. 41,50,000 represents undisclosed income of the declarants and interest thereon which have escaped tax during prior years. As stated above this amount of Rs. 41,50,000 also includes interest claimed from year to year from Samvat year 2009 in the business by the declarants on the undisclosed portion of the declarant's income brought into the business by way of hundis. Under the circumstances, the declarants are advised to and disclosed a lump sum of Rs. 41,50,000, which the declarants say is the outside amount inclusive of interest belonging to the declarants, which has escaped taxation, which was brought in by them from time to time in the business by way of hundi loans. This is for the period, assessment year 1964-65.'

9. Thus, it is clear that when the assessee-firm filed the declaration declaring the undisclosed amount of Rs. 41.50 lakhs, it did so on the footing that this amount of Rs. 41.50 lakhs was inclusive of interest and according to the assessee's declaration, this amount of Rs. 41.50 lakhs was, to use the words of the declarants, 'the outside amount inclusive of interest belonging to the declarants, which have escaped taxation'. A certificate was issued on November 25, 1965, by the Commissioner, Gujarat-I, certifying that the assessee had made a declaration under clause 68 of the Finance Act of 1965 of income amounting to Rs. 41,50,000 and a sum of Rs. 24,90,000 being income-tax at the rate of sixty per cent had been paid by the assessee on November 20, 1965.

10. Thereafter, another letter was addressed by the assessee on October 5, 1965. This letter was addressed to the Commissioner, Gujarat-I ahmedabad, and was on the subject of 'settlement of pending income-tax assessments-M/s. C. J. Patel and Co., Nadiad (assessee), and its partners'. In that letter it was pointed out that in April, 1965, the assessee had offered a sum of Rs. 41.50 lakhs for the settlement of the case and also agreed to make payment of tax at sixty per cent. thereon and this amount covered the amount of hundi loans outstanding as on September 30, 1965, namely, Rs. 23.45 lakhs. According to the assessee, in the letter, the total amount of hundi loans outstanding on November 4, 1964, this is, Also Vadi Amas Samvat year 2020, is Rs. 73.20 lakhs. In this letter of October 5, 1965, the assessee stated:

'We enclose a statement from S.Y. 2009 to S.Y. 2020 showing the loan accounts in respect of Multani merchants, various banks, and other parties from whom our firm had obtained loans for business purposes. The position at the end of S.Y. 2020 (Aso Vadi Amas), i.e., 4-11-65, will be as under:

Rs (1) Multani Merchants 73.20 lakhs. (2) Raja Saheb (i.e., Raja 22.00 lakhs Chandrachur Pratap Singh) The position as on 30-9-65 is as under:- Rs (1) Multani merchants 23.45 lakhs (2) Raja Saheb 22.00 lakhs'

Then the letter concludes:

'Thus there remains the loan amount of Multani merchants only Rs. 23.45 lakhs, relating to Multani merchants and we submit that taking into facts already stated above we leave the matter to you and also request that the case may be settled on its merits and we shall give necessary consent.'

The last paragraph is very important and it states:

'However we would like to submit that there should not remain any matter pending in respect of the loans and borrowings for all pending assessments up to and including assessment year 1965-66.'

11. To this letter of October 5, 1965, there was a reply from the Commissioner, being the letter dated January 18, 1966, and the assessee-firm was asked by the Commissioner to contact the concerned ITO to whom necessary instructions had been issued in this matter.

12. Also on the same date, that is, on January 18, 1966, the ITO, Special Investigation Circle-B, Ahmedabad, addressed a letter to the assessee- firm and this was with specific reference to the settlement petition dated October 5, 1965, and the assessee was informed that the assessee's proposal for surrendering in all a total sum of Rs. 73,20,000 of hundi loans, that is, Rs. 41.50 lakhs under the ad hoc scheme and Rs. 31.70 lakhs under the disclosure scheme under s. 24(2) of the Finance (No. 2) Act of 1965, will be taken to cover the loan from Shri T. N. Oke up to the end of S.Y. 2020 and also the loan in the names of employees up to the end of S.Y. 2020. It was further stated in that letter of January 18, 1966:

'Thus the point of inquiry to be left will be in respect of the loan of Rs. 22 lakhs from Shri Raja Chandrachur Prasad Singh and the genuineness of the fixed deposit to the extent of about Rs. 75 lakhs taken over from a large number of persons who are allotted shares of newly floated company, viz., C. J. Patel Tobacco Products Company Ltd.

I have therefore now to request you to kindly file the necessary declaration u/s. 24(2) of the Finance (No. 2) Act of 1965 for a sum of Rs. 31.70 lakhs.'

13. Thereafter, on the very day, that is January 18, 1966, the assessee- firm filed the form of application for voluntary disclosure under s. 24 of the Finance (No. 2) Act of 1965. The firm made it clear that the amount of Rs. 31.70 lakhs was being declared as income. It may be pointed out that Rs. 23.45 lakhs were the amount of hundi loans and Rs. 8.25 lakhs was cash by conversion of hundi loans and thus the aggregate amount of Rs. 31.70 lakhs was disclosed on January 18, 1966.

14. The correspondence which we have set out hereinabove makes it clear that when the assessee declared the amount of Rs. 41.50 lakhs under what is called the ad hoc scheme or what may be more appropriately called as declaration under s. 68 of the Finance Act of 1965, it made it clear that the amount of Rs. 41.50 lakhs was inclusive of interest on hundi loans and that it was declaring this amount from Samvat years 1954-55 to 1964-65. At several places, as we have shown by underlining from the quotation from the statement annexed to the declaration under clause 68 of the Finance Act of 1965, the assessee made it very clear and specified that the amount of Rs. 41.50 lakhs was inclusive of interest on hundi loans. The assessee wrote a letter on October 5, 1965, and in that letter the assessee-firm again specified that the aggregate amount of Rs. 73.20 lakhs which it was prepared to offer for the years from Samvat year 2009 to samvat year 2020, consisted of Rs. 41.50 lakhs which it had already declared in May, 1965, and the further amount of Rs. 31.70 lakhs which it was declaring for Samvat year 2020, that is, up to November 4, 1964, and the assessee made it clear that it was so declaring this amount on condition that there should not remain any matter pending in respect of loans and borrowings and also pending assessments up to an including assessment year 1965-66. In response to this offer made by the assessee-firm the I.T. dept. made a counter-offer. The counter- offer was that the amount of Rs. 73.20 lakhs would not include the item of loan of Rs. 22,00,000 from Raja Saheb and the fixed deposit amount of Rs. 75,00,000 which, according to the assessee-firm, it had borrowed on fixed deposits from various persons. Barring these two items of Rs. 22,00,000 of the loan from Raja Saheb and the amount of Rs. 75,00,000 of fixed deposits, all other items of borrowings which the assessee-firm took from various persons were to be included, according to the letter of the ITO of January 18, 1966, which we have quoted above, from the ITO. Special Investigation Circle-B, Ahmedabad, he wrote under instructions of the Commissioner, showed that the loan from Shri T. N. Oke and the loans in the names of employees at the end of Samvat year 2020 were also to be included in this overall settlement at the figure of Rs. 73.20 lakhs for all the years from Samvat years 2009 to 2020. The counter-offer of the ITO was accepted by performance, namely, by the assessee-firm filing the necessary declaration form under s. 24(2) of the Finance (No. 2) Act of 1965, disclosing or surrendering the further sum of Rs. 31.70 lakhs. In our opinion, it is the case of an offer by the assessee, a counter- offer from the department and acceptance of the counter-offer by the assessee by performance, namely, by the assessee filing the application form for voluntary disclosure under s. 24(2) of the Finance (No. 2) Act of 1965. This brings a complete agreement into existence between the assessee and the department. The assessee was maintaining, as it had maintained when it filed the form in May, 1965, that the amount of Rs. 41.50 lakhs up to the end of Samvat year 2010 included interest on hundi loans. It further maintained that this amount of Rs. 41.50 lakhs plus the further amount of Rs. 31.70 lakhs which it was willing to declare would put an end to all points of dispute between the assessee and the department so that there should not remain any matter pending in respect of loans and borrowings and pending assessments up to and including assessment year 1965-66. This offer of the assessee was ultimately accepted because the counter- offer was only on two items which were to be left out of the overall settlement regarding borrowings, the two items being the loan of Rs. 22,00,000 from Raja Saheb and the amount of Rs. 75,00,000 of fixed deposits. Barring these two items, there was complete settlement arrived at between the assessee-firm and the department regarding all borrowings from whatever source and particularly in respect of hundi loans borrowed by the assessee or shown as borrowings by the assessee during the Samvat years 2009 to 2020. In view of this position, it is clear that in respect of assessment years which are under reference before us, namely, assessment years 1962-63, 1963-64 and 1964-65, it was not open to the department to seek to bring to tax any item pertaining to the borrowings from any party whatsoever unless those items touched the borrowings of Rs. 22,00,000 from Raja Saheb and the borrowings on fixed deposits aggregating to Rs. 75,00,000. Barring these two exceptions which were specifically kept out from the settlement, all other items pertaining to borrowings, either by way of loans on hundis or by way of borrowings from T. N. Oke or the amounts of borrowings from the employees, were all settled between the assessee and the department and the department agreed to treat the total amount of Rs. 73.20 lakhs as the aggregate amount which would be brought to tax for all purpose of and in respect of borrowings made by the assessee up to the end of Samvat year 2020. No matter was to remain pending or outstanding by way of being brought to tax by the I.T. Dept. That is the only meaning which can be gathered from the correspondence which we have reproduced and which admittedly took place between the parties.

15. In view of this arrangement which was arrived at, it may be pointed out that there was an agreed assessment but the agreed assessment was cast in the form of voluntary disclosure schemes of the Finance Act of 1965 (what is called an ad hoc scheme) and the scheme under the Finance (No. 2) Act of 1965 which was for assessment year 1965-66. Though the agreed assessment utilised the machinery of these two voluntary disclosure schemes, it must be borne in mind that it was by way of an agreement between the assessee and the department that the amount of Rs. 73.20 lakhs was surrendered for assessment purposes for all years from S.Y. 2009 to S.Y. 2020 so far as the question of loans and borrowings was concerned, barring of course, the two items of Rs. 22,00,000 borrowed on fixed deposits. If that is so, it was not open to the department in breach of this agreement to seek to bring to tax any item pertaining to loans and borrowings for all pending assessments relating to Samvat years 2009 to 2020, both inclusive. This arrangement looms large between the parties and the department cannot be permitted to go back upon the arrangement because it was only on the basis of that arrangement between the assessee and the department that the two disclosures were made, one under the ad hoc scheme of the Finance Act of 1965 and the other under s. 24(2), Finance (No. 2) Act of 1965.

16. We must make it clear that though there is no specific letter from the department accepting the amount of Rs. 41.50 lakhs at the time when the declaration was made in May, 1965, the subsequent letters of October 5, 1965, from the assessee and January 18, 1966, from the ITO, when taken together, go to show that the overall settlement regarding the amount of Rs. 73.20 lakhs covered the earlier declaration of Rs. 41.50 lakhs also and since all matters relating to loans and borrowings for pending assessments up to and including assessment year 1965-66 were covered by the settlement, even the question of interest and other items relating to hundi loans would be covered for assessment years 1962-63, 1963-64 and 1964-65.

17. Apart from this aspect, there is another angle from which the question can be looked at and it is this. Under the Finance Act of 1965, clause 68, provision was made for voluntary disclosure of income and under sub-s. (6), clause (a), 'any amount declared by any person under this section in respect of which the tax referred to in sub-s. (3) is paid shall not be included in his total income for any assessment under any of the Acts mentioned in sub-s. (5) if he credits in books of account, if any, maintained by him for any source of income or in any other record, the amount declared as reduced by the tax paid thereon under this section'. Amongst the Acts which are mentioned are the Indian I.T. Act, 1922, and the I.T. Act, 1965, s. 24 provided for voluntary disclosure of income and under sub-s. 10(a): 'The amount of the voluntarily disclosed income shall not be included in the total income of the declarant for any assessment under any of the Acts mentioned in sub-s. (9) if he has credited such amount in the books of account, if any, maintained by him for any source of income, or in any other record.' Therefore the statutory immunity granted by sub-s. (6) of s. 68, so far as the ad hoc scheme was concerned, and under sub-s. (10) of s. 24 so far as the voluntary disclosure scheme under the Finance (No. 2) Act of 1965 was concerned, would come to the rescue of the declarant, the assessee before us, as regards the amount reduced by the amount of the tax paid thereon. The only requirement is that it has to be mentioned in the books of account of the assessee-firm. In this case, the amounts were already shown in some form or another in the books of account of the assessee, being shown either as hundi loans or as borrowings or as interest or as expenses incurred in connection therewith, so far as the books of account of the assessee were concerned. After the declaration and after the voluntary disclosures made and the income-tax paid in respect of these amounts the only thing that was required to be done was to make cross-entries or transfer entries so as to provide for the clear amount which remained and which was now shown in the books of account of the assessee-firm as the amount which was now clean of all liability and was completely covered by the statutory immunity granted under the two Acts as mentioned above. So far as the argument on behalf of the department is concerned, it is principally urged that since this aggregate amount of Rs. 73.20 lakhs was the money belonging to the assessee itself, the assessee could not have paid interest on these loans and whatever interest it purported to pay was paid to itself. Secondly, the annexure to the declaration mentioned Rs. 41.50 lakhs as inclusive of interest though at one stage the peak of Rs. 83,00,000 odd. It was contended that though the peak was reached as far back as October, 1960, the amount of Rs. 73.20 lakhs was a much lesser amount and, therefore, interest was rightly disallowed by the ITO when he assessed the income of the assessee in the light of the three declarations for assessment years 1962-63, 1963-64 and 1964-65. In our opinion, it would be contrary to law and contrary to the arrangement arrived at between the department and the assessee if the department were allowed to go back upon the arrangement arrived at between the parties and to seek to bring to tax any amount in respect of the loans and borrowings for Samvat years 2009 to 2020 other than the amount of Rs. 73.20 lakhs. The assessee was contending that some of these amounts which were included in the sum of Rs. 73.20 lakhs were genuine transactions and genuine borrowings but for the sake of convenience and in order to avoid a long drawn out inquiry and the procedure of disclosure which was being complained of in the years corresponding to Samvat Years 2009 to 2020, and once that was accepted, in our opinion, it was not open to the department to go into any question regarding these loans and borrowings for the years 2009 to 2020. The inquiry could not be permitted, otherwise no such agreement could ever be reached by an assessee and the I.T. dept. under the relevant schemes and also under the general provisions regarding agreed assessments.

18. As regards the amount of penalty, it is clear that if it was not open to the department to go into the question of any aspect of the loans and borrowings up to the end of Samvat Year 2020, once the amount of Rs. 73.20 lakhs was accepted as the overall figure for all such loans and borrowings in all aspects, the question of penalty could never arise and, in any event, if certain items are disallowed by the ITO, it cannot be said that the provisions of penalty under s. 271(1)(c) can be brought into play. That the position in law is very well settled to levy penalty on the assessee in respect of the different items pertaining to loans and borrowings in assessment years 1962-63, 1963-64 and 1964-65.

In the light of the above discussion, we answer the questions referred to us as follows:

Question No. 1 - In the negative, that is, in favour of the assessee and against the revenue. Question No. 2 - In the negative, that is, in favour of the assessee and against the revenue. Question No. 3 - In the negative, that is, in favour of the assessee and against the revenue. Question No. 4 - In the negative, that is, in favour of the assessee and against the revenue.

19. The Commissioner will pay the costs of this reference to the assessee.


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