Immunity Under Income Declaration Scheme Available Only To The Declarant; Can't Be Extended To Another Assessee : Supreme Court

The Supreme Court has found fault with a Gujarat High Court judgment for extending the immunity under the "Income Declaration Scheme" (IDS) to an assessee who was not the declarant under the scheme.

The High Court had quashed the reassessment notice issued under Sections 147/148 of the Income Tax Act, 1961, against a company M/s MR Shah Logistics Private Ltd. One of the grounds for the re-opening of the assessment was contended to have been a declaration by another company, Garg Logistics Private Ltd, regarding an investment of Rs 6.3 crores in the shares of the assessee.

The High Court quashed the notices by holding that there was no tangible material to re-open the assessment. The High Court also considered the scheme of Section 183 of the Finance Act, 2016, which introduced the IDS, and noted that immunity was given in respect of amounts declared and brought to tax in terms of such a scheme. Based on that, the High Court held that the Assessing Officer could not have relied upon the declaration made by the Garg Logistics.

Challenging the High Court verdict, the Income Tax department approached the Supreme Court(Deputy Commissioner of Income Tax (Central) Circle 1(2) versus M/s MR Shah Logistics Private Ltd).

The Supreme Court held that the immunity under the IDS was available only to the declarant and not to another assessee. The immunity under Section 192 is available only to the declarant.

A bench comprising Justices UU Lalit and S Ravindra Bhat observed in the judgment as follows :

"..the declarant was Garg Logistic Pvt Ltd and not the assesse.Facially, Section 192 affords immunity to the declarant: "...nothing contained in any declaration made under section 183 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty..." Therefore, the protection given, is to the declarant, and for a limited purpose. However, the High Court proceeded on the footing that such protection would bar the revenue from scrutinizing the assessee's return, absolutely".

The Court also noted that the re-opening was not based on the declaration by Garg Logistics Pvt Ltd.

Referring to precedents such as State, CBI vs. Sashi Balasubramanian & Ors 2006 Supp (8) SCR 914, Tanna & Modi v Commissioner of Income Tax, Mumbai XXV & Ors 2007 (8) SCR 233,Tekchand & Ors. vs. Competent Authority 1993 (2) SCR 864, which held that immunity under a tax amnesty scheme cannot be extended to liabilities under other enactments, the Court held :

"This court is, therefore, of the opinion that the High Court fell into error,in holding that the sequitur to a declaration under the IDS can lead to immunity (from taxation) in the hands of a non-declarant". 

The Court further noted that there was tangible material to re-open the assessment. Also, the original assessment was not completed after scrutiny, but was under Section 143 (1) of the Act. That the assessee may have a reasonable explanation cannot be a ground for quashing the notices.

"Another aspect which should not be lost sight of is that the information or "tangible material" which the assessing officer comes by enabling re-opening of an assessment, means that the entire assessment (for the concerned year) is at large; the revenue would then get to examine the returns for the previous year, on a clean slate – as it were. Therefore, to hold- as the High Court did, in this case, that since the assessee may have a reasonable explanation, is not a ground for quashing a notice under Section 147. As long as there is objective tangible material (in the form of documents, relevant to the issue) the sufficiency of that material cannot dictate the validity of the notice", the judgment authored by Justice S Ravindra Bhat noted.

Headnotes

Income Tax Act, 1961 -Section 192- Immunity under Income Declaration Scheme -Facially, Section 192 affords immunity to the declarant: "...nothing contained in any declaration made under section 183 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty..." Therefore, the protection given, is to the declarant, and for a limited purpose. However, the High Court proceeded on the footing that such protection would bar the revenue from scrutinizing the assessee's return, absolutely- This court is, therefore, of the opinion that the High Court fell into error,in holding that the sequitur to a declaration under the IDS can lead to immunity (from taxation) in the hands of a non-declarant (Paras 31, 34)

Income Tax Act, 1961- Section 147/148 - Reasons to believe to reopen assessment-  Another aspect which should not be lost sight of is that the information or "tangible material" which the assessing officer comes by enabling re-opening of an assessment, means that the entire assessment (for the concerned year) is at large; the revenue would then get to examine the returns for the previous year, on a clean slate – as it were. Therefore, to hold- as the High Court did, in this case, that since the assessee may have a reasonable explanation, is not a ground for quashing a notice under Section 147. As long as there is objective tangible material (in the form of documents, relevant to the issue) the sufficiency of that material cannot dictate the validity of the notice (Para 29)

Income Tax Act, 1961- Section 147 - The basis for a valid re-opening of assessment should be availability of tangible material, which can lead the AO to scrutinize the returns for the previous assessment year in question, to determine, whether a notice under Section 147 is called for (Para 23)

Income Tax Act, 1961 - Section 143(1)- The intimation Under Section 143(1)(a) cannot be treated to be an order of assessment (Para 24)

Case Title : Deputy Commissioner of Income Tax (Central) Circle 1(2) versus M/s MR Shah Logistics Private Ltd

Citation : 2022 LiveLaw (SC) 323

Appearances :Additional Solicitor General Senior Advocate N Venkataraman for appellant; Senior Advocate Guru Krishnakumar for respondent

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