IDS 2016 declaration can be declared void without SCN upon misrepresentation /suppression of facts

IDS 2016 declaration can be declared void without show cause upon misrepresentation/suppression of facts. There is no provision to afford declarant a hearing prior to passing such order.

ABCAUS Case Law Citation:
ABCAUS 3125 (2019) (08) HC

Important case law relied upon by the parties:
Hemalatha Gargya v. Commissioner of Income Tax (2003) 259 ITR 1 (SC).
Tanna & Modi v. CIT, Mumbai (2007) 7 SCC 434

The issue involved in the instant writ petitions was whether the Principal Commissioner of Income was justified in passing the impugned order u/s 183 of the Finance Act, 2016 (FA, 2016) in respect of the Income Declaration Scheme, 2016 (IDS), holding the declaration made to be void under Section 193 of the FA, 2016 on the ground that it was made both by misrepresenting and suppressing facts. 

The provisions regarding IDS 2016 for disclosure of undisclosed income and payment of surcharge and penalty on such undisclosed incomeare contained in Sections 183, 184, 185 of the FA, 2016.

Under the IDS 2016, a declaration in Form-1 was to be made to Principal Commissioner or the Commissioner. After issuance of acknowledgement in Form 2 that the declarant had paid the tax, surcharge and penalty, the Principal Commissioner or the Commissioner had to grant the declarant a Certificate in terms of Form-4.

In the instant case, The PCIT, CPC, Bangalore had accepted the declarations made by the Petitioners under Section 183 of FA, 2016, with reference to the undisclosed income and issued a certificate in Form-4 read with Rule 4 (5) of the IDS Rules.

Subsequently, the jurisdictional PCIT observed that the petitioners had misrepresented the investment in shares in their own name whereas it infact belonged to another person. Consequently he passed the impugned order holding the said declaration as void.

One of the grounds of challenge raised by the Petitioners was that the impugned order was passed in violation of the principles of natural justice since no prior notice was issued to either of the Petitioners before passing the impugned order rejecting the declarations of undisclosed income under the IDS scheme

It was also submitted that the PCIT had no jurisdiction to pass the impugned order since a declaration was made to the PCIT, CPC, Bangalore.

The Hon’ble High Court observed that IDS itself was a one-time measure to enable those who had failed to disclose their income with the view to avoid the payment of tax thereon, to make good this lapse by making a complete and full disclosure in the manner specified in the IDS.

It was further observed that the Hon’ble Supreme Court in the context of Voluntary Disclosure of Income Scheme, 1997 (VDIS), analogous to the IDS, had emphasised that assessees who seek the benefit by the VDIS were bound to comply strictly with the conditions under which such benefit was granted.

The Hon’ble High Court noted that in the verification part, the applicants had solemnly declared that the information given in the declaration was correct and complete to the best of their knowledge and belief and in particular that in addition to the own income of the declarant for which the declaration is made the income of any other person in respect of which had not chargeable to tax had not been included in this declaration.

The Hon’ble High Court further observed that there was an another specific declaration which reads, “the income declared is not chargeable to tax under the Income Tax Act for any previous year relevant to assessment year where a search has been conducted under Section 132”. It is further expressly stated that “the undisclosed income declared in the form of investment in Benami Property and existing in the name of Benamidar shall be transferred in the name of real owner on or before 30th September, 2017 failing which immunity under Benami Transactions (Prohibition) Act, 1988 shall not be available”. Therefore, the form itself made it abundantly clear to the person seeking benefit under the IDS that the disclosure had to be both truthful and complete.

The Hon’ble High Court noted that the declarants had not provided the name of the “Benamidar‟ through whom the investment had been routed and that these facts were all completely within their knowledge. Therefore, the Court held that in the circumstances, the PCIT was right in concluding that neither of the Petitioners had made a full and true disclosure of all material facts.

The Hon’ble High Court observed that Section 193 of the FA, 2016 begins with a non-obstante clause and provides that where a declaration is made by misrepresentation or suppression of facts, such declaration shall be void and shall be deemed never to have been made under the Scheme.

The Hon’ble High Court opined that the mere fact that an acknowledgement may have been issued in Form-4 by the CIT, CPC did not provide any immunity to the Petitioners if it was found that the declaration was contrary to Section 193 of the FA, 2016 which begins with a non-obstante clause.

The Hon’ble High Court also noted that the Hon’ble Supreme Court in a case related to Kar Vivad Samadhan Scheme, 1998, upheld the action of the Respondent declaring the certificate issued under the Kar Vivad Samadhan Scheme, 1998 to be null and void on account of suppression of facts by the declarant.

The Hon’ble High Court also rejected the objection to the jurisdiction of the PCIT, Delhi to issue the impugned order. The fact was that the Petitioners’ declarations were uploaded electronically at Delhi where both Petitioners resided. Their assessments were also completed in Delhi.

IDS 2016 declaration can be declared void without show cause upon misrepresentation/suppression of facts

Accordingly, the Hon’ble High Court held that where the jurisdictional Principal Commissioner/ Commissioner of Income Tax finds a declaration to be based on such misrepresentation or suppression of facts, he would not be precluded from holding the declaration itself to be void in terms of Section 193 of the FA, 2016. There is no provision as such in the IDS to afford the declarant a hearing prior to passing an order holding such declaration to be void for being in contravention of Section 193 of the FA, 2016.

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