Income Disclosed Under Voluntary Disclosure Scheme Cannot Be Included With Regular Income ;Madhya Pradesh High Court

The Bench, consisting of Justices Vivek Rusia and Amar Nath Kesharwani, has held that tax paid under Voluntary Disclosure Scheme and tax paid under Income Tax Act are different and there cannot be any adjustment between them. The Bench added that an assessee cannot be permitted to disclose part of his income under Voluntary Disclosure Scheme and other part of his income in an income tax return filed belatedly under the Act.

The petitioner/Assessee Subhash Chandra filed an application under the Voluntary Disclosure of Income Scheme (VDIS),1997, disclosing his undisclosed income for the relevant assessment years. Thereafter, the Assessee filed his income tax return and deducted the income disclosed in VDIS from his total income for the relevant assessment years, computing his tax liability as Nil. The Income Tax Officer rejected the income tax return against which the Assessee filed a revision application before the Commissioner of Income Tax.

The Commissioner of Income Tax (CIT) dismissed the revision application on the ground that the Assessee was not eligible for exemption as he was trying to take benefit under the Income Tax Act as well as VDIS which was not permissible. The CIT held that the nature of assets of income disclosed under the VDIS as well as in the regular income tax return were different. The CIT ruled that the description of assets shown in the VDIS application was not matching with the source of income shown in the income tax return and no TDS was deducted nor any advance tax was paid with respect to the assets declared under VDIS. The CIT thus rejected the revision application holding that the Assessee had belatedly filed his income tax return and was avoiding income tax by deducting the income disclosed in the VDIS. The Assessee filed a writ petition before the High Court against the order of the CIT.

The Counsel for the Petitioner/Assessee submitted before the High Court that as per Section 68 of the Finance Act, 1997 the amount of voluntarily disclosed income cannot be included in the total income of the declarant/assessee for any particular assessment year, and hence the Assessee had rightly excluded the undisclosed income from his total income and claimed a refund of the advance tax and TDS paid for the relevant assessment years. The Counsel for the income tax department submitted that the VDIS Scheme was announced to mop up additional revenue and that as per Section 70 of the VDIS any amount of tax paid pursuant to the declaration in the scheme shall not be refundable under any circumstance.

Section 64 of the Finance Act, 2017 provides that only those persons are entitled to give declaration under the Voluntary Disclosure of Income Scheme who have failed to furnish return under Section 139 of the Income Tax Act, or who have failed to disclose the particular income in the return furnished under the Income Tax Act before the date of commencement of the Scheme, or when the income sough to be declared under the Scheme has escaped assessment by reason of omission or failure.

The High Court held that the tax paid under VDIS is totally different to the income tax paid under the Income Tax Act. The High Court ruled that the voluntarily disclosed income is not liable to be included with the regular income declared under Income Tax Act as the tax paid under VDIS is not liable to be refunded at any cost. The Court added that the source of income shown under VDIS and the source of income shown in the return filed under the Income Tax Act is altogether different.

The High Court held that since the Assessee had not filed his income tax return under Section 139 of the Income Tax Act before making a declaration under VDIS, therefore, while making an application under VDIS the Assessee ought to have disclosed all his income from all the sources. The High Court added that the Assessee could not be permitted to commit mischief with the Income Tax Act or the VDIS by disclosing part of his income in VDIS and thereafter part of his income by submitting a belated income tax return under the Act.

The Court relying on the judgment of the Bombay High Court in the case of Earnest Business Services (P) Ltd versus Commissioner of Income Tax (2017) ruled that the tax paid under VDIS and Income Tax Act are different and there cannot be any adjustment between them. The High Court held that income disclosed in VDIS could not be included in the income tax return filed under Income Tax Act and therefore, assessment under Income Tax Act could not be reopened.

The High Court observed that the Assessee in order to avail the undue benefit of the Scheme had filed a belated income tax return and claimed deduction of income as well as refund of tax.

The High Court thus dismissed the Assessee's appeal and upheld the order of the CIT.

Case Title: Subhash Chandra Versus Commissioner Of Income Tax, Indore And Others

Citation: 2022 LiveLaw (MP) 84

Dated: 4.03.2022 (Madhya Pradesh High Court)

Counsel For The Petitioner: Kaustubh Fadnis

Counsel For The Respondent: Veena Mandlik

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