(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner has challenged an order dated 26.3.2002 as at Annexure A to the petition passed by the respondent, Commissioner of Income Tax, Ahmedabad. The petitioner has further prayed for a direction to waive penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 ('the Act' for short) by the Assessing Officer for the assessment year 1995-96 as being part of the immunity granted under the Kar Vivad Samadhan Scheme 1998 ('KVSS' for short). Some facts need to be noted in detail.
2. The petitioner-assessee had filed the return of income for the assessment year 1996-97 on 31.5.95 declaring a total income of Rs.23,44,376/-. Assessment of such return was completed under section 143(3) of the Act on 31.3.98. The Assessing Officer, determined the total income of the assessee at Rs.23,52,380/- and raised demand of tax of Rs.58,511. The petitioner preferred appeal against such order of the Assessing Officer on 30th April 1998.
3. By introducing sections 86 to 98 in the Finance Act of 1998, the Government framed KVSS scheme for settlement of tax disputes under certain circumstances. Under the scheme, an assessee in arrears of tax could make declaration latest by 31st December 1998 and seek reduction in outstanding taxes, interest and penalty and upon payment of such remaining amount of interest, tax and penalty, as the case may be, could also claim immunity from prosecution as well as imposition of penalty in respect of matters covered in such a declaration. The petitioner filed such a declaration under section 88 of the Finance Act, 1998 on 28.12.98. When such declaration was made only interest amount of Rs.7381/- was outstanding and the declaration that the petitioner made covered only such interest amount. In his declaration which was required to be made in the prescribed proforma, the petitioner declared the tax arrears outstanding as on 31.3.98 at Rs.3781/- i.e. 50% of interest only. In item 5(h) of such declaration, the petitioner was required to fill up certain details, which he did in following manner:
(i) Tax, penalty and interest
(ii) Only penalty and interest
(iii) Total The declaration of the petitioner was accepted by the Commissioner of Income Tax, Designated Authority vide his order dated 9.2.99. He, accordingly, directed the petitioner to make payment of a sum of Rs.3691/- within 30 days from the date of certificate. It is not in dispute that the petitioner paid up such amount within the time permitted.
4. In terms of KVSS, the petitioner, upon payment of the above sum, was entitled to certain immunity from prosecution and penalty proceedings. The Commissioner, therefore, granted such immunity while recording that the petitioner had already paid up the amount indicated in the certificate. The immunity was granted in following terms :
“And whereas the declarant has paid the sum determined by the designated authority as above.
And whereas the declarant has declared in the declaration made under section 88 that no writ petition or appeal or reference before any High Court or the Supreme court against any order in respect of the tax arrears has been filed by such declarant;
Now, therefore, in exercise of the powers conferred by sub-section (2) of section 90 read with section 91 of the Finance (No.2) Act, 1998, the designated authority hereby issues this certificate to the said declarants.
(a) certifying the receipt of payment from the declarant towards full and final settlement of tax arrears determined in the order dated 9.2.99 on the declaration made by the aforesaid declarant.
(b) granting immunity subject to the provisions contained in the scheme, from instituting and proceeding for prosecution for any offence under IT Act or from the imposition of penalty under the said enactment, in respect of matters covered in the aforesaid declaration made by the declaration.” (underline supplied by us).
We may notice that simultaneously, the Assessing Officer had pursued the penalty proceedings against the petitioner under section 271(1)(c) of the Act. In reply to the show cause notice issued by the Assessing Officer why penalty should not be levied, the assessee had submitted that he had filed an appeal against the addition made by the Assessing Officer and that therefore, penalty proceedings be postponed. The assessee had also declared that since he had filed the return and made true and correct disclosures, no penalty be imposed. The Assessing Officer, rejected the contention of the assessee. He held that there was excess stock of Rs.22,10,230/- found in possession of the assessee during search for which he could not give any satisfactory explanation. In his own statement recorded on 10.2.95, the assessee had admitted that such excess stock represented his unaccounted investment. He had offered the same to tax only after such difference was found during the course of survey. The Assessing Officer, therefore, levied the penalty of Rs.8,59,100/- under section 271(1)(c) of the Act.
5. Since the order of penalty was passed after 31.3.98, the assessee in his declaration made to the Designated Authority under the KVSS made no mention of such penalty order though the same was already passed by the time he made his declaration. On account of this non-mentioning of penalty levied by the Department, the Commissioner issued a show cause notice on 16.3.2001 calling upon the petitioner to show cause why the declaration made by him be not treated as cancelled since he had not disclosed the penalty imposed on him in such declaration. After considering the reply of the petitioner, he passed an order dated 28.3.2001, declaring null and void the declaration filed by the petitioner and consequently cancelled the certificate and the order granting immunity to the petitioner.
6. Such order of the Commissioner dated 28.3.2001 came to be challenged by the petitioner before this Court by filing Special Civil Application No.3195 of 2001. Before this Court, the petitioner contended that the order of penalty was passed after 31.3.98 and in the declaration under KVSS, he was, therefore, not required to make any mention thereof. He, therefore, not having made any false declaration, the Commissioner erred in withdrawing the certificate and the immunity already granted. This Court upheld such contention of the petitioner. It was held that penalty which was levied in the month of September 1998 cannot be offered for settlement as part of tax arrears determined before 31.3.98 even if such penalty was outstanding on the date of declaration. The Court was of the opinion that the petitioner's declaration was therefore in order and proviso to section 90 of the Act could not be invoked against the petitioner. Consequently, the order dated 28.3.2001 was set aside and the respondent was directed to accept the declaration made by the petitioner and grant certificate which was already otherwise granted before the impugned order was made. The certificates issued on 9.2.99 and 25.3.99 were revived as if they have never been cancelled.
7. During the course of the proceedings, a contention was raised on behalf of the Revenue before the Court that the penalty proceeding which was subsequent to the date of determination of the tax arrears i.e. 31.3.98 could not be taken into consideration for the purpose of immunity and in that view of the matter, the declaration made could not be said to cover such proceedings and therefore no immunity from penalty could be granted. This issue was not decided by the Court making following observations :
“In our view, it is not necessary to enter into the controversy as to whether the petitioner should be granted immunity or not, because that would depend on the provisions of the Act and the Scheme. The only controversy before the Court is as regards whether it could be stated that the petitioner had furnished any material particular in the declaration which was false.”
After this Court allowed the petition of the petitioner by the above noted judgment dated 28.9.2001, the petitioner approached the Commissioner by filing a petition on 29.11.2001 seeking waiver of the penalty of Rs.8,59,100/- for the assessment year 1995-96 imposed by the Assessing Officer. The Commissioner, by his impugned order dated 26.3.2002 rejected such a prayer of the petitioner. The Commissioner noted that the High Court in its judgment dated 28.9.2001, kept the question of immunity open. The Commissioner was of the opinion that section 91 of the Finance Act, 1998 provides immunity from imposition of penalty which implies that it relates to the penalty amount which has not been levied at the time of declaration under KVSS. Before the Commissioner, the petitioner had relied on the clarification issued by the Government of India under section 96 of the Finance Act, 1998 wherein the issue of waiver of penalty imposed after 31.3.98 came to be clarified. The Commissioner, however, was of the opinion that such clarification would not apply in the present case. Ultimately, on such grounds, the petition of the present petitioner came to be dismissed. It is this order which the petitioner challenged in this petition.
8. Learned counsel Shri Divatia for the petitioner vehemently contended that the Commissioner committed a grave error in not granting immunity against the penalty proceedings though the petitioner had made full declaration under the Scheme and had also paid up the arrears as demanded by the Department. He submitted that in terms of section 91 of the Finance Act, 1998, therefore, there was complete immunity from imposition of penalty. In short, he contended that the petitioner's declaration having been accepted by the Designated Authority under the scheme, immunity would automatically follow as a matter of course. By virtue of such immunity flowing from section 91 of the Finance Act, 1998, no penalty could be levied. Even if such penalty was already imposed, the same stood waived.
8.1 Counsel heavily relied on the clarification issued by the Government of India in exercise of powers under section 96 of the Finance Act, 1998 with respect to penalty that may be imposed after 31.3.98. The question and the clarification issued in response to such question are as under:
“Q.5 In a case where taxes are outstanding on 31.3.98 and also on the date of declaration but the order of penalty is passed after 31.3.98, will the declarant be entitled to the waiver of penalty ?
Ans. Section 91 empowers the designated authority to grant immunity from the imposition of penalty in respect of income which is the subject matter of declaration. As the taxes outstanding on 31.3.98 will be covered under the declaration the designated authority can grant waiver of such penalty.”
8.2 Counsel also relied on a decision of the Apex Court in the case of Hira Lal Harilal Bhagwati v. C.B.I., 262 ITR 466 (SC) wherein in view of the immunity granted under the KVSS, initiation of prosecution was held not sustainable and consequently quashed under section 482 of the Criminal Procedure Code.
9. On the other hand, learned counsel Ms.Mauna Bhatt for the Department drawing our attention to the various provisions under the KVSS contended that in the present case, on the relevant date, that is, 31.3.98, no income tax was outstanding and payable and only interest remained unpaid. Such unpaid interest was made part of the declaration filed by the petitioner under the proforma prescribed under the statute. Upon payment of 50% thereof, his declaration was accepted. Immunity under section 91 of the Act, therefore, must be confined to any prosecution or penalty relatable to such declaration and no further. In this respect, the counsel relied on a decision of a Division Bench of this Court in the case of Mohit Shantilal Shah v. C.I.T., 241 ITR 28 (Guj.) wherein the provisions of KVSS came up for consideration before this Court. It was a case wherein the assessee had filed return of his income for the assessment year 1996-97 on 31.8.1996. The Assessing Officer acting under section 143(1)(a) of the Act computed tax and interest on the basis of such return. After adjusting the amount already paid by the assessee, remaining amount was intimated to the assessee to be paid to the Department. Such intimation was made on January 10, 1997. The amount indicated in such intimation was paid by the assessee without any objection. Later on, with respect to the assessee's claim for exemption from tax in respect of arrears of professional fees received after he ceased to carry on the profession came up for consideration in regular assessment under section 143(3) of the Act and the order was passed on January 18, 1999 holding that the arrears of professional fees were taxable receipts and accordingly demand was raised. The assessee filed appeal against such order of assessment. In the meantime, KVSS was introduced. The assessee made a declaration under the scheme initially on 29th December 1998, i.e. even before the assessment in his case under section 143(3) was framed. Ultimately, upon completion of the assessment under section 143(3), he filed an appeal against such order and also filed a fresh declaration within the extended date i.e. 31st January 1999. The assessee contended that the regular assessment having come into existence under section 143(3) of the Act, it resulted into modification of tax already determined under section 143(1)(a) and an appeal against such order having been admitted and pending, he was entitled to benefit under the KVSS. When such contention was not accepted, the petitioner approached this Court. Division Bench of this Court dismissed the petition holding that tax arrear under the scheme would be the taxes unpaid as on the date of declaration under the KVSS and it relates to tax, interest or penalty which has been determined on or before 31st March 1998, though it may have suffered modification as a result of giving effect to remedial orders, such modification envisaged can only relate to the orders which had the effect of modification in respect of matters already determined prior to 31st March 1998. The Court held that since the claim of the assessee was not a subject matter of adjustment under section 143(1)(a), subsequent determination of the assessee's claim to relief under regular assessment under section 143(3) cannot be said to be a remedial order. In the result, the Court held that with respect to assessment which was finalized under section 143(3) of the Act after 31st March 1998, the case of the assessee did not fall within the parameters of the scheme.
10. From the record, the following undisputed on 31.3.98. The assessee challenged such order by filing appeal on 30th April 1998. During the pendency of such appeal, only interest amount of Rs.7381 remained outstanding. The petitioner filed declaration under the scheme within the time permitted and claimed waiver of 50% interest and offered to pay remaining 50% of Rs.3691/- and also claimed immunity from penalty proceedings. Such declaration was accepted and immunity in terms of certificate dated 25.3.99 was issued. The Authorities, however, refused to waive the penalty which was imposed under section 271(1)(c) of the Act on the ground that the same was passed on 29.9.98 and was therefore, not covered under the declaration and consequently would not form part of immunity.
11. To be able to resolve this controversy, we need to peruse more closely the provisions of the
the term 'tax arrears', relevant portion of which reads as under:
“(m) 'tax arrears' means -
(i) in relation to direct tax enactment, the amount of tax, penalty or interest determined on or before the 31st day of March, 1998 under that enactment in respect of an assessment year as modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration;
. ”
Section 88 of the Finance Act, 1988 pertains to settlement of tax payable and makes various provisions for collection of tax under various circumstances. Relevant portion of section 88 reads as under:
“88. Subject to the provisions of this Scheme, where any person makes, on or after 1st day of September 1998 but on or before the 31st day of December 1998, a declaration to the designated authority in accordance with the provisions of section 89 in respect of tax arrear, then, notwithstanding anything contained in any direct tax enactment or indirect tax enactment or any other provision of any law for the time being in force, the amount payable under this Scheme by the declarant shall be determined at the rates specified hereunder, namely:-
(a) where tax arrear is payable under the Income- tax Act, 1961 (43 of 1961) -
(i) in the case of a declarant, being a company or a firm, at the rate of thirty-five per cent of the disputed income;
(ii) in the case of a declarant, being a person other than a company or a firm, at the rate of thirty per cent of the disputed income,
(iii) in the case where tax arrear includes income-tax, interest payable or penalty levied, at the rate of thirty-five per cent of the disputed income for the persons referred to in clause (i) or thirty per cent of the disputed income for the persons referred to in clause (ii);
(iv) in the case where tax arrear comprises only interest payable or penalty levied, at the rate of fifty per cent of the tax arrear;
(v) where the tax arrear includes the tax, interest or penalty determined in any assessment on the basis of search and seizure proceedings under section 132 or section 132A of the Income-tax Act, 1961 (43 of 1961) -
(A) in the case of a declarant, being a company or a firm, at the rate of forty-five per cent of the disputed income;
(B) in the case of a declarant, being a person other than a company or a firm, at the rate of forty per cent of the disputed income;
xxxx xxxx”
Section 89 provides that a declaration under section 88 shall be made to the designated authority and shall be in such form and shall be verified in such manner as may be prescribed. Section 90 pertains to time and manner of payment of tax arrear. Relevant portion of section 90 reads as under:
“90. (1) Within sixty days from the date of receipt of the declaration under section 91, the designated authority shall, by order, determine the amount payable by the declarant in accordance with the provisions of this Scheme and grant a certificate in such form as may be prescribed to the declarant setting forth therein the particulars of the tax arrear and the sum payable after such determination towards full and final settlement of tax arrears:
Provided that where any material particular furnished in the declaration is found to be false, by the designated authority at any stage, it shall be presumed as if the declaration was never made and all the consequences under the direct tax enactment or indirect tax enactment under which the proceedings against the declarant are or were pending shall be deemed to have been revived:
Provided further that the designated authority may amend the certificate for reasons to be recorded in writing.
(2) The declarant shall pay, the sum determined by the designated authority within thirty days of the passing of an order by the designated authority and intimate the fact of such payment to the designated authority along with proof thereof and the designated authority shall thereupon issue the certificate to the declarant.
(3) Every order passed under sub-section (1), determining the sum payable under this Scheme, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceeding under the direct tax enactment or indirect tax enactment or under any other law for the time being in force.
xxxx xxxx”
Section 91, which is of considerable importance for us, pertains to immunity from prosecution and imposition of penalty in certain cases. It reads as under:
“91. The designated authority shall, subject to the conditions provided in section 90, grant immunity from instituting any proceeding for prosecution for any offence under any direct tax enactment or indirect tax enactment, or from the imposition of penalty under any of such enactments, in respect of matters covered in the declaration under section 88.”
Section 94 pertains to removal of doubts and reads as under:
“94. for the removal of doubts, it is hereby declared that, save as otherwise expressly provided in sub-section (3) of section 90, nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any assessment or proceedings other than those in relation to which the declaration has been made.”
Section 96 empowers the Central Government from time to time to issue such orders, instructions and directions to the authorities, as it may deem fit, for the proper administration of the Scheme. It further provides that such authorities and all other persons employed in execution of the Scheme shall observe and follow such orders, instructions and directions of the Central Government.
12. From the above provisions, it can be seen that for settlement of tax payable, the assessee was given an opportunity to make a declaration under the Scheme. The Scheme provided for settlement of taxes as outlined in section 88. Section 88(a)(iii) covers cases where tax arrear includes, income tax, interest payable or penalty levied. Sub-clause (iv), on the other hand, would cover the cases where the tax arrear comprised only of interest payable or penalty levied. In the present case since admittedly the amount outstanding was only towards interest, the case of the petitioner would be covered under section 88(a)(iv). Under such circumstances, the petitioner was required to pay 50% tax arrear i.e. amount of outstanding interest. Upon such declaration being accepted and the petitioner paying such amount within the time prescribed, he was entitled to immunity under section 91 of the Act. The crucial question is, would such immunity cover the penalty proceedings under section 271(1)(c) of the Act. Ordinarily, it may have been open for the Revenue to contend that section 91 would operate against imposition of penalty and since in case of the petitioner, such penalty was already imposed by the time he made his declaration, such immunity would not be available. However, the clarification issued by the Central Government in exercise of powers under section 96 of the Finance Act, 19998 would come into operation. We have already noticed the contents of the clarification. Such clarification was issued in response to the query where taxes are outstanding on 31.3.98 and also on the date of declaration but the order of penalty was passed after 31.3.88 will the declarant be entitled to the waiver of penalty. Clarification issued is that section 91 empowers the designated authority to grant immunity from imposition of penalty in respect of income which is subject matter of declaration. As the taxes outstanding on 31.3.98 will be covered under the declaration, the designated authority can grant waiver of such penalty. Therefore, merely because the penalty order was already passed when the declaration was made, but of course, after 31.3.98 would not be a ground to hold that the provisions of the Scheme do not envisage immunity in such circumstances.
13. However, question of immunity, in our opinion, would depend on the fundamental issue whether it is relatable to the declaration made by the assessee and accepted by the designated authority.
14. In the case of Union of India v. Nitdip Textile Processors (P) Ltd., (2012) 1 SCC 226, the Apex Court was considering an appeal of the Union of India challenging the decision of the High Court, wherein the High Court declared the provisions of the said Scheme violative of Article 14 of the Constitution insofar as it denied the benefit of KVSS to those who are in arrears of duties as on 31.3.98 but to whom notices were issued after the said date. In this context, the Apex Court observed that the Scheme is a complete code in itself and statutory in nature. While implementing the Scheme liberal construction may be given but it cannot be extended beyond conditions prescribed in the statutory scheme. The Apex Court took note of the statement of the Finance Minister while replying to the Debate after incorporating certain amendments in the Scheme. The Finance Minister had stated that :
“The Kar Vivad Samadhan Scheme has evoked a positive response from a large number of organizations and tax professionals. The Hon'ble Members of Parliament have also taken a keen interest in the Scheme. The lack of clarity in regard to waiver of interest and penalty in relation to settlement of tax arrears under the indirect tax enactments is being taken care of by rewording the relevant clauses of the Finance Bill. I have also carefully considered the suggestions emanating from various quarters including the Standing Committee on Finance to extend the scope of this Scheme so as to include tax disputes irrespective of the fact whether the tax arrears are existing or not. As you have seen from the Scheme, it has two connected limbs – 'kar' and 'vivad'. Collection of tax arrears is as important as settlement of disputes. The Scheme is not intended to settle disputes where there is no corresponding gain to the other party. The basic objective of the Scheme cannot be altered.” (underline supplied by us) The Apex Court went on to observe as under :
“48. The Kar Vivad Samadhan Scheme is a step towards the settlement of outstanding disputed tax liability. The Scheme is a complete code in itself and exhaustive of matter dealt with therein. Therefore, the courts must construe the provisions of the Scheme with reference to the language used therein and ascertain what their true scope is by applying the normal rule of construction. Keeping this principle in view, let us consider the reasoning of the High Court.”
15. In the case of Master Cables (P) Ltd. State of Kerala, (2007) 5 SCC 416, the Apex Court considering the question whether the immunity granted under KVSS would extend also for the penalty proceedings under the Sales Tax Act, and the words “or from the imposition of penalty under any of such enactments in respect of matters covered in the declaration under section 88” appearing in section 91 of the Finance Act, 1998, held that such immunity would not cover the proceedings of Sales Tax Act, observing as under:
“What is conclusive is the order passed under sub-section (1) of Section 90 of the Scheme determining the sum payable under the Scheme. The terms "direct tax enactment" or "indirect tax enactment" or "any other law for the time being in force" refer only to those statutes under which the order had been passed. Immunity, as noticed hereinbefore, is in respect of institution of any proceeding for prosecution of any offence under direct tax enactment or indirect tax enactment or from imposition of penalty under any of such enactments.”
16. We may recall that section 91 of the Finance Act, 1998 provides for immunity from institution of any proceeding of prosecution for any offence under any direct tax enactment or indirect tax enactment or from the imposition of penalty under any of such enactments in respect of matters covered in the declaration under section 88. Section 94 further clarifies that save as otherwise expressly provided in sub-section (3) of section 90, nothing contained in the Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any assessment or proceedings other than those in relation to which the declaration has been made. Sub-section (1) of section 90 provides, inter alia, that within sixty days from the date of receipt of the declaration, the designated authority shall by order, determine the amount payable by the declarant in accordance with the provisions of the Scheme and grant a certificate in such form as may be prescribed to the declarant setting forth therein the particulars of the tax arrear and the sum payable after such determination towards full and final settlement of tax arrears. Sub-section (3) in turn provides that every order passed under sub-section (1) determining the sum payable shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceedings. We may recall that the certificate issued by the designated authority also recorded that the tax arrears were determined on the basis of declaration made and that immunity from imposition of penalty is granted “in respect of matters covered in the aforesaid declaration made by the declaration.”
17. Combined reading of the provisions of section 91 regarding immunity and the clarification contained in section 94 and the finality of computation of tax arrear under section 90(1) read with section 90(3), we form an opinion that immunity must be in respect of matters covered in the declaration under section 88. In the present case, the declaration pertained to outstanding amount of interest only and covers no further particulars, obviously because no such particulars were required to be mentioned. Any immunity from either prosecution or penalty, therefore, must be in relation to such declaration and no further. If we revisit the order of the Assessing Officer imposing penalty, the same was on account of unaccounted stock found in possession of the petitioner during search operations which the petitioner admitted as being unaccounted investment in the stock. The petitioner had already offered such amount for tax in his return. Such order of penalty thus had no relation to the outstanding interest which was the subject matter of declaration which the petitioner made under the Scheme. Therefore, not on the ground that such penalty was passed after 31.3.98, but on the ground that the very nature of immunity which was granted to the petitioner under section 91 of the Finance Act, 1998, despite the petitioner's declaration being accepted and the petitioner paying the sum as determined by the designated authority, he cannot claim immunity from imposition of penalty which was not relatable to the declaration under section 88 of the Finance Act, 1988 which he made.
18. In the result, we find no merit in the petition. The same is therefore dismissed. Rule is discharged. No costs.
19. Before closing, we may clarify that we have not made any observations with respect to the merits of the order of the Assessing Officer imposing penalty and nothing stated in this order will come in the way of the petitioner in pursuing appeal against such order.
(Akil Kureshi J.) (vjn) (Harsha Devani, J.)