Income Disclosed Under Voluntary Disclosure Scheme Cannot Be Included With Regular Income: Madhya Pradesh HC

In Subhash Chandra v. Commissioner of Income Tax, Indore and Others (WRIT PETITION No. 2271 of 2001), the Madhya Pradesh High Court, Indore Bench, determined that income disclosed via Voluntary Disclosure Scheme cannot be clubbed with regular income stated under Income Tax Act since tax paid under the Scheme cannot be returned.

Brief Facts Of The Case: The petitioner/assessee Subhash Chandra disclosed his undisclosed income under the 1997 VDIS. The Assessee filed his income tax return and subtracted VDIS revenue from his total income for the relevant assessment years, calculating Nil tax obligation. The Assessee filed a revision application against the Income Tax Officer’s rejected tax return.

The Commissioner of Income Tax (CIT) rejected the revision application because the Assessee was seeking to take advantage of both the Income Tax Act and VDIS, which was not allowed. The CIT ruled that the kind of income assets stated on the VDIS and the regular return were different. The CIT concluded that the description of assets in the VDIS application did not match the source of income on the income tax return, hence no TDS or advance tax was deducted on the assets disclosed under VDIS. The CIT rejected the revision request because the Assessee had submitted his tax return late and was evading tax by deducting VDIS revenue. The Assessee appealed CIT’s ruling to the High Court.

The Petitioner/counsel Assessee’s argued before the High Court that under Section 68 of the Finance Act, 1997, voluntarily disclosed income cannot be included in the declarant/total assessee’s income for any particular assessment year. 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 income tax department’s counsel argued that the VDIS Scheme was introduced to increase revenue and that, per Section 70 of the VDIS, any tax paid according to the scheme’s declaration is non-refundable.

Judgement: Justices Vivek Rusia and Amar Nath Kesharwani ruled that Voluntary Disclosure Scheme tax and Income Tax Act tax are separate and cannot be adjusted. The Bench added that an assessee cannot disclose part of his income under Voluntary Disclosure Scheme and other part of his income in a belated income tax return filed under the Act, citing the Bombay High Court’s judgement in Earnest Business Services (P) Ltd versus Commissioner of Income Tax (2017), which ruled that the tax paid under VDIS and Income Tax Act are different and cannot be adjusted. The High Court ruled that VDIS revenue couldn’t be included in the Income Tax Act return, hence assessment couldn’t be reopened.

The High Court noted that the Assessee submitted a late income tax return and claimed deductions and tax refunds to misuse the Scheme. The High Court denied the Assessee’s appeal and affirmed CIT’s ruling.



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