Once Income Disclosure Certificate is Validly Issued, Revenue Cannot Reopen Assessment Unless It is Cancelled: Bombay HC [Read Order]
Bombay HC held that once an Income Disclosure Certificate is validly issued under the IDS, 2016, the Revenue cannot reopen the assessment unless the certificate is cancelled for misrepresentation or fraud.
In a recent ruling, the Bombay High Court held that once an Income Disclosure Certificate is validly issued under the Income Disclosure Scheme (IDS), 2016, the Revenue cannot reopen the assessment unless the certificate is cancelled for misrepresentation or fraud.
Prabhakar Nerulkar, the petitioner, engaged in the real estate business in Goa, had not filed income tax returns for six years from assessment years 2011-12 to 2016-17.
Acting on professional advice, he disclosed his undisclosed income under the Income Disclosure Scheme, 2016, and his declaration was accepted by the Principal Commissioner of Income Tax, Panaji, who issued a Certificate of Declaration (Form IV) under Section 183 of the Finance Act, 2016.
Later, the Income Tax Department issued a notice under Section 148 of the Income Tax Act, 1961, reopening the assessment for the year 2014-15 on the ground that the petitioner had engaged in property transactions and cash deposits that were not reflected in his return.
A reassessment order was passed under Sections 147, 144, and 144B, adding ₹1.43 crore to his income. The petitioner filed a revision under Section 264, which was partly rejected, prompting him to approach the High Court.
The petitioner’s counsel argued that once the declaration under the IDS was accepted and the certificate was issued, the income covered by it could not be reassessed. He submitted that the scheme assured confidentiality and immunity, and unless the certificate was revoked for fraud or suppression of facts, the department could not use the disclosed information to reopen assessments.
The revenue’s counsel argued that the petitioner had declared a very small income compared to his financial transactions, and reopening was justified to verify the source of funds and ensure that no taxable income escaped assessment.
The Division Bench of Justice Bharati Dangre and Justice Ashish S. Chavan observed that the IDS, 2016, was introduced to give taxpayers a one-time opportunity to declare undisclosed income and pay tax at 45%, in return for immunity from further proceedings. The court explained that the law and CBDT circulars clearly provide that the information in a valid declaration is confidential and cannot be used for reassessment unless the declaration is found to be false.
The court pointed out that the Revenue had not alleged any misrepresentation or fraud by the petitioner, nor had it cancelled the certificate issued under the scheme. Reopening the assessment on the same income already disclosed and accepted under IDS was contrary to the protection assured by the scheme.
The court held that the reassessment proceedings initiated under Section 147 and the subsequent orders were invalid. It quashed the assessment order dated 16 March 2022, the order under Section 264 dated 14 November 2023, and all consequential notices. The writ petition was accordingly allowed.
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