Judgment

SEN, J. (For himself and on behalf of Venkataramiah, J.):- This is a direct reference under S. 257 of the Income-tax Act, 1961 made by the Income-tax Appellate Tribunal, Jabalpur (for short, the Appellate Tribunal), at the instance of the assessee. The reference is necessitated due to divergence of opinion, as, reflected in the various decisions of different High Courts, with respect to the scope and effect of the Voluntary Disclosure Scheme under S. 24 of the Finance (No. 2) Act, 1965 (the Act, for short).

2. The assessee, Messrs. Jamnaprasad Kanhaiyalal, is a partnership firm. The firm consists of 4 partners, namely, Kanhaiyalal and his 3 major sons, Rajkumar, Swatantrakumar, and Santoshkumar with his minor son Satishkumar admitted to the benefits of the partnership. In the course of assessment proceedings for the assessment year 1967-68, the relevant accounting year of which was the year ending Diwali, 1966, the Income-tax officer (ITO, for short) noticed in the books of account of the assessee five cash credits of Rs. 9,250 each, in the names of five sons of Kanhaiyalal, as detailed below :

Rs.

Sailendrakumar 5 yrs. 9,250/-

Satishkumar 9 yrs. 9,250/-

Sunilkumar 7 yrs. 9,250/-

Swatantrakumar 16 yrs. 9,250/-

Santoshkumar 18 yrs. 9,250/-

46,250/-

The ITO accordingly called upon the assessee to explain the genuineness as well as the source of the cash credits. On being questioned, Kanhaiyalal the Managing partner disavowed all knowledge as to the capacity of the creditors to advance the amounts in question. On the contrary, he admitted that the creditors had no independent source of income of their own. In fact, he further stated that he could not explain the source of the cash credit.

3. It was, contended before the ITO that the creditors having made voluntary disclosures under the Voluntary Disclosure Scheme and the disclosures made by them having been accepted by the Commissioner of Income-tax and tax paid thereon, the amount of Rs. 46,250 could not be treated as income of the assessee from undisclosed sources. The ITO, however, held that the disclosures made under the scheme granted immunity from further taxation only to the declarant, and not to a person to whom the income actually belonged. He further held that the assessee having failed to prove the genuineness and source of the cash credits, the amount of Rs. 46,250 credited in the books of account of the assessee in the names of the creditors, who had no income of their own must be treated as the assessees income from undisclosed sources. According to him, such cash credits were created in their names after making false declarations under the Scheme, with a view to avoid a higher rate of taxation. He accordingly made an addition of Rs. 46,250 as assessees income from undisclosed sources.

4. The Appellate Assistant Commissioner disagreed with the ITO, holding that when an amount was disclosed by a person under S. 24 of the Act, there was an immunity not only as regards the declarant, but there was also a finality as to the assessment. In his view, the entire statement of Kanhaiyalal had to be ignored, as it was not clear in what capacity the questions were put to him and the answers elicited because any investigation into the source of the deposits was prohibited and illegal under the Act. He accordingly held that the acceptance of the voluntary disclosures made by the creditors in question to the Commissioner and the payment of tax thereon precluded the Department from disputing that the income belonged to the said creditors and as the same income cannot be taxed twice once in the hands of the creditors and again in the hands of the assessee, the order passed by the ITO in that behalf was unsustainable. The Appellate Assistant Commissioner, therefore, directed the deletion of Rupees 46,250. The Department went up in appeal before the Appellate Tribunal.

5. The Appellate Tribunal, however, disagreed with the Appellate Assistant Commissioner and upheld the decision o