The main legal point established in the judgment is the distinction between a firm and its partners for the purpose of the Voluntary Disclosure of Income Scheme, 1997, and the implications of fraud on the validity of the actions taken under the Scheme.

Judgment

S.B. SINHA,J.- Leave granted.

2. Interpretation and application of the provisions of Voluntary Disclosure of Income Scheme falls for our consideration in this appeal which arises out of the judgment dated 19-7-2005 passed by the High Court of Judicature at Bombay in Writ Petition (Civil) No. 918 of 2005 dismissing the writ petition filed by the appellant herein, questioning the correctness of an order dated 13-5-2004 passed by the Commissioner of Income Tax, Mumbai City XXV refusing to entertain an application under voluntary disclosure scheme.

3. The appellant is a firm registered under the Partnership Act, 1932. It is also registered under the Income Tax Act, 1961. A search and seizure proceeding was conducted against three individuals Smt. Kuntalaxmi Tanna, Shri Kashyap Tanna and Shri Kauntey Tanna. Office of the appellant was also situate at the same premises where the search and seizure was conducted. A voluntary disclosure by the firm was made in respect of the Assessment Year 1994-1995 for a sum of Rs 2,45,420 and Rs 2,05,470 for the Assessment Year 1995-1996 under the Voluntary Disclosure of Income Scheme, 1997.

4. By an order dated 30-12-1997, the said declaration was accepted.

5. Requisite amount of tax was also paid. A certificate was issued by the Commissioner of Income Tax having satisfied himself with the various requirements of the Scheme. Additions made in respect of the Assessment Years 1994-1995 and 1995-1996 were directed to be deleted by the Commissioner of Income Tax on 29-1-2003 and 24-2-2003 respectively opining that the firm became entitled to the immunity being inherent in the Scheme.

6. However, an order was passed by the Commissioner of Income Tax on 8-4-2003 declaring the said certificate to be null and void under Section 64(2) of the Voluntary Disclosure of Income Scheme, 1997 stating:

“Subsequent to the filing of declaration and issue of certificate under Section 68(2) of the VDIS 1997, it has been brought out that search and seizure action was carried out in respect of the assessee on 18-4-1997 relating to the assets declared by the assessee in the VDIS application filed on 30-12-1997 and this fact was not disclosed by the assessee while filing the VDIS declaration on 30-12-1997. As the assets declared by the assessee under VDIS 1997 had been discovered earlier by the Income Tax Department during the course of search and seizure action, the VDIS 1997 certificate issued under Section 68(2) of the VDIS 1997 and as such, the certificate under Section 68(2) of the VDIS 1997 dated 10-3- d 1998 issued by the Commissioner of Income Tax (Central) II is held to be null and void.”

7. The appellant contended that the said order having been passed without complying with the principles of natural justice and behind its back was illegal. A writ petition was filed before the Bombay High Court and by an order dated 4-2-2004, the matter was directed to be considered de novo by the Commissioner of Income Tax, whereupon, again by reason of an order dated 13-5-2004, the Commissioner of Income Tax inter alia opined that as a partner is an intrinsic part of a firm, only because no specific search warrant was issued in the name of the assessee firm, the same would not entitle it to take benefit of the 1997 Scheme.

It was held:

“The partner of the firm, Mr. Kauntey M. Tanna was searched and he answered the questions asked of him, as partner of this concern, admitting to the receipt of on money. The figures available from the diaries found at the time of the search show that for FY 1993- 1994, relevant to AY 1994-1995, total on money received was Rs. 16,36,128 as per Diary No. A-2 written by Shri Kauntey M. Tanna It is exactly this figure which has been offered by the assessee as the gross receipts of on money under the VDIS declaration. Therefore, the assessees claim before the assessing officer that the diary and the loose papers were in no way connected with him was patently incorrect. Similarly for the AY 1995-1996