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Deputy Commissioner of Income Tax (Central) Circle 1(2) v. M/S. M.R. Shah Logistics Pvt. Ltd.

SLP(C) · 2022 INSC 349Decided 28 Mar 2022
SLP(C) No. 22921 of 2019
Uday Umesh Lalit · S. Ravindra Bhat · Lalit

Background

During searches on an alleged "accommodation entry" provider (someone who helps companies disguise unaccounted cash as legitimate share investments) and on a related business group, the tax department found material suggesting the respondent company had received crores of rupees of such disguised investment in its share capital. The Assessing Officer issued a notice years later to reopen the company's already-accepted tax return for 2010-11, based on this material and on a related company's disclosure under the Income Declaration Scheme (IDS). The Gujarat High Court quashed the reopening notice, reasoning that once the source company had declared the amount under the IDS scheme, the same money could not be taxed again in the respondent's hands. The tax department appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that the High Court's reasoning was legally wrong. An IDS/voluntary disclosure scheme only grants immunity to the person who actually makes the declaration, for the specific amount and person covered by that declaration. It does not create a blanket immunity protecting every other company that may have benefited from or handled the same funds. Relying on earlier precedent on similar tax amnesty schemes, the Court held immunity under such schemes is inherently limited and cannot be stretched to shield a non-declarant assessee like the respondent from independent scrutiny of its own accounts. Since the Assessing Officer had independent material (the search findings and the discrepancy chart between what the source company claimed and what appeared in the respondent's own company records) forming a genuine "reason to believe" income had escaped assessment, the reopening notice was validly issued. The High Court's judgment quashing the notice was set aside, and the tax department was allowed to proceed with reassessment.

Lesson Learnt

Declaring undisclosed income under a tax amnesty/disclosure scheme protects only the declarant for that specific disclosure. It does not automatically immunise other companies or individuals connected to the same money from being separately investigated and taxed if independent evidence points to them.

Official source (sci.gov.in)View Judgment (PDF)

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