VDIS Declaration Does Not Bar Income Tax Scrutiny Where Discrepancies Exist: Madhya Pradesh High Court

The Madhya Pradesh High Court at Jabalpur has dismissed a writ petition challenging the validity of scrutiny notices issued under Section 143(2) of the Income Tax Act, 1961, held that income disclosed under the Voluntary Disclosure of Income Scheme (VDIS), 1997 does not grant blanket immunity against further assessment where discrepancies are found. The Bench of Justice Vivek Rusia and Justice Pradeep Mittal has observed that the Scheme does not bar the Department from assessing income that was not truly or fully disclosed. If discrepancies emerge between income declared under VDIS and income reflected in subsequent returns or records, the Assessing Officer is competent to initiate assessment or reassessment proceedings in accordance with law. The petition arose from multiple notices issued by the Income Tax Department to scrutinize returns pertaining to assessment years 1995–96, 1996–97, and 1997–98. The assessee, a partnership firm engaged in trading of tractors, motorcycles, and spare parts, had failed to file income tax returns within the prescribed time for certain years. Subsequently, it opted for the VDIS, 1997 and disclosed income under the scheme, paid the tax, and obtained a certificate from the Commissioner of Income Tax. However, upon examination, the Assessing Officer found significant differences between the income disclosed under the VDIS and the income later declared in the returns filed pursuant to notices under Section 148 of the Act. On this basis, notices under Section 143(2) were issued to conduct scrutiny assessment proceedings. The assessee challenged these notices, contending that once income was disclosed under VDIS, it could not be subjected to further scrutiny or tax under the Income Tax Act. The petitioner also assailed an order passed under Section 144A of the Act, by which the higher authority rejected the request to restrain the Assessing Officer from proceeding with the scrutiny. It was argued that the notices violated Central Board of Direct Taxes (CBDT) instructions and contravened the very object of the VDIS, which was intended to provide immunity to declarants. On the other hand, the Income Tax Department raised preliminary objections on maintainability, pointing out the availability of an alternative statutory remedy by way of appeal. The Department maintained that immunity under VDIS extended only to the income actually disclosed and not to any income subsequently found to be understated or omitted. It was further argued that since the assessee had not filed returns within time and discrepancies were noticed, the Assessing Officer was justified in initiating proceedings under Sections 147 and 148. After examining the statutory framework, the High Court noted that Section 143(2) empowers the Assessing Officer to issue scrutiny notices where it is considered necessary to ensure that income has not been understated or tax underpaid. The Court observed that the VDIS protects an assessee from being questioned about the source of the disclosed income, but it does not deem the disclosed income to be conclusively correct if material indicates that higher income existed. Addressing the argument regarding CBDT instructions, the Court found that the relevant instructions came into force after initiation of proceedings under Section 147 and therefore did not invalidate the impugned notices. The Court further emphasized that issues relating to sanction, limitation, and validity of reassessment could be raised by the assessee during assessment proceedings and in appeal, if necessary. The High Court held that no case was made out for interference under Article 226 of the Constitution. Observing that the assessee had adequate alternative remedies under the Income Tax Act, the Court dismissed the writ petition, allowing the assessment proceedings to continue in accordance with law. Case Details Case Title: Naresh Chandra Aggarwal Versus Income Tax Dept. Case No.: WRIT PETITION No. 1421 of 2001 Date: 03.12.2025 Counsel For Petitioner: Senior Advocate Sumit Nema Counsel For Respondent: Shubham Manchani Click Here To Read Order Read More: Service Tax Appeal Abated Following NCLT Ordered Liquidation of Assessee Company: CESTAT

VDIS Declaration Does Not Bar Income Tax Scrutiny Where Discrepancies Exist: Madhya Pradesh High Court

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