Asstt. CIT v. A.R. Enterprises ()

INCOME TAX

--Search and seizure----BLOCK ASSESSMENTUndisclosed income-- Held: Income of the relevant assessment year could not be treated as 'undisclosed income' in block assessment when advance tax was paid for the said assessment year even though no return was filed till date of search.

Income Tax Act, 1961 s.158BB(1)(c)

Asstt. CIT v. A.R. Enterprises

In the Madras High Court P.D. Dinakaran & K. Raviraja Pandian, JJ.

Tax Case (Appeal) No. 238 of 2000 8 September 2004

Income Tax Act, 1961, section 158BB(1)(c)

Counsel : T Ravikumar, for the Revenue P.P.S. Janarthana Raja, for the Assessee

JUDGMENT

P.D. Dinakaran, J.

The above appeal is directed against the order dated 29-6-1999 in IT(SS)A No. 70/Mds/1998, on the file of the Tribunal, Madras 'C' Bench, on the following substantial question of law :

'Whether the Tribunal is right in law in cancelling the assessment under Chapter XIV-B, in the light of the specific provision contained in section 158BB(1)(c) of the Income Tax Act ?'

2.1 In brief, the respondent/assessee is a partnership firm. A search was conducted by the revenue authorities under section 132 of the Income Tax Act (hereinafter referred to as 'the Act') on 23-2-1996, pursuant to a warrant of search issued by the competent authority to search M/s A.R. Mercantile (P) Ltd. at 26, Fagun Chambers, Commander-in-Chief Road, Madras-600105. During the course of the search, certain books and documents (nine in number) relating to the assessee were seized. On scrutiny, it was noticed that the assessee earned taxable income for the assessment year 1995-96, but no return was filed till the date of search. Therefore, the assessing officer based on the materials seized during the search viewed the same as a detection of undisclosed income and initiated action under section 158BD of the Act, which reads as follows :

'Section 158BD-Undisclosed income of any other person-Where the assessing officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents, or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the assessing officer having jurisdiction over such other person and that assessing officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly.'

2.2 The assessee, thereafter, filed a return in Form 2B admitting the income returned by them for the assessment years 1993-94 to 1995-96 and offered additional income to be assessed under Chapter XIV-B of the Act, which provides a special procedure for the assessment of search cases.

2.3 An objection was raised by the assessee to the effect that the assessee had already paid advance tax in three instalments to the tune of Rs. 4,80,000 as follows:

The proof for the payment of advance tax was also made available and, therefore, the action initiated under Chapter XIV-B of the Act, alleging that the respondent/assessee failed to disclose the income, is not tenable in law.

2.4 The respondent/assessee also brought to the notice of the assessing officer that he had already filed the return for the assessment years 1993-94 and 1994-95. For the assessment year 1995-96, even though the assessee has not filed return, they paid the advance tax, as referred to above. Nevertheless, the assessing officer opined that since the (assessee) failed to file return as on the date of search, there was income which remained undisclosed. Hence, invoking Chapter XIV-B of the Act, the assessing officer proceeded under section 158BD of the Act on the undisclosed income of the respondent/ assessee.

2.5 Aggrieved by the order of the assessing officer, the respondent/assessee preferred an appeal before the Tribunal. The Tribunal, appreciating the contention of the respondent/assessee that they had paid advance tax in three instalments and it cannot be said that the income of the respondent/assessee was undisclosed, held that the assessing officer committed an error in treating the income of the respondent/assessee as undisclosed income and, therefore, declared the assessment order under Chapter XVI-B, section 158BD of the Act as null and void. Hence, the above appeal on the substantial question of law, referred to above.

3.1 Substantiating the contention of the revenue, the learned standing counsel invited my attention to section 158B(b) of the Act, contending that the case of the respondent/assessee clearly attracts the undisclosed income as defined under section 158B(b) of the Act.

3.2 The learned standing counsel, based on the decision of this court in B. Noorsingh v. Union of India & Ors. (2001) 249 ITR 378 (Mad), contended that mere payment of advance tax by itself does not establish the intention to disclose the income.

4.1 The decision in B. Noorsingh case, referred supra, relates to the constitutional validity of section 158BB of the Act, which deals with the computation of undisclosed income for the block period. R. Jayasimha Babu, J., while dealing with section 158BB(1)(c) of the Act, as to whether the assessee who had paid advance tax is entitled to file return of income after the expiry of the due date, particularly after the search, held as follows:

'The payment of advance tax by itself does not establish an intent to disclose the income. The disclosure is to be made by filing the return. Even in search cases where the time for filing the return under section 139(1) has not expired, income disclosed in the books of account is not treated as undisclosed income. All that is denied to the assessee in search cases is the opportunity to file a return after the period specified in section 139(1) and to claim that the income that he would have disclosed in a belated return is not to be regarded as undisclosed income. The reason for denying such opportunity in search cases is obvious. After having suffered a search, the assessee is not enabled to escape the consequences of his failure to disclose all his income by filing a return after the search and after the expiry of the time prescribed under section 139(1) and by disclosing therein income which had remained undisclosed upto the date of the search.

4.2 It is, therefore, clear that the question for consideration before the court in B. Noorsingh case, referred supra, is, whether the assessee is justified to file return after the expiry of the due date, particularly after the search for lack of bona fide on the part of the assessee, but does not decide on the question whether the advance tax paid under section 139 read with section 140A of the Act by the assessee is a matter to be taken into consideration while deciding on the undisclosed income of the assessee.

5. A Full Bench of the Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd. v. ITO (1992) 194 ITR 659 (Guj)(FB) held as follows .

'The scheme of the Act, therefore, clearly indicates that liability to pay income tax chargeable under section 4(1) of the Act does not depend upon the assessment being made by the Income Tax Officer but depends on the enactment by any Central Act prescribing rate or rates for any assessment year. Thus, as soon as the rates are prescribed by the appropriate legislation, the liability to pay tax arises on the total income which is to be computed by the assessee in accordance with the provisions of the Act, if it exceeded the maximum amount not chargeable to tax. By the process of self-assessment, the assessee is required to pay tax on the basis of his return and such tax is treated as assessed tax. Therefore, until it is disturbed by any further regular assessment, it remains as tax levied and collected in accordance with law. The fact that the assessing officer, when not accepting the correctness of the revised returns, has a power to check the computation of income and examine the correctness of the total income declared therein, cannot nullify the validity of the tax levied and collected on the basis of the return filed by the assessee. Even if the assessing officer does not make any regular assessment, the result only would be that the tax payable and which has been paid on the basis of the returns filed by the assessee is deemed to have been accepted as properly paid and no further demand can be made since the regular assessment has not been made within the prescribed time. On the other hand, if the assessee even after filing the return, felt that the total income was not correctly shown by him, he can under section 139(5), file a revised return within the prescribed time and, apart from that, he can also file a claim for refund in accordance with section 237 read with section 239 of the Act. The claim for refund has to be made within two years and if such person satisfies the assessing officer that the amount of tax paid by him exceeded the amount with which he is properly chargeable under the Act for the relevant assessment year, such assessee would be entitled to refund of the excess. Thus, not making a regular assessment does not, in any way, prejudice the assessee, firstly because his return and the tax which according to him, was admittedly payable and paid are deemed to have been accepted as true and secondly, even if the assessee feels that he is entitled to a refund, he can make a suitable claim showing that he had paid tax in excess of the amount which is properly chargeable under the Act for the relevant year. We are, therefore, of the view that on failure of a regular assessment being made within the time prescribed or in the event of annulment of the assessment order pursuant to which any further demand is required to be made under section 156, no consequence of refund of the entire tax collected according to the total income shown in the returns filed by the assessee can ensue and such tax which is collected on the basis of the return filed by the assessee remains a valid and legal recovery in accordance with the provisions of the said Act and there is no question of any violation of Art. 265 of the Constitution of India in respect of the tax so recovered on the basis of the total income shown by the assessee in his return.'

6. The Apex Court in CIT v. Shelly Products & Anr. (2003) 261 ITR 367 (SC), held as follows :

'Failure or inability to frame another assessment after the earlier assessment is set aside or nullified in appropriate proceedings, does not entitle the assessee to claim refund of advance tax and tax paid on self-assessment, because to that extent, the assessee has admitted his liability to pay tax in accordance with the law. If the assessing authority, on an earlier assessment made being set aside or nullified in appropriate proceedings, cannot make a fresh assessment, it amounts to deemed acceptance of the return of income furnished by the assessee.'

7. The advance tax paid by the assessee, viewed from the perspective of the decisions referred supra, in our considered opinion, cannot be lightly disregarded and has its own statutory consequences.

8. A Division Bench of the Gauhati High Court in Dr. (Mrs.) Alaka Goswami v. CIT (2004) 268 ITR 178 (Guj), referring to the decisions in (i) CIT v. Shelly Products and (ii) Saurashtra Cement & Chemical Industries v. ITO, both referred supra, held as follows

'... There cannot be any manner of doubt that when the assessee pays advance tax, the advance tax payment is assessed by the assessee on the basis of selfassessed income. The advance tax reflects the income admitted by the assessee. When the assessee pays the advance tax, he discloses his income at the particular point of time, which may or may not be taxable on a subsequent date, on the return submitted by him under section 139 or under sub-section (1) of section 142 because of the assessee's tax planning or he may claim exemption and refund of the tax paid, but for doing so he will have to show the income on which the advance tax is paid and then claim refund or complete exemption, as the case may be, as permissible under the relevant statute.

.... Disclosure of the self-assessed income by the assessee would only entitle the assessee to claim refund or exemption from tax as the assessee is required to show the income on the basis of which the advance tax is paid or ultimate claim is made. The moment the advance tax is paid, the taxable income at that point of time is disclosed to the revenue by the assessee. It cannot be said by the revenue that the advance tax paid would or may not be the tax payable on the basis of the ultimate assessment made and, therefore, it cannot be taken to be a representation of the income on which the advance tax was paid. The question is whether the income, which represents the payment of advance tax, would be said to be an undisclosed income when the payment of advance tax itself necessarily implies disclosure of the income on which the advance tax is paid by the assessee to the revenue.

.... Under clause (d) of sub-section (1) of section 158BB while assessing the aggregate of the total income, the income recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous year shall be taken into consideration where the previous year has not ended or the date of filing the return of the income under sub-section (1) of section 139 has not expired. When the assessee is required to file the self-assessment for payment of the advance tax before the income-tax authorities, the return of assessment would fall within the documents maintained in the normal course by the assessee and as such the income disclosed on payment of the advance tax would fall within clause (d) of sub-section (1) of section 158BB. In any case, although there is a difference between the regular assessment and the block assessment, as we have already noticed, unless the provisions of the block assessment specifically bar the assessing authority from taking into consideration the income disclosed by the assessee on payment of the advance tax to be taken into consideration, the income disclosed by the assessee on payment of advance tax would be an income disclosed to the revenue and cannot be treated as an income undisclosed for the relevant assessment year. Learned counsel for the revenue could not point out any provision on the basis of which we can hold that the income disclosed on payment of advance tax cannot be treated as disclosure of income, by virtue of a particular statutory provision under Chapter XIV-B of the Act.

For the discussions aforesaid, we answer the question in the negative and hold that the income disclosed on account of payment of the advance tax cannot be held to be undisclosed income for the purposes of block assessment.'

9. We are, therefore, of the considered opinion, that the observations made in B. Noorsingh case, referred supra, would only have a bearing on the point whether the assessee is entitled to file return after the expiry of the due date, particularly after the conduct of search, but would not eschew the statutory consequence of advance tax paid by the assessee while deciding the income alleged to have been undisclosed by the assessee in spite of the selfassessment made under section 139 read with section 140A of the Act, while paying his advance tax.

10. In view of the above well-settled position in law, the question is answered in the affirmative, against the revenue and in favour of the assessee. This tax case is dismissed.

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