2013 (1) TMI 345 - SC - Income Tax

Supreme Court: Advance Tax or TDS payment not income disclosure. Assessing Officer justified in assuming non-disclosure

Assistant Commissioner of Income-tax Versus A.R. Enterprises and Commissioner of Income-tax Versus BR. Shah and others

The Supreme Court held that payment of Advance Tax or Tax Deducted at Source (TDS) does not constitute disclosure of income. The Court ruled in favor of ... Undisclosed Income - no return of income had been filed till the date of search - action u/s 158BD requiring the assessee to file their return of income for the block period 1993-94 to 1995-96 (ten years preceding the previous year) - assessee contested that income for assessment year 1995-96 could not be deemed to be undisclosed as for a Advance Tax had already been paid therefore - Held that:- According to Section 210(1) every person who is liable to pay Advance Tax under Section 208 shall, of his own accord, pay Advance Tax on his “current income”, calculated in the manner laid down in section 209. Section 209(1)(a) states that the assessee shall first estimate his “current income” and thereafter pay income tax calculated on this estimated income on the rates in force in the relevant financial year. It is significant to note that this income is an estimation that is made by the assessee and may not be the exact income, which may ultimately be declared in the return under Section 139 and assessed under Section 143. An estimate always has an element of guesswork. There could be various reasons due to which an estimate may be faulty and inaccurate which is why, there is a provision for payment of interest on deficient or excess payment of advance tax when there is variation between advance tax paid and actual liability to tax - See Commissioner of Income Tax Vs. Smt. Premlata Jalani [2003 (7) TMI 62 - RAJASTHAN HIGH COURT] Since the Advance Tax payable by an assessee is an estimate of his “current income” for the relevant financial year, it is not the actual total income, to be disclosed in the return of income. It will be a misconstruction of the law to construe the undisclosed income for purposes of Chapter XIVB as an “estimate” of the total income, which is assessable and chargeable to tax. Therefore, unable to accept that payment of Advance Tax based on “current income” involves the disclosure of “total income”, as defined in Section 2(45) which has to be stated in the return of income. The same is evidenced in the scheme of Chapter XIVB, in particular. As for the purposes of computation of undisclosed income under Chapter XIVB, an assessee can rebut the AO’s finding of undisclosed income by showing that such income was disclosed in the return of income filed by him before the commencement of search or the requisition. And on failure to file return of income by the due date under Section 139 payment of Advance Tax per se cannot indicate the intention of an assessee to disclose his income. If the payment of Advance Tax reflects the intention of the assessee to disclose its income, it could result in a situation where the mandatory obligation of filing a return for disclosure of income under the provisions of the Act, would not be necessary. Such a proposition would be contrary to the very purpose of filing of return, which ultimately leads to assessment of total income for the relevant assessment year. Any anomaly in the return entails serious consequences, which may not otherwise be attracted on estimation of income for the purpose of payment of Advance Tax. It would thus, be difficult to accept the plea that payment of Advance Tax is tantamount to the disclosure of income or that it indicates the intention of the assessee to disclose income - Thus as the assessee had not filed its return of income by the due date, AO was correct in assuming that the assessee would not have disclosed its total income - in favour of the Revenue. Whether tax deducted at source (and not payment of Advance Tax) amounts to the disclosure of income? - Held that:- Since the tax to be deducted at source is also computed on the estimated income of an assessee for the relevant financial year, such deduction cannot result in the disclosure of the total income for the relevant assessment year. Subject to the monetary limit of the total income, every person is obligated to file his return of income even after tax is deducted at source. Hence, for the reasons stated in the preceding paragraphs, mere deduction of tax at source, also, does not amount to disclosure of income, nor does it indicate the intention to disclose income most definitely when the same is not disclosed in the returns filed for the concerned assessment year - in favour of the Revenue. Issues Involved:1. Validity of invoking Section 158BD of the Income Tax Act, 1961.2. Whether payment of Advance Tax amounts to disclosure of income.3. Whether Tax Deducted at Source (TDS) amounts to disclosure of income.Issue-wise Detailed Analysis:1. Validity of Invoking Section 158BD of the Income Tax Act, 1961:The case revolves around the search operation conducted under Section 132 of the Income Tax Act at the premises of M/s A.R. Mercantile Pvt. Ltd., where documents pertaining to the respondent-assessee were seized. The Assessing Officer initiated action under Section 158BD without recording reasons for his satisfaction that the assessee had undisclosed income. The Tribunal and High Court found that the Assessing Officer did not follow the procedure mandated by Section 158BD, which requires recording satisfaction that the seized documents show undisclosed income of a person other than the one searched.2. Whether Payment of Advance Tax Amounts to Disclosure of Income:The core issue was whether payment of Advance Tax by an assessee could be considered as disclosure of income for the relevant assessment year. The Tribunal held that payment of Advance Tax indicated the assessee's intention to disclose income. However, the Supreme Court rejected this view, stating that payment of Advance Tax is based on an estimate and not the final total income, which must be disclosed in a return filed under Section 139. The Court emphasized that the payment of Advance Tax does not absolve the obligation to file a return, and the total income disclosed in the return is subject to assessment. The Court further clarified that the significance of Advance Tax payment depends on whether the search was conducted before or after the due date for filing the return. If the search is conducted after the due date, the payment of Advance Tax is irrelevant in construing the intention to disclose income.3. Whether Tax Deducted at Source (TDS) Amounts to Disclosure of Income:In C.A. No. 2580/2010, the issue was whether TDS amounts to disclosure of income. The Court held that TDS, like Advance Tax, is computed on estimated income and does not result in the disclosure of total income. The Court reiterated that every person is obligated to file a return of income even after TDS, and mere deduction of tax at source does not indicate the intention to disclose income if not disclosed in the return.Conclusion:The Supreme Court concluded that payment of Advance Tax or TDS does not amount to disclosure of income. The Court set aside the High Court's judgment and ruled in favor of the Revenue, stating that the Assessing Officer was correct in assuming that the assessee would not have disclosed its total income due to the failure to file the return by the due date. The appeals were allowed, and the Revenue was awarded costs.