2006 (6) TMI 133 - AT - Income Tax

Tribunal rules income in belated return not for block assessment

The Tribunal ruled in favor of the assessee, determining that the income disclosed in the belated return could not be included in the block assessment. ... Computation of undisclosed income of the block period under section 158BB(1) - distinction between clause (c) and clause (ca) of section 158BB(1) - inclusion of income declared in belated regular return in block assessment - income recorded in regular books of account maintained in the normal course cannot be treated as undisclosed income - limits on Commissioner's revisional power under section 263 where Assessing Officer has taken a possible viewDistinction between clause (c) and clause (ca) of section 158BB(1) - income recorded in regular books of account maintained in the normal course cannot be treated as undisclosed income - Whether income disclosed in a belated regular return for assessment year 2002-03 could be included in the block assessment under clause (ca) of section 158BB(1) or was governed by clause (c). - HELD THAT: - The Tribunal examined the language of section 158BB(1) and its clauses (c) and (ca). Clause (c) applies where the due date for filing a return has expired but the assessee has maintained regular books of account in the normal course and entries recorded in those books form the basis for computing income; such income is excluded from undisclosed income computation. Clause (ca) applies to cases not falling under clause (c), typically where regular books are not maintained. In the present case the assessee had entries in regular books, obtained an audit report and paid advance tax; the belated return declared income recorded in those books. Shortfall in advance tax, if any, is a matter for interest under sections 234B/234C and does not convert a case falling within clause (c) into one under clause (ca). Applying these principles, clause (ca) was inapplicable and the income declared in the belated return could not be included in the block assessment. [Paras 4, 5]Clause (c) governs the case; the income declared in the belated return for assessment year 2002-03, being reflected in regular books of account, cannot be included in the block assessment under clause (ca) of section 158BB(1).Computation of undisclosed income of the block period under section 158BB(1) - limits on Commissioner's revisional power under section 263 where Assessing Officer has taken a possible view - Whether the Commissioner was justified in invoking section 263 to set aside the block assessment on the ground that the Assessing Officer had failed to include the income disclosed in the regular return in the block assessment. - HELD THAT: - The CIT relied on clause (ca) to contend that the Assessing Officer ought to have included the sum declared in the belated return in the block assessment. The Tribunal noted the CIT did not demonstrate that the aggregate undisclosed income computed by the Assessing Officer excluded the relevant previous year or that the AO had acted contrary to law. Where the Assessing Officer has computed undisclosed income as an aggregate of total income of previous years falling within the block period and has taken a permissible view based on material (including regular books), the Commissioner cannot declare the order erroneous and prejudicial merely by preferring an alternative view. In the absence of a showing that the AO's computation omitted the relevant year or ignored entries in regular books, exercise of revisional power under section 263 was not justified. [Paras 4, 5]The CIT's order under section 263 setting aside the block assessment was unjustified and is cancelled because the CIT failed to demonstrate error in the Assessing Officer's computation or that the AO's view was not a possible view.Final Conclusion: The order of the Commissioner under section 263 dated 16-8-2005 is cancelled and the assessee's appeal is allowed; the income declared in the regular books and in the belated return for assessment year 2002-03 cannot be included in the block assessment under section 158BB(1)(ca). Issues Involved:1. Validity of notice under section 263.2. Inclusion of income disclosed in a belated return in block assessment.3. Application of section 158BB(1)(ca) versus section 158BB(1)(c).4. Double taxation of the same income.5. Consideration of advance tax payment and regular assessment proceedings.Issue-wise Detailed Analysis:1. Validity of Notice under Section 263:The assessee contended that the notice issued under section 263 was illegal and invalid as there was no valid basis or reason for its issuance. The CIT, however, justified the notice on the grounds that the Assessing Officer (AO) failed to include the income disclosed in the belated return for the assessment year 2002-03 in the block assessment, making the AO's order erroneous and prejudicial to the interest of the revenue.2. Inclusion of Income Disclosed in a Belated Return in Block Assessment:The CIT directed the AO to include the sum of Rs. 53,27,812 in the block assessment, arguing that the return filed late was non est and the income should be treated as undisclosed. The assessee argued that the income disclosed in the return was already considered by the AO during the block assessment proceedings, and it was not correct to treat it as undisclosed income.3. Application of Section 158BB(1)(ca) versus Section 158BB(1)(c):The CIT relied on section 158BB(1)(ca), which states that if the due date for filing a return has expired and no return has been filed, the income should be considered nil. The Tribunal, however, noted that section 158BB(1)(ca) does not define undisclosed income but provides a method for its computation. The Tribunal emphasized that the case falls under section 158BB(1)(c), which pertains to situations where regular books of account are maintained, and entries are made in the normal course of business. Since the assessee maintained regular books and paid advance tax, the income disclosed could not be treated as undisclosed.4. Double Taxation of the Same Income:The assessee argued that the same income could not be taxed twice-once in regular assessment and again in block assessment. The Tribunal agreed, noting that the income disclosed in the return for the assessment year 2002-03 had already been taxed in the regular assessment, and including it again in the block assessment would result in double taxation.5. Consideration of Advance Tax Payment and Regular Assessment Proceedings:The assessee had paid advance tax of Rs. 5,71,000 before the search, indicating an admission of income for regular assessment. The Tribunal observed that the advance tax payment and the subsequent regular assessment under sections 143/148, where the disclosed income was taxed, supported the assessee's position. The CIT's argument that the AO's issuance of notice under section 148 did not affect the block assessment was rejected by the Tribunal.Conclusion:The Tribunal concluded that the provisions of section 158BB(1)(ca) were not applicable in this case. Instead, the case was covered by section 158BB(1)(c), as the income was entered in regular books of account maintained in the normal course of business. Consequently, the income disclosed in the belated return could not be included in the block assessment. The Tribunal cancelled the CIT's order dated 16-8-2005 and allowed the appeal filed by the assessee.