TaxTMI 
TaxTMI 
2013 (1) TMI 345
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....case. At the outset we may note that despite service of notice, no appearance was entered for the respondent-assesses, except in C.A. No. 2688/2006 and C.A. No. 2580/2010. Facts 3. The respondent-assessee is a firm which came into existence on 25th June, 1992. On 23rd February, 1996, a search operation under Section 132 of the Act was carried out at the premises of another concern, viz. M/s A.R. Mercantile Private Limited. During the course of search, certain books and documents pertaining to the assessee i. e. M/s A.R. Enterprises, were seized. On scrutiny, the Assessing Officer found that though the assessee had taxable income for the assessment year 1995-96, no return of income had been filed (due to be filed on or before 31st October, 1995) till the date of search. Based on the material seized by virtue of the aforesaid search, the Assessing Officer was satisfied that the assessee had not disclosed their income pertaining to the assessment year 1995-96. Accordingly (without recording any reasons for his satisfaction), he initiated action under Section 158BD of the Act requiring the assessee to file their return of income. The assessee, after filing return for the block....
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....appeal, the High Court formulated the following substantial question of law for adjudication: "Whether the Appellate Tribunal is right in law in cancelling the assessment under Chapter XIV-B in light of the specific provision contained in Section 158BB(1) (c) of the Income Tax Act?" 7. Before the High Court, the stand of the Revenue was that since return for the assessment year 1995-96 had not been filed by the due date, by filing the return after the search, the assessee could not escape the consequences as stipulated in Chapter XIVB of the Act. It was contended that payment of Advance Tax by itself did not establish the intention to disclose the income. In support of the proposition, reliance was placed on the decision of the High Court of Madras in B. Noorsingh Vs. Union of India & Ors.[(2001) 249 ITR 378]. In that judgment, the High Court had observed: "...Counsel submitted that in cases (sic) whereas in the case of the present petitioner, the assessee had paid advance tax, such payment would clearly indicate his intention to disclose his income and it could not be said that such person would not have disclosed his income. The payment of advance tax by itself d....
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....e disclosed to the Revenue and cannot be treated as an income undisclosed for the relevant assessment year." 9. Aggrieved thereby, as aforesaid, the Revenue is before us in these appeals. 10. The short question for consideration is whether payment of Advance Tax by an assessee would by itself tantamount to disclosure of income for the relevant assessment year and whether such income can be treated as undisclosed income for the purpose of application of Chapter XIVB of the Act? Scope of Chapter XIV-B and its Provisions 11. Sections 132 and 132A of the Act incorporate provision of search, seizure and requisition which were resorted to for the conduct of search at the premises of M/s A.R. Mercantile Pvt. Ltd. For the evaluation of the material seized during the operation or proceedings under Sections 132 or 132A of the Act, as the case may be, the provisions contained in Chapter XIV-B come into play. This chapter, consisting of sections 158B to 158BH was inserted by the Finance Act, 1995 with effect from 1.07.1995. The heading of Chapter XIV-B reads "Special Procedure for Assessment of Search Cases". It was introduced for the assessment of undisclosed i....
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....ii) the books of accounts or other documents or assets seized or requisitioned had been handed over to the assessing officer having jurisdiction over such other person; and (iii) the assessing officer has proceeded under Section 158-BC against such other person." 14. In Assistant Commissioner of Income Tax Vs. Hotel Blue Moon[(2010) 3 SCC 259 at page 264], one of us (H.L. Dattu, J.) while explaining the purport of Chapter XIVB of the Act, has observed that a search is the sine qua non for the block assessment; the special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period, intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. Hence, from the aforementioned discussion it is clear that a valid search under Section 132 of the Act is a sine qua non for invoking block assessment proceedings under Chapter XIVB. Further according to Section 158BD of the Act the assessing officer must record his or her satisfaction that any undisclosed income belongs to any person, other than the person wit....
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....uch time not being less than fifteen days; XXX XXX XXX (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143 section 144 and section 145 shall, so far as may be, apply;..." [Emphasis supplied] 17. Section 158B of the Act, which encompasses the crux of the issue, reads as follows: "Definitions. 158B. In this Chapter, unless the context otherwise requires, - (a) "block period" means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and includes, in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition; (b) "Undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, th....
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....irrelevant in construing the intention of the assessee to disclose income. Such a situation would find place within the first category carved out by Section 158B of the Act i.e. where income has clearly not been disclosed. The possibility of the intention to disclose does not arise since, as held earlier, the opportunity of disclosure has lapsed i.e. through filing of return of income by the due date. If, on the other hand, search is conducted prior to the due date for filing return, the opportunity to disclose income or, in other words, to file return and disclose income still persists. In which case, payment of Advance Tax may be a material fact for construing whether an assessee intended to disclose. An assessee is entitled to make the legitimate claim that even though the search or the documents recovered, show an income earned by him, he has paid Advance Tax for the relevant assessment year and has an opportunity to declare the total income, in the return of income, which he would file by the due date. Hence, the fulcrum of such a decision is the due date for filing of return of income vis-à-vis date of search. Payment of Advance Tax may be a relevant factor in construi....
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.... income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,- (a) XXX XXX XXX (b) XXX XXX XXX (c) where the due date for filing a return of income has expired but no return of income has been filed, as nil 25. Further, the explanation to Section 158BB(1) reads- "Explanation: For the purposes of determination of undisclosed income,- (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32; (b) of a firm, or ....
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....ial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is one thousand five hundred rupees or more." 30. Thus, in every case where the amount of tax payable on the total income earned during the financial year is one thousand five hundred rupees or more, then, an assessee would be liable to pay in the financial year itself, Advance Tax on such income, also known as "current income." It is in this context the following questions arise: (i) What is the nature of the "current income" upon which the Advance Tax is paid and is it the same as the total income? and (ii) Whether the payment of Advance Tax results in the disclosure of the actual total income? 31. Section 210(1) of the Act refers to the payment of Advance Tax by the assessee of his own accord:- "210. (1) Every person who is liable to pay advance tax under section 208 (whether or not he has been previously assessed by way of regular assessment) shall, of his own accord, pay, on or before each of the due dates specified in section 211, the appropriate percentage, specified in that section, of the advance tax....
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....le "pay as you earn". It requires tax to be paid during the financial year. It has to be in respect of the total income of the assessee which would be chargeable to tax under the Act. The said total income is not as understood in Section 2(45) but it is equated to "current income" for the purposes of Chapter XVII. After the amending Act of 1987, advance tax is to be paid on the current income which would be chargeable to tax for the assessment year immediately following the financial year. Section 210 casts the responsibility of payment of advance tax on the assessee without requiring the assessee to submit his estimate of advance tax payable. Provision for payment of advance tax is a mode of quick collection of tax. 9. Thus, Section 207 defines liability to pay advance tax in respect of incomes referred to in Section 208. However, advance tax paid is adjustable towards the tax due. Advance tax is collected even before the income tax becomes due and payable. By its very nature, advance tax is pre-assessment collection of taxes either by deduction of tax at source or by payment of advance tax which has to be adjusted towards income tax levied on the total income. The above t....
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....at for the purpose of payment of advance tax, all assessees including companies, are required to make an estimate of their current income. Even before the introduction of the provisions of Section 115J of the Act, companies had been estimating their total income after providing deductions admissible under the Act. In fact, all assessees who maintain books of account have to undertake this exercise for the purpose of payment of advance tax. If a profit and loss account can be drawn up on estimate basis for the purpose of Income-tax Act, it is not understood as to why a similar profit and loss account on estimate basis under the Companies Act cannot be drawn up. If the explanation of the companies that the profits under Section 115J of the Act can only be determined after the close of the year were to be accepted, then no assessee who maintains regular books of account would be liable to pay advance tax as in those cases also, income can only be determined after the close of the books of account at the end of the year." 37. We are, therefore, of the view that since the Advance Tax payable by an assessee is an estimate of his "current income" for the relevant financial year, ....
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.... under the provisions of the Act, would not be necessary. It will be open to an assessee to contend that payment of Advance Tax is tantamount to disclosure of income. 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. 41. In the instant case, after the search was conducted on 23rd February 2006, it was found that for the assessment year 1995-96, the respondent-assessee had not filed its return of income by the due date. It is only when block assessment proceedings were initiated by the assessing officer, that the assessee filed its return for the said assessment year on 11th July, 1996 under Section 158BC of the Act, showing its total income as Rs. 7,02,768/-. The assessee claimed, that since Advance Tax had been paid in three ....