TaxTMI 
TaxTMI 
2026 (4) TMI 581
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....essment orders, Orders in revision, Appeal orders and the orders of the Tribunal, as well as the regular Assessment order passed for the AY 2002-2003 pending outcome of the search operation and the consequential orders passed thereof in connection with the computation of the alleged undisclosed income, are the subject matter in the appeals. 2. Out of three appeals under consideration, T.C.(Appeal) No: 373/2009 is by the Assessee: T.C.(Appeal) No: 1026/2009 and T.C.(Appeal)No.274/2014 are by the Revenue. Since the facts and law involved in this case are intertwined to each other, all these appeals are taken up together and orders passed as under:- 2(i)The facts leading to the appeals under consideration: The Assessee M/s Kerala Roadways (P) Ltd is a Private Limited Company engaged in the business of goods transportation. It has branches throughout the Country either of its own or through Agents. Between 22/01/2003 and 13/02/2003, search operation was carried by the Income Tax Department at the office premises of the assessee Company located in Chennai, Mumbai and Delhi. In the search, it was found that the assessee had failed to disclose its income as under:- 2(ii)Firstly, ....
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....as not satisfactory to the assessing officer hence a sum of Rs. 3,99,88,299/- was brought to tax under undisclosed income during the block period. 2(iv)Thirdly, on scrutiny of the lorry hire payment accounts, the payment in March 2001 found to be disproportionately high, when compared to earlier months. The amounts debited were in round sum like Rs. 10,000/- Rs. 15,000/- Rs. 20,000/- Rs. 25,000/- or Rs. 30,000/- without details of lorry numbers, route and other details. This lumpsum amount credited at the end of the accounting year reversed at the beginning of the next accounting year giving credit. The explanation given by the Chief Accountant of the assessee company that the amount debited is for provision to pay the unsettled hire charges claimed or to be claimed for the lorry in transit, was not accepted by the Assessing Officer, as not in conformity to the account practice prescribed under the Companies Act, 2013. Hence, a sum of Rs. 2 crores was considered as undisclosed income of the assessee during the block period under the head "inflation of lorry hire charges". 2(v)Thus, on completion of assessment, the Assessing Officer passed an order dated 28/02/2005 computing a....
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.... response to the notice issued under Section 158 BC of the IT Act, dated 11.08.2004, after the search, but before the adjudication, claiming loss of Rs. 41,82,600/-, the Appellate Authority took up the matter on revision under Section 263 of the IT Act and set aside the entire block assessment order and directed the Assessing Officer to make fresh assessment, after giving reasonable opportunity to the assessee. The order of the Commissioner of Income Tax, dated 09/03/2007 read as under:- "I therefore, set aside the block assessment completed vide, order dated 28/02/2005 in the case of the assessee and direct the Assessing Officer to re-frame the block assessment order after ensuring that: (i) Mistakes while filling up columns of Form No.2B are corrected and effect is correctly given while computing the undisclosed income of the assessee, and (ii) the expenses of personal nature and expenses which are not allowable as per Income Tax Act about which the evidence is available in the seized material should be disallowed. The Assessing Officer should give reasonable opportunity to the assessee before making fresh assessment." 5. Consequent to the a....
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....on'ble Madras High Court has held that the income disclosed on account of payment of advance tax cannot be held to be undisclosed income for the purpose of block assessment. This ratio appeals also in respect of TDS. The facts of the assessee's case clearly show that advance tax was paid in respect of the total income declared at Rs. 1,68,90,172/- for the A.Y.2002- 2003 after taking in to account the TDS deducted. The appellant's case is directly covered by the Hon'ble High Courts judgment referred above. Hence, the income of Rs. 1,68,90,172/- shown in the return of income for the A.Y.2002-03 is not to be treated as undisclosed income. The A.O. is directed to recompute the undisclosed income after giving an opportunity to the appellant to revise Form No.2B." 7. Before the ITAT, the Revenue filed appeal being aggrieved by the observation of the CIT (A) that income disclosed on payment of advance tax cannot be held to be undisclosed income for the purpose of block assessment. The applicability of the dictum laid in ACIT -vs- A.R.Enterprises reported in [(2005) 274 ITR 110 (MAD)] to the facts of the case was doubted by the revenue in their appeal before ITAT. However, the Tribunal ....
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....thority vide, order dated 14/07/2011 in ITA No:444/1-11 partly allowed the appeal for statistical purpose. The above order of the appellate authority came to be challenged before the ITAT by the Revenue. The assessee filed his Cross Objection filed by the assessee. The Tribunal, vide order dated 13/08/2013, dismissed the Appeal by the Revenue on merits and dismissed the Cross Objection of the assessee as infructuous. Being aggrieved, the Revenue has filed appeal before the High Court. 10. The specific facts in brief and the Substantial Questions of Law for consideration in each of the appeal are: TC (Appeal) No: 373/2009: 11. This appeal is directed against the order passed in IT (SS) A. No: 87/Mds/2007 dated 30/01/2009 on the file of ITAT. 12.In this appeal, the assessee is the appellant. Search action on the appellant started on 22/01/2003 and completed on 13/02/2003. For the block assessment for the period 01/04/1996 to 31/03/2002 & 01/04/2002 to 22/01/2003, the assessing officer computed a total income of Rs 14,03,98,300/-. In consequence to the search, on receipt of the notice u/s158 BC calling upon the assessee to file return of undisclosed income, the assessee fi....
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....vance tax paid by the assessee for any assessment year the corresponding income could not be said to be undisclosed income? (3) Whether the Tribunal is right in ignoring the various grounds of appeal raised before it relating to the theory of merger and other specific items raised in the grounds of appeal? (4) Whether the Tribunal is right in ignoring the fact that the transactions which were already the subject matter of regular assessment would not again become the subject matter of block assessment? TC (Appeal) No: 274/2014 : 16. This appeal is against the order passed in IT (SS) A.No: 25/Mds/2011 dated 13/08/2013. 17. Revenue is the appellant. Appeal is directed against the order of the ITAT which has confirmed the order of the CIT(A), dated 14/07/2011. Both the appeal by the Revenue as well as the Cross Objection by the assessee were dismissed by the ITAT in the common order dated 13/08/2013. 18. The revenue question the legality of CIT (A) order deleting the addition of Rs. 1,68,90,172/- made by the Assessing Officer. According to the revenue, the decision of this court in ACIT-vs- A.R.Enterprises reported in [350 ITR 489] is no more a good law, sin....
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....(A)No.1026 of 2009 22. T.C.(Appeal)No:1026/2009 is filed against IT (SS) A.No: 47/Mds/2007 dated 18/07/2008. 23. Revenue is the appellant. The Block Assessment order dated 28/02/2005 computing the undisclosed income of the assessee during the block period as Rs. 14,03,98,300/- and the total tax payable is Rs 9,02,19,947/- challenged by the assessee in CIT(A)/CHE/1/05-06. The Appellate Authority, vide, his order dated 01/12/2006, the Appellate Authority allowed the appeal of the assessee partly in respect of undisclosed income on account of token booking and reduced the estimated undisclosed income under this head from Rs. 7,96,50,000/- to Rs. 47,79,000/- but other grounds raised by the assessee were negatived and appeal dismissed. 24. Aggrieved, as against the Tribunal order which reduced the estimated undisclosed income from Rs. 7,96,50,000/- to Rs. 47,79,000/- the revenue preferred appeal before the Tribunal in IT(SS)A.No:47/Mds/2007 and same came to be partly allowed. The tribunal found error in the order of the CIT (A) in arriving at the undisclosed income and reducing it to Rs. 47,79,000/-. The tribunal found no reason for the observation of the CIT (A) that the asses....
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..../02/2005. In ACIT -vs- A.R. Enterprises reported in [(2005) 274 ITR 110)], Madras High Court has held that, where advance tax had been paid by the assessee for any assessment year, income could not be said to be undisclosed. After approving the method of accounting followed by the assessee, the Commissioner ought not to have given direction in his revisional order to re-examine expenses which were already subjected to regular assessment and block assessment. The Tribunal, without discussing the issue upheld the order of the Commissioner of Income Tax, passed under Section 263, relying on its own judgment in V.K. Moidoo Hajee dated 12/01/2009 ignoring the judgment of the Jurisdictional High Court rendered in A.R. Enterprises case (cited supra). 27. Per contra, the Learned Senior Counsel for the respondent /Revenue claims that, Section 263 of the Act empowers the Commissioner to examine any order passed by the Assessing Officer and direct a fresh assessment, if it's assessment examined is found to erroneous or prejudicial to the revenue. In the instant case apparently due to wrong application of law, the assessing officer had failed to take note of the blank in Form 2 B the omissi....
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....nt order dated 31/10/2010 was challenged by the assessee successfully before the CIT (A) vide order dated 14/07/2011 passed in ITA No 444/10-11. That order challenged by the Revenue as well as the assessee before the Tribunal in IT(SS) A No: 25/(Mds)/2011. Tribunal dismissed both the revenue appeal and the assessee cross objection vide order dated 13/08/2013. Against the concurrent finding of the appellate authority and the Tribunal the Revenue has filed TC (Appeal) 274/2014 and same is pending consideration before us along with the other appeals. We reserve our discussion on the merit of that appeal to the later part of this order. 32. As far as TC ( Appeal) 373/2009 filed by the assessee is concern, the issues in short are whether the Commissioner of Income Tax can order the Assessing Officer to revise the block assessment order made under Section 158 BC r/w Section 143(3) of the Act while exercising his power under section 263 of the IT Act and whether the undisclosed income on the date of search will be a disclosed income if advance tax is paid and returns filed after initiation of block assessment proceedings consequence to search. 33. Section 263 of the Income Tax Act, ....
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....passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal] the High Court or the Supreme Court. Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section [29 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. " 34. From the reading of this Section, it is clear that the Commissioner of Income Tax, if it comes to his knowledge that the assessment order is erroneous or prejudicial to the Revenue, can direct the Assessing Officer to make fresh assessment or even modify, alter cancel the assessment, after giving opportunity of hearing to the assessee. The only restriction bar for the Commissioner to exercise the power under Section 263 is the period of limitation prescribed under subsection (2) subject to sub-section (3). 35. Therefore, we hold that the Commissioner is empowered to examine any assessment order and exercise power under Section 263 of IT Act, if he is satisfied on exa....
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.... 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, we are of the opinion that 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." 37. As a result of the above discussion, we hold that, paying advance tax or filing return, after initiating block assessment process, but before passing of block assessment order will no way help the assessee, who failed to disclose the income and filed his return with the normal period prescribed. Filing the return during the extended period of limitation, after initiation of search proceedings, without any proof for deduction of TDS, the income though disclosed later for the particular Assessment Year(AY), it has to be a drawn as the undisclosed ....
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....ult in the observations made by the CIT (A) in respect of undisclosed income under 'Token Booking System' by placing on record that the search has brought out documentary evidence for collection of Rs. 1,58,53,395/- and same admitted by the Executive Director of the Assessee Company that it is collection of freight charges for the goods transported without valid invoices. Taking the average for the block period, a sum of Rs 7,96,50,000/- assessed to tax as undisclosed income through ' token booking system'. While so, the reduction of the said income to Rs. 47,79,000/- by the Appellate Authority applying a principle that for each unaccounted receipts there will be corresponding un accounted expenditure is a proposition, what is not applicable to the case in hand. Observing so, the Tribunal vide its order dated 18/07/2008 remitted the matter back to the file of the CIT (A) to re-examine the matter and pass fresh order after giving adequate opportunity of hearing the assessee. 42. The Learned Counsel for the Revenue /appellant mainly contended that the addition of Rs. 3,99,88,299/- being the difference apparently found from the two system of accounting maintained by the assessee, t....
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....T (A) to re-examine the suppression of unaccounted income through ' token booking system' stands confirmed. 47. Accordingly, TC (Appeal) No: 1026/2009 filed by the Revenue partly is allowed. TC (Appeal) No: 274/2014 : 48. The block assessment order dated 28/02/2005, interfered by the Commissioner exercising power u/s 263 of the IT Act and same was set aside with direction to the Assessing Officer to reframe the block assessment order after ensuring that:- "I therefore, set aside the block assessment completed vide order dated 28.02.2005 in the case of the assessee and direct the Assessing Officer to re-frame the block assessment order after ensuring that: (i) Mistakes while filling up columns of Form No.2B are corrected and effect is correctly given while computing the undisclosed income of the assessee; and (ii) the expenses of personal nature and expenses which are not allowable as per Income Tax Act about which the evidence is available in the seized material should be disallowed. The Assessing Officer should give reasonable opportunity to the assessee before making fresh assessment." 49. Accordingly, fresh Assessment order dated 3....
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....ck assessment. This ratio applies also in respect of TDS. The facts of the assessee's case clearly show that advance tax was paid in respect of the total income declared at Rs. 1,68,90,172/- for the A.Y.2002-03 after taking into account the TDS deducted. The appellant's case is directly covered by the Hon'ble High Courts judgment referred above. Hence, the income of Rs. 1,68,90,172/- shown in the return of income for the A.Y.2002-03 is not to be treated as undisclosed income. The A.O. is directed to recompute the undisclosed income after giving an opportunity to the appellant to revise Form No.2B." 50. Pursuant to the direction of the CIT (A), the AO passed order u/s 251 r/w 143(3) of the Act on 31/12/2010. In this order the AO stated that the assessee was given an opportunity to file the revised Form 2 B but the appellant has not availed the opportunity. Hence the total income determined as Rs 4,67,00,770/- u/s 158 BC r/w 143(3) r/w 263 of IT Act. 51. Aggrieved by the fresh assessment order dated 31/12/2010 which was identical to the assessment determined in the earlier order dated 31/12/2007, the assessee filed appeal before CIT (A). The Appellate Authority after extrac....
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....rrect to say that the treatment of Rs. 1,68,90,172/- as disclosed income has reached finality on dismissal of SLP preferred by the Revenue challenging the order passed in TC (A) No: 1409/2009. In fact the Supreme Court has not considered the question of law in this case but expressly left it open. The question of law came up for consideration subsequently in ACIT -vs- A.R.Enterprises reported in [350 ITR 489], in which, the Hon'ble Supreme Court has categorically held that payment of advance tax per se will not indicate the intention of the assessee to disclose the income, if he fails to file return of income by the due date under Section 139 of the Act. In the instant case, the return filed for the AY 2002- 03 on 01/09//2004 after the due date. Hence the treatment of Rs. 1,68,90,172/- as disclosed income is against the law. 56. Search qua payment of advance tax and filing of return disclosing the income came up for consideration before the Supreme Court in ACIT, Chennai - vs- A.R. Enterprises. To hold the payment of advance tax as disclosure of income the assessee has to satisfy the following conditions:- (a)if the search is conducted after the expiry of the due date f....
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....ly after the due date and after the search operation. Therefore the belated disclosure of income after the due date and after the search operation will not entitle the assessee to make a legitimate claim that Rs 1,68,90,170/- to be treated as disclosed income even if the said income disclosed in the returns subjected to regular assessment. 59. Re-capitulating the facts of the instant case, the undisclosed income was computed on 28/02/2005 in the block assessment after calling for the explanation from the assessee giving adequate opportunity of hearing. The returns filed for the AY 2002-03 for regular assessment by the assessee only on 12/03/2004 after the due date for that AY. The regular assessment based on the returns done on 25/02/2005 just few days prior to the block assessments. After noticing the error, that as per Section 158 BB(ca) the return of income Rs 1,68,90,172/- disclosed after the search operation ought to have been taken as 'NIL', the assessing officer himself had sent proposal to the Commissioner of Income Tax for revision u/s 263 of the Act. Accordingly, the Commissioner has examined the records and passed order on 09/03/2007 to reframe the block assessment. T....