High Court Of Madras
CIT vs. K. Ramasamy
Section 158BB(1)(c),
Block period 1st April, 1995 to 22nd June, 1999
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 262 of 2007
26th March, 2007
Counsel Appeared :
N. Murali Kumaran, for the Appellant
JUDGMENT
P.D. DINAKARAN, J. :
The above tax case appeal is directed against the order of the Tribunal made in IT(SS)A No. 84/Mad/2003, dt. 24th Feb., 2006 for the block assessment period 1st April, 1995 to 22nd June, 1999.
2.1. The brief facts of the case are stated as hereunder : The Revenue is the appellant and the relevant block assessment period involved is 1st April, 1999 to 22nd June, 1999. The respondent/assessee is engaged in the business of manufacture and sale of cloth. Concededly, even though there was a search under s. 132 of the IT Act, 1961 (hereinafter referred to as ‘the Act’), on 22nd June, 1999 in the business and residential premises of the respondent/assessee, even prior to the date of search, the assessee filed his regular returns for the previous years falling within the block period as detailed hereunder : Previous year ended/ Date of filing of Income admitted Assessment year return (Rs.) 31-03-1995/1995-96 13-04-1999 23,830 31-03-1996/1996-97 13-04-1999 14,260 31-03-1997/1997-98 13-04-1999 55,160 31-03-1998/1998-99 13-04-1999 65,810 31-03-1999/1999-11-06-2001 1,33,870 2000
2.2 However, at the time of search, it was found that the respondent/assessee, Sri K. Ramasamy, along with five others, had purchased about 4.26 acres of land from Sri V.S. Kathirvel on 7th Nov., 1995 for a consideration of Rs. 31.68 lakhs and in order to ascertain the sources for the purchase consideration, enquiries were made by the Dy. Director of IT (Inv.) with the assessee. It was admitted by the assessee in his sworn statement given on 5th July, 1999 before the Dy. Director of IT (Inv.) that he had contributed Rs. 5.28 lakhs, being 1/6th share of the purchase consideration for the said piece of land. According to this statement, Rs. 4 lakhs out of Rs. 5.28 lakhs were borrowed from third parties and the assessee offered at that time to admit Rs. 1.28 lakhs as his undisclosed income and to pay the tax thereon.
2.3 On the satisfaction that there were certain undisclosed incomes, action under s. 158BD of the Act was initiated and notice under s. 158BC(a) of the Act was issued on 10th Oct., 2000 and the same was served on the assessee on 17th Oct., 2000. In response to the said notice, the assessee filed the return for the block assessment in Form No. 2B on 4th Oct., 2002 admitting undisclosed income of Rs. 1.28 lakhs for the previous year 1995-96 falling within the block period.
The case was taken up for scrutiny and after examining the documents seized during search and on hearing the submissions of the assessee, the AO proceeded to make the block assessment.
2.4 The AO found that for the asst. yrs. 1997-98 and 1998-99, the regular returns were filed beyond the due date specified under s. 139(1) of the Act and hence, the incomes that were admitted for these years were also treated as undisclosed income for the respective years in terms of provisions of s. 158BB(1)(c) of the Act.
2.5 Consequently, the AO computed the undisclosed income of each year comprised in the block period as under : Previous year ended 31st March, 1996
Asst. yr. 199697 Total income returned/assessed Rs. 14,317 Add : Undisclosed income admitted by the assessee Rs. 1,28,000 Total income including undisclosed income Rs. 1,42,317 Previous year ended 31st March, 1997 Asst. yr. 1997-98 Total income returned Rs. NIL Add : Undisclosed income admitted by the assessee Rs. 55,160
Total income including undisclosed income Rs. 55,160 Previous year ended 31st March, 1998 Asst. yr. 199899
Total income returned Rs. NIL Add : Undisclosed income admitted by the assessee Rs. 65,810 Total income including undisclosed income Rs. 65,810 The total undisclosed income for the block period was computed as under : Previous yr./Asst. yr. Total income Total income including returned/assessed undisclosed income Financial yr. 1994-Rs. 23,830 Rs. 23,830 95/1995-96 Financial yr. 1995-Rs. 1,42,317 Rs. 14,317 96/1996-97
Financial yr. 1996-Rs. 55,160 Rs. NIL 97/1997-98 Financial yr. 1997-Rs. 65,810 Rs. NIL 98/1998-99 Financial yr. 1998-Rs. 1,33,874 Rs. 1,33,874 99/1999-2000 Period ended 22-6-1999 Rs. 4,20,991 Rs. 1,72,021
2.6 The AO had not taken into account the total income for the previous year relevant to the asst. yrs. 1990-91 to 1994-95 while computing undisclosed income, since they were below taxable limit. Thus, the undisclosed income was computed at Rs. 2,48,970 (Rs. 4,20,991 -Rs. 1,72,021) and accordingly, the total tax payable to the tune of Rs. 2,12,344 was demanded, as per the following calculation, of course, reserving the penalty proceedings under s. 158BFA(2) of the Act, to be initiated separately :
Income-tax at 60% — Rs. 1,49,382 Surcharge at 15% — Rs. 22,407 Rs. 1,71,789 Less : Tax paid/adjusted — Rs. 20,000 Balance tax payable — Rs. 1,51,789 Add : Interest under s. 158BFA(1) for 7 month @ 2% and for 17 month @ 1.25% Rs. 60,555 Total tax payable — Rs. 2,12,344
Accordingly, the AO passed the order of demand dt. 31st Oct., 2002 under s. 158BC(c) r/w 158BD of the Act.
2.7 Aggrieved by the same, the assessee preferred an appeal before the CIT(A), challenging the finding of the AO that since the regular returns for the asst. yrs. 1997-98 and 1998-99 were filed beyond the due date specified under s. 139(1) of the Act, the income admitted for these years should be treated as undisclosed income for the respective years in terms of provisions of s. 158BB (1)(c) of the Act. The respondent/assessee also challenged the levy of surcharge.
The CIT(A), by order dt. 10th Feb., 2003, while accepting the case of the assessee on the first point, upheld the levy of surcharge on the tax determined on undisclosed income of Rs. 1.28 lakhs.
2.8. Against the said order of the CIT(A), the Revenue preferred an appeal before the Tribunal again contending that since the returns of income for the asst. yrs. 1997-98 and 1998-99 were filed beyond the due date specified under s. 139(1) of the Act, the incomes admitted in the said returns can be treated as undisclosed income for the block assessment in terms of the provisions of s. 158BB(1)(c) of the Act. But, the Tribunal held in favour of the assessee holding that once the return of income was filed, even though the same was filed beyond the date specified under s. 139 (1) of the Act, the income admitted in the said belated returns cannot be treated as an undisclosed income for the block assessment, since that information was available with the Department even before the date of search. Hence, this appeal giving rise to the following substantial questions of law for consideration :
“(i) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the income disclosed in the regular returns filed by the assessee after the date specified under s. 139 of the IT Act is not undisclosed income ?
(ii) Whether on the facts and in the circumstances of the case, the Tribunal is right in not considering s. 158BB(1)(c) of the IT Act whereby the regular returns of income filed beyond the due dates specified under s. 139(1) would be treated as undisclosed income ?”
Both the above questions revolve on the only point, whether the income admitted in the belated returns can be treated as an undisclosed income for the block assessment and therefore, they are dealt with jointly. Sec. 158B(a) defines the block period to mean a period of previous years relevant to the ten assessment years preceding the previous year in which the search was conducted and the period upto the date of commencement of such search. Sec. 158BA(2) declares that the total undisclosed income relating to the block period shall be charged to tax at the rate specified in s. 113, as income of the block period irrespective of the previous year or years to which such income relates. Of course, the returns for the asst. yrs. 1997-98 and 1998-99 filed beyond the due date specified under s. 139(1) of the Act may be invalid returns, but, it cannot be disputed that the information contained in such belated returns showing the earning of corresponding income by the assessee is a valid information imparted by the assessee to the AO. If that be so, a mere search after such filing of belated returns of income, as in the instant case, where the search was conducted on 22nd June, 1999, by itself, will not entitle the Revenue to treat the incomes admitted by the assessee in these years as undisclosed income of the assessee for the block assessment.
The above view is also supported by the decision of another Division Bench of this Court in Tax Case No. 268 of 2001 (between CIT vs. J.K. Narayanan) by judgment dt. 1st April, 2004 [reported at (2008) 215 CTR (Mad) ???Ed.] Mr. N. Murali Kumaran, learned senior standing counsel appearing for the Revenue, invited our attention to the decision of a Division Bench of the Madhya Pradesh High Court in Dr. Brijesh Lahoti vs. CIT (2006) 200 CTR (MP) 499 : (2006) 282 ITR 349 (MP), to sustain the order of the AO treating the income admitted by the assessee as undisclosed income. Admittedly, in the case before the Madhya Pradesh High Court, referred supra, there was no material to establish that the assessee had disclosed his income before the date of search, that means, the return was filed after the date of search by the Department. Therefore, the decision of the Madhya Pradesh High Court in Dr. Brijesh Lahoti vs. CIT, cited supra, has no application to the facts of the present case. Accordingly, finding no question of law arises for consideration, the above tax case appeal is dismissed.
[Citation : 296 ITR 358]
