CIT vs. A. R. Enterprises, (2013) 350 ITR 489 (SC)
The assessee firm came into existence on 25th June 1992. On 23rd February, 1996, a search operation u/s. 132 of the Act was carried out at the premises of another concern, viz., M/s. A.R. Mercantile P. Ltd. During the course of the 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 the search. Based on the material seized by virtue of the aforesaid search, the Assessing Officer was satisfied that the assessee had not disclosed its income pertaining to the assessment year 1995-96. Accordingly (without recording any reasons for his satisfaction), he initiated action u/s. 158BD of the Act requiring the assessee to file its return of income. The assessee, after filing return for the block period (ten years preceding the previous years), which covered the assessment years 1993-94 to 1995- 96, pointed out that it had already filed returns for the assessment years 1993-94 and 1994-95. It objected to action initiated under Chapter XTV-B of the Act on the ground that in relation to the assessment year 1995-96, advance tax had already been paid in three installments and, therefore, income for that period could not be deemed to be undisclosed.
Rejecting the plea of the assessee, the Assessing Officer formed the opinion that the assessee had failed to file the return as on the date of search, and the seized documents did show income, which had not been or would not have been declared. Accordingly, he proceeded to compute the total undisclosed income for the block period 1993-94 to 1995-96 (up to the date of search), treating the income returned by the assessee for the period 1995-96 as nil, as stipulated in section 158BB(1)(c) of the Act.
Against the said order, the assessee preferred an appeal before the Tribunal. Accepting the stand of the assessee, the Tribunal allowed the appeal, and held that having paid the advance tax, the assessee had disclosed his income for the relevant assessment year.
Aggrieved, the Revenue preferred an appeal before the High Court of Madras u/s. 260A of the Act, questioning the validity of the order of the Tribunal.
Before the High Court, the stand of the Revenue was that since the return for the assessment year 1995-96 had not filed by the due date, by filing the return after the search, the assessee could not escape the consequences as stipulated in Chapter XIV-B of the Act. It was contended that payment of advance tax by itself did not establish the intention to disclose the income.
The Revenue’s plea did not find favour with the High Court. It observed that payment of advance tax itself necessarily implies disclosure of the income on which the advance is paid.
The short question for consideration before the Supreme Court was therefore 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 XIV-B of the Act?
The Supreme Court held that “undisclosed income” is defined by section 158B as that income “which has not been or would not have been disclosed for the purposes of this Act”. The Legislature has chosen to define “undisclosed income” in terms of income not disclosed, without providing any definition of “disclosure” of income in the first place. The Supreme Court was of the view that the only way of disclosing income, on the part of an assessee, is through filing of a return, as stipulated in the Act, and, therefore, an “undisclosed income” signifies income not stated in the return filed. According to the Supreme Court, it seemed that the Legislature had clearly carved out two scenarios for income to be deemed as undisclosed : (i) where the income has clearly not been disclosed, and (ii) where the income would not have been disclosed. If a situation is covered by any one of the two, income would be undisclosed in the eyes of the Act and, hence, subject to the machinery provisions of Chapter XIV-B. The second category viz, where income would not have been disclosed, contemplates the likelihood of disclosure, it is a presumption of the intention of the assessee since in concluding that as assessee would or would not have disclosed income, one is ipso facto making a statement with respect to whether or not the assessee possessed the intention to do the same. To gauge this, however, reliance must be placed on the surrounding facts and circumstances of the case.
One such fact, as claimed by the the assessee, is the payment of advance tax. However, in the opinion of the Supreme Court, the degree of its material significance depended on the time at which the search is conducted in relation to the due date for filing return. Depending on which side of the due date the search was conducted, material significance of payment of advance taxes vacillated in construing the intention of the assessee. If the search was conducted after the expiry of the due date for filing return, payment of advance tax was irrelevant in construing the intention of the assessee to disclose income. Such a situation would find place which the first category carved out by section 158B of the Act, i.e. where income has clearly not been disclosed. The existence of an intention to disclose did not arise since, as held earlier, the opportunity of disclosure had lapsed, i.e., through filing or return of income by the due date. If, on the other hand, search was 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 existed. In which case, payment of advance tax may be a material fact for deciding 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 visà- vis date of search. Payment of advance tax may be a relevant factor in construing the intention to disclose income or filing return as long as the assessee continues to have an opportunity to file return and disclose his income and not past the due date of filing return. Therefore, there can be no generic rule as to the significance of payment of advance tax in construing the intention of disclosure of income. The same depends on the facts of the case, and hinges on the positioning of the search operations qua the due date for filing returns.
Thus, according to the Supreme Court, the question that whether payment of advance by an assessee per se is tantamount to disclosure of total income, for the relevant assessment year, at the very outset had to be answered in the negative. On further scrutiny, according to the Supreme Court there was yet another reason to opine so. Payment of advance tax and filing of return are functions of completely different notions of income i.e. estimated income and total income respectively. The payment of advance tax is based on an estimation of the total income that is chargeable to tax and not on the total income itself. According to section 209(1)(a), 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. This income is an estimation that is made by the assessee and may not be the exact income, which may ultimately be declared u/s. 139 and assessed u/s. 143. The payment of advance tax does not absolve an assessee from obligation to file return disclosing total income u/s. 139. Hence, the ‘disclosure of income’ is the disclosure of the total income in a valid return u/ s. 139, subject to assessment and chargeable to tax under the provisions of the Act.
The Supreme Court noted that in the instant case, after the search was conducted on 23rd February 1996, it was found that for the assessment year 1995-96, the assessee had not filed its return of income by the due date. It was only when the block proceedings were initiated by the Assessing Officer, that the assessee filed its return for the said assessment year on 11th July, 1996 u/s. 158BC showing its total income at Rs. 7,02,768. The Supreme Court held that since the assessee had not filed its return of income by the due date, the Assessing Officer was correct in assuming that the assessee would not have disclosed its total income.
Note 1: During the course of hearing, the counsel for the assessee relying upon the decision in Asst. CIT vs. Hotel Blue Moon (2010) 321 ITR 362 (SC) for the first time contended that the Revenue did not have jurisdiction to invoke Chapter XIV-B against the assessee as the Assessing Officer had not recorded his satisfaction that any undisclosed income belonged to the assessee or that the assessee did not have the intention to disclose their income before initiating proceeding u/s. 158BD. The Supreme Court however was unable to appreciate the submission since the same was never urged before the High Court and the Tribunal and refrained from making any observations on it.
Note 2: In CIT vs. Nachammai [C.A. No.2580 of 2010], a companion appeal, the issue was whether tax deduction at source amounts to disclosure of income. The Supreme Court 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 total income.
