2004 (3) TMI 44 - HC - Income Tax

Undisclosed income of the block period - income disclosed on payment of advance tax - disclosure of income - Revenue could not point out any provision on the basis of which we can hold that the income disclosed on payment of advance tax cannot be treated as disclosure of income, by virtue of a particular statutory provision under Chapter XIV-B We hold that the income disclosed on account of payment of the advance tax cannot be held to be undisclosed income for the purposes of block assessment. The appeals of the assessees are allowed to that extent and the assessment orders would be modified taking the income on payment of advance tax as disclosed income and not as the undisclosed income for the assessment year 1995-96.

Summary

Issues Involved:
1. Deduction/Exclusion of Basic Exemption
2. Entitlement to Tax Rebate under Section 88
3. Treatment of Income Covered by Advance Tax Paid as Undisclosed Income

Detailed Analysis:

1. Deduction/Exclusion of Basic Exemption
The appellants contended that the Assessing Officer should have allowed a deduction for the basic exemption amount while levying tax on the undisclosed income for the block period, specifically for the assessment year 1995-96. However, this issue was not pressed by the appellants before the court, and thus, it was not considered in the judgment.

2. Entitlement to Tax Rebate under Section 88
The appellants argued that they were entitled to a tax rebate under Section 88 of the Income-tax Act, 1961. The Tribunal, however, interpreted the provisions of Sections 88(1), 158BA(2), and 113 of the Act and held that the appellant-assessee was not entitled to the tax rebate. This issue was also not pressed by the appellants before the court and was not considered further.

3. Treatment of Income Covered by Advance Tax Paid as Undisclosed Income
The primary issue addressed was whether the income covered by the advance tax paid could be treated as undisclosed income for the assessment year 1995-96, included within the block period from April 1, 1986, to August 21, 1996.

- Legal Framework: Chapter XIV-B of the Act provides a special procedure for the assessment of undisclosed income resulting from a search. Under Section 158BB(1) read with Section 158BC, the assessment focuses on the undisclosed income of the block period based on evidence found during the search. This process is distinct from regular assessments under Section 143(3), which assess the total income or loss of the previous year.

- Core Question: The court examined whether the income disclosed through the payment of advance tax could be considered as disclosed to the Revenue and thus not treated as undisclosed income during block assessment proceedings.

- Apex Court Precedent: The court referred to the Supreme Court's judgment in CIT v. Shelly Products [2003] 261 ITR 367, which clarified that the payment of advance tax and self-assessment tax constitutes an admission of income by the assessee. The Supreme Court emphasized that the Act mandates the payment of advance tax based on self-assessed income, and such payments reflect the income disclosed by the assessee at that time.

- Statutory Interpretation: The court noted that Section 207 imposes a liability on the assessee to pay advance tax on the total income chargeable for the subsequent assessment year. Section 209 outlines the computation of advance tax, and Section 210 allows the Assessing Officer to require advance tax payments. Section 158BB(1)(d) includes income recorded in books of account and other documents maintained in the normal course before the search date.

- Conclusion: The court concluded that the payment of advance tax implies the disclosure of the corresponding income to the Revenue. Therefore, such income cannot be treated as undisclosed for block assessment purposes unless specifically barred by Chapter XIV-B provisions.

The court answered the question in the negative, holding that the income disclosed through advance tax payments should not be considered undisclosed income for block assessment. Consequently, the appeals were allowed to the extent that the income on which advance tax was paid would be treated as disclosed income for the assessment year 1995-96. The assessment orders were to be modified accordingly.

Final Disposition:
The appeals were disposed of, with the court directing that the income disclosed through advance tax payments should be treated as disclosed income and not as undisclosed income for the assessment year 1995-96.