2010 (11) TMI 93 - HC - Income Tax

Undisclosed Income - Whether on the facts of the present case, the Tribunal was justified in law in deleting the addition of ₹ 8,67,010 made as undisclosed income of the assessee for assessment year 1999-2000 under Section 158BC of the Act - According to the Assessing Officer, since the return was not filed within the stipulated date, the disclosure of long term capital gain in the said return filed after warrants could not be taken into consideration, more so, as till the date of search no return was filed - Tribunal relied upon the judgment of this Court in CIT Vs. Mrs. Kum Kum Kohli, (2005 -TMI - 10514 - DELHI High Court) In the view of the said judgement the approach of the Tribunal and the order of the Tribunal of by answering the question of law in favour of the Revenue are set aside and against the assessee

Issues Involved:
1. Whether the Tribunal was justified in law in deleting the addition of Rs. 8,67,010 made as undisclosed income of the assessee for the assessment year 1999-2000 under Section 158BC of the Income-Tax Act.
2. Interpretation and applicability of Sections 139, 142, 158B, 158BA, and 158BB of the Income-Tax Act in the context of block assessment and undisclosed income.
3. Determination of the impact of filing a return under Section 139(4) after the due date but before the completion of assessment.
4. Consideration of whether advance tax payment or provisional balance sheets found during the search can be treated as disclosure of income.

Detailed Analysis:

Issue 1: Justification of Tribunal's Deletion of Addition
The core issue is whether the Tribunal was justified in deleting the addition of Rs. 8,67,010 as undisclosed income for the assessment year 1999-2000. The Tribunal had allowed the appeal of the assessee, deleting the addition made by the Assessing Officer and confirmed by the CIT (A). The Tribunal's decision was based on the fact that the shares sold by the assessee, which generated the capital gain, were already disclosed in the balance sheet filed with the department for the assessment year 1998-99. The Tribunal concluded that since the investment in shares was previously disclosed, the capital gain from their sale could not be considered undisclosed income.

Issue 2: Interpretation and Applicability of Relevant Sections
The judgment delves into various sections of the Income-Tax Act to determine the correct legal interpretation:
- Section 139: Requires filing of income tax returns by the due date.
- Section 142: Allows the Assessing Officer to serve notice for filing a return if it hasn't been filed within the prescribed time.
- Section 158B: Defines "block period" and "undisclosed income."
- Section 158BA: Deals with the assessment of undisclosed income as a result of search.
- Section 158BB: Enumerates the procedure for the computation of undisclosed income for the block period.

The court emphasized that these sections must be interpreted in conjunction with each other, particularly focusing on the special procedure for assessing undisclosed income under Chapter XIV-B.

Issue 3: Impact of Filing Return Under Section 139(4)
The return for the assessment year 1999-2000 was filed on 31st March 2000, after the search operation on 13th January 2000 but within the time allowed under Section 139(4). The Assessing Officer argued that since the return was not filed by the due date (31st December 1999), the capital gain disclosed in the return filed after the search could not be considered. The Tribunal, however, treated the return as valid under Section 139(4), thus not considering the capital gain as undisclosed income.

Issue 4: Consideration of Advance Tax Payment and Provisional Balance Sheets
The Tribunal relied on the judgment in CIT Vs. Mrs. Kum Kum Kohli, where advance tax payment before the date of search was considered as a disclosure of income. However, the court in the present case noted that there was no such advance tax payment or any other overt act by the assessee indicating an intention to disclose the income before the search. The provisional balance sheet found during the search was not deemed sufficient to meet the criteria for disclosure.

Conclusion:
The court concluded that:
1. The Tribunal's decision to delete the addition was incorrect as the assessee had not disclosed the income before the search.
2. Filing a return under Section 139(4) after the due date does not negate the applicability of Chapter XIV-B for assessing undisclosed income.
3. Payment of advance tax or other overt acts indicating disclosure before the search are necessary to avoid classification of income as undisclosed.
4. Provisional balance sheets found during the search do not constitute disclosure.

The court thus set aside the Tribunal's order and answered the question of law in favor of the Revenue, reinstating the addition of Rs. 8,67,010 as undisclosed income.

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