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2012 (10) TMI 394 - HC - Income TaxSearch & seizure - block assessment - salary income earned during the block period treated as undisclosed Income on account of non-filing of return and late filing of returns - Held that - When an assessee is a salaried employee and on such salary income, suffers deduction of tax at source and such tax is also shown to have been deposited by the employer with the Revenue, it can hardly be stated that such income is undisclosed income. Employer u/s 192 is required to deduct tax at source on salary income. Section 199 provides for credit of such tax deducted at source. Section 205 provides for a bar against direct demand of tax where such tax is deductible at source. Upon overall consideration of the statutory provisions noted hereinabove and the judicial trend, it is held that salary income of the assessee on which he had been subjected to deduction of tax at source, cannot be categorised as undisclosed income as defined in section 158BB - Decided in favor of assessee
Issues Involved:
1. Whether the Appellate Tribunal was right in law in directing the Assessing Officer to exclude the income of Rs.12,21,105/- from the block period and assess it in accordance with law while framing the regular assessment, and in doing so, ignored the provisions of sec.158BB(c) of the Income-tax Act? Issue-wise Detailed Analysis: 1. Factual Background: The respondent assessee, an individual, was subjected to search and seizure operations and served with a notice under section 158BC of the Income Tax Act for the block period from 1-4-1985 to 31-3-1995. The assessee filed a return declaring total undisclosed income at Rs.50,000/-. The Assessing Officer dealt with several issues, but the primary concern was the salary income received by the assessee during the block period, totaling Rs.12,21,105/-. 2. Assessing Officer's Decision: The Assessing Officer included the salary income as undisclosed income for the block period under section 158BB(1)(c), despite the assessee's contention that tax was deducted at source (TDS) by the employer and deposited with the Department. The Officer's rationale was that the assessee had not filed returns for certain years and filed returns late for others, thus, such income could not be adjusted. 3. Tribunal's Decision: The Tribunal ruled in favor of the assessee, stating that the income in question was not unearthed by the Department due to the search and could not be considered undisclosed income. The Tribunal emphasized that section 158BB prescribes the method of computing undisclosed income, but the existence of undisclosed income must be established first. 4. Revenue's Argument: The revenue argued that under section 158BB(1)(c), income for years where no returns were filed or returns were filed late should be considered undisclosed. They contended that no adjustment should be made for such income in the block period. 5. Assessee's Argument: The assessee maintained that the salary income, on which TDS was deducted and deposited with the government, could not be treated as undisclosed income. The counsel argued that section 158BB only provides the mechanism for computation and does not categorize income as undisclosed unless it meets the definition under section 158B(b). 6. Legal Provisions and Interpretation: Section 158BB provides for the computation of undisclosed income, while section 158B(b) defines undisclosed income. The court emphasized that a computation provision cannot be used to categorize income as undisclosed if it does not meet the definition. The distinction between charging provisions and machinery provisions in taxing statutes was highlighted, with the latter not subject to strict interpretation. 7. Judicial Precedents: The court referred to several precedents, including: - Commissioner of Income-Tax vs. Vishnu Prasad C. Mehta: Salary income with TDS cannot be treated as undisclosed. - Assistant Commissioner of Income-Tax vs. A.R. Enterprises: Income with advance tax paid cannot be treated as undisclosed. - Commissioner of Income-Tax vs. Kerala Roadways Ltd.: Income with TDS cannot be added as undisclosed even if returns were filed late. - Surendra Kumar Lahoti vs. Assistant Commissioner of Income-Tax: Salary income with TDS is not undisclosed. - Dr. Mrs. Alaka Goswami vs. Commissioner of Income-Tax: Income disclosed on payment of advance tax is not undisclosed. - Commissioner of Income-Tax vs. Ashok Taksali: Salary income with TDS is not undisclosed. 8. Conclusion: The court concluded that the salary income on which TDS was deducted and deposited could not be categorized as undisclosed income under section 158B(b). Thus, it could not be taxed as undisclosed income in the block period under section 158BB. The appeal was dismissed, and the Tribunal's decision was upheld, favoring the assessee. Judgment: The court answered the question in the affirmative, in favor of the assessee and against the revenue, thereby dismissing the appeal.
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