2015 (8) TMI 991 - HC - Income Tax

Income earned from export of exhibition rights of cinematographic films - whether would not constitute undisclosed income as per Section 158B(b) as the said amount has been declared in the regular return of income for the assessment year 1994-95 filed belatedly as held by ITAT - Held that - In the present case, the disclosure by the assessee had been made to the Department by way of a disclosure under the Scheme (VDIS) of the respondent as well as by its communication dated 20.08.1998 and also the return of income filed by the assessee on the same date, which was duly acknowledged by the Department and hence it cannot be said that there was no disclosure of such income made by the assessee prior to the search conducted by the Department. Such income of the assessee which had not been disclosed and was found during the search conducted at its premises to have been earned by the assessee would certainly attract the provisions of the Chapter XIV-B. However, if there was information of such income already given by the assessee to the Department much prior to conduct of the search, as is so in the present case, the same cannot be termed as undisclosed income. It is not disputed by either of the parties that search was conducted by the Department on 29.05.2001, whereas disclosure by way of information or by way of filing of the return of income (both on 20.08.1998) was already there with the Department, which was given by the assessee nearly three years prior to the search. In fact, it was that very communication of the assessee dated 20.08.1998 which was the basis on which the Department claims the said income to be an undisclosed income. We cannot thus accept the situation where the very communication of the assessee disclosing certain information regarding its income to the Department itself is treated as undisclosed income of the assessee, attracting the provisions of Chapter XIV-B of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the return filed by the assessee on 20.08.1998.
2. Whether the income of Rs. 88,00,505/- constitutes "undisclosed income" under Section 158B(b) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Return Filed by the Assessee on 20.08.1998:

The Revenue argued that the return filed by the assessee on 20.08.1998 was invalid as it was not filed under sub-sections (1), (4), or (5) of Section 139 of the Income Tax Act, nor in response to a notice under Section 148. Consequently, any disclosure made in such a return would be non-est in the eye of law. The Assessing Officer cannot take cognizance of a belated or invalid return, and thus, any disclosure made in such a return would not constitute a valid disclosure of income for the purpose of Chapter XIV-B relating to Special Procedure for Assessment of Search cases.

In contrast, the respondent-assessee contended that a return of income, whether valid, invalid, or irregular, remains a return of income for the purposes of disclosure. The intention of the assessee was to disclose the income, and the return filed on 20.08.1998, even if termed irregular, indicated that the assessee did not intend to conceal the income. The information provided in the return could be used by the Department for initiating proceedings under Sections 148/147 of the Act. Therefore, the disclosure made in the return should be considered valid.

2. Whether the Income of Rs. 88,00,505/- Constitutes "Undisclosed Income" Under Section 158B(b) of the Income Tax Act:

The definition of "undisclosed income" under Section 158B(b) includes any income that has not been or would not have been disclosed for the purposes of the Act. If the search is conducted after the filing of the return, the income considered is that which "has not been" disclosed; if before, it is that which "would not have been" disclosed.

In this case, the search was conducted on 29.05.2001, three years after the return dated 20.08.1998 was filed. The assessee initially did not disclose the income of Rs. 88,00,505/- derived from the export of films, believing it was not taxable. Later, under the VDIS 1997, the assessee offered this income for tax but retracted, claiming exemption under Section 80HHC. The Department raised queries, and the assessee responded on 20.08.1998, filing a return on the same date, which was acknowledged by the Department.

The Department treated the income as undisclosed based on the communication dated 20.08.1998 found during the search. However, the court noted that the information was already with the Department nearly three years before the search. The assessee had disclosed the income through VDIS and by filing a return, indicating no intention to conceal the income.

The court referenced the Madras High Court decisions in Commissioner of Income Tax vs. P.S.Mani and Commissioner of Income-Tax vs. J.K.Narayanan, which held that belated returns, even if invalid, containing information showing the earning of the corresponding income, should not be considered undisclosed income if the information was imparted to the Assessing Officer before the search.

The court concluded that the assessee's disclosure of income to the Department before the search did not constitute "undisclosed income" under Chapter XIV-B. The substantial question of law was answered in favor of the assessee, and the appeal was dismissed with no order as to costs.