2006 (6) TMI 133 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notice under section 263.
2. Inclusion of income disclosed in a belated return in block assessment.
3. Application of section 158BB(1)(ca) versus section 158BB(1)(c).
4. Double taxation of the same income.
5. Consideration of advance tax payment and regular assessment proceedings.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 263:
The assessee contended that the notice issued under section 263 was illegal and invalid as there was no valid basis or reason for its issuance. The CIT, however, justified the notice on the grounds that the Assessing Officer (AO) failed to include the income disclosed in the belated return for the assessment year 2002-03 in the block assessment, making the AO's order erroneous and prejudicial to the interest of the revenue.

2. Inclusion of Income Disclosed in a Belated Return in Block Assessment:
The CIT directed the AO to include the sum of Rs. 53,27,812 in the block assessment, arguing that the return filed late was non est and the income should be treated as undisclosed. The assessee argued that the income disclosed in the return was already considered by the AO during the block assessment proceedings, and it was not correct to treat it as undisclosed income.

3. Application of Section 158BB(1)(ca) versus Section 158BB(1)(c):
The CIT relied on section 158BB(1)(ca), which states that if the due date for filing a return has expired and no return has been filed, the income should be considered nil. The Tribunal, however, noted that section 158BB(1)(ca) does not define undisclosed income but provides a method for its computation. The Tribunal emphasized that the case falls under section 158BB(1)(c), which pertains to situations where regular books of account are maintained, and entries are made in the normal course of business. Since the assessee maintained regular books and paid advance tax, the income disclosed could not be treated as undisclosed.

4. Double Taxation of the Same Income:
The assessee argued that the same income could not be taxed twice-once in regular assessment and again in block assessment. The Tribunal agreed, noting that the income disclosed in the return for the assessment year 2002-03 had already been taxed in the regular assessment, and including it again in the block assessment would result in double taxation.

5. Consideration of Advance Tax Payment and Regular Assessment Proceedings:
The assessee had paid advance tax of Rs. 5,71,000 before the search, indicating an admission of income for regular assessment. The Tribunal observed that the advance tax payment and the subsequent regular assessment under sections 143/148, where the disclosed income was taxed, supported the assessee's position. The CIT's argument that the AO's issuance of notice under section 148 did not affect the block assessment was rejected by the Tribunal.

Conclusion:
The Tribunal concluded that the provisions of section 158BB(1)(ca) were not applicable in this case. Instead, the case was covered by section 158BB(1)(c), as the income was entered in regular books of account maintained in the normal course of business. Consequently, the income disclosed in the belated return could not be included in the block assessment. The Tribunal cancelled the CIT's order dated 16-8-2005 and allowed the appeal filed by the assessee.