2012 (4) TMI 283 - HC - Income Tax

Whether Tribunal was justified in canceling assessment of undisclosed income for the broken period for which, time for filing return was not over as on date of search first installment of advance tax paid by assessee in respect of the income of the previous year in which search took place, even before date of search Held that - Since advance tax is paid in respect of an item of income, it cannot be said that the assessee intended to suppress it s income merely because accounts are not written up. So much so, payment of advance tax on estimated income is sufficient to exclude such income from the scope of undisclosed income for the broken period of the previous year for which, time for filing of return was not over as on the date of search Decided against the Revenue.

Summary

Issues:
1. Justification of canceling assessment of undisclosed income for a broken period.
2. Interpretation of Section 158BB(1)(d) regarding exclusion of income up to the date of search.
3. Impact of advance tax payment on estimated income on the assessment of undisclosed income.

Analysis:
1. The primary issue in this case revolved around the justification of canceling the assessment of undisclosed income for a broken period. The Tribunal's decision to cancel the assessment was challenged, questioning whether it was justified when the time for filing the return was not over as of the date of search. The Revenue relied on a previous court decision, but the Court found the facts of this case to be different. The crucial point was that the assessee had paid an installment of advance tax even before the search, indicating a level of transparency regarding the income in question. The Court emphasized that the payment of advance tax on estimated income from business was an admission of income, even if the accounts were irregular. This payment was deemed sufficient to exclude the income from the scope of undisclosed income for the broken period, despite the incomplete state of the accounts.

2. The interpretation of Section 158BB(1)(d) was a key aspect of the judgment. This section provides for the exclusion of income up to the date of search if the assessee has recorded details of such income in the books of accounts. While the accounts in this case were irregular, the advance tax payment on estimated income was considered significant. The Court highlighted that the payment of advance tax on estimated income effectively demonstrated the assessee's acknowledgment of the income, even if there were discrepancies between the assessee's estimation and the Assessing Officer's assessment. The Court's analysis focused on the intent behind the advance tax payment, emphasizing that it indicated a lack of intention to suppress income, especially considering the timely payment before the search.

3. The impact of advance tax payment on estimated income on the assessment of undisclosed income was a crucial aspect addressed in the judgment. The Court concluded that the payment of advance tax on estimated income from business served as a clear indicator of the assessee's recognition of the income. Despite the irregularity in the accounts, the Court emphasized that the payment of advance tax was sufficient to exclude the income from being classified as undisclosed for the broken period. This finding underscored the importance of assessing the intent behind financial actions, such as advance tax payments, in determining the treatment of income in cases of incomplete or irregular accounting records.

In conclusion, the Court dismissed the Department's appeal, emphasizing that the payment of advance tax on estimated income before the search date was crucial in excluding the income from the scope of undisclosed income for the broken period. The judgment highlighted the significance of financial actions and intent in determining the treatment of income in cases involving incomplete accounting records.