2013 (11) TMI 661 - HC - Income Tax

Validity of block assessment u/s 158BB of the Income tax act Held that - Search conducted after the expiry of the due date for filing return, payment of advance tax is irrelevant in construing the intention of the assessee to disclose income - If the search is conducted prior to due date for filing return, opportunity to disclose the income by filing the return is there, in which case, the payment of advance tax may be material for construing whether the assessee is intended to disclose the income - Thus, when the income had not been properly disclosed, the assessment under Section 158 BC and 158BD would be a case for consideration along with rest of Chapter XIV-B. Computation of the undisclosed income of the block period shall be the aggregate of the income could be determined on the basis of the entries as recorded in the books of accounts. The computation of the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period, computed in accordance with the provisions of the Act. Thus, as far as Clause (ca) is concerned, when the due date for filing of the return of income has expired and the assessee had not filed the return even as stating that it was nil income, then Section 158BD would be of relevance - Assessment made under Chapter XIV B of the Act is justifiable on facts and in law Decided against the Assessee.

Summary

Issues Involved:

1. Whether the salary and interest paid to partners are undisclosed income in the hands of the partner appellant.
2. Whether there is a legal requirement of giving any opportunity of being heard before recording satisfaction under Section 158 BD of the Act.
3. Whether there were adequate materials to justify that there was undisclosed income in the hands of the appellant partner.

Issue 1: Salary and Interest Paid to Partners as Undisclosed Income

The appellants contended that the salary and interest paid to partners, already disclosed within the time allowed for filing the return, should not be considered as undisclosed income under Chapter XIV B of the Income Tax Act. The Tribunal rejected this plea, stating that the returns were filed only after the date of the search. Consequently, the income disclosed in these returns could not be treated as disclosed income. The Tribunal emphasized that the appellants had not filed the returns before the search, and thus, the income found during the search was rightly included in the Block Assessments under Chapter XIV-B. The Tribunal also noted that neither the firm nor the appellants had paid any advance tax on the income from salary and interest, nor had the firm deducted any TDS, supporting the classification of this income as undisclosed.

Issue 2: Opportunity of Being Heard Before Recording Satisfaction Under Section 158 BD

The appellants argued that the Assessing Officer had not recorded his satisfaction for issuing notices under Section 158 BD and that they should have been given an opportunity of hearing before proceeding further. The Tribunal held that there is no legal requirement to grant an opportunity of being heard before recording prima facie satisfaction under Section 158 BD. The Tribunal referred to various judicial decisions, including those of the Supreme Court, which clarified that the mere deduction of tax at source does not constitute disclosure of income under Section 158 B(b) of the Act. The Supreme Court's interpretation was that undisclosed income signifies income not stated in the returns filed before the search.

Issue 3: Adequate Materials to Justify Undisclosed Income

The Tribunal found that the materials seized during the search operation justified the inclusion of the undisclosed income in the Block Assessments. The appellants had filed their returns only after the search, and thus, the income disclosed in these returns could not be treated as disclosed income. The Tribunal upheld the assessments based on the materials recovered during the search, which were in line with the provisions of Section 158 BB (ca) of the Act. The Tribunal concluded that the assessment under Chapter XIV B was valid and justifiable based on the facts and the law.

Conclusion:

The High Court upheld the Tribunal's decision, rejecting the appellants' contentions. The Court agreed that the salary and interest paid to partners, disclosed after the search, constituted undisclosed income. It also affirmed that there is no requirement for an opportunity of being heard before recording satisfaction under Section 158 BD. The Court found that the materials seized during the search provided adequate justification for the undisclosed income assessments. The High Court dismissed the appeals, confirming the validity of the Block Assessments under Chapter XIV B of the Income Tax Act.