2014 (7) TMI 10 - HC - Income Tax

Non-disclosure of income - levy of tax @ 60% on salary income Applicability of provisions of section 158BB(1)(c) of the Act - Whether non-disclosure of the income by not filing the return of income on which the TDS is deducted, whether the same can be treated as undisclosed income within the meaning of Section 158B(b) under Chapter XIV-B of the Act and for which the block assessment proceedings is permissible or not Held that - The Tribunal has committed a grave error in directing that the income earned by way of salary by the assessee cannot be treated as undisclosed income for levying tax at 60% on the salary income as undisclosed income Following THE ASSISTANT COMMISSIONER OF INCOME TAX AND OTHERS, CHENNAI Versus M/s AR ENTERPRISES 2013 (1) TMI 345 - SUPREME COURT . The tax to be deducted at source is computed on the estimated income of an assessee for the relevant financial year, such deduction cannot result into disclosure of the total income for the relevant assessment year and therefore, mere deduction of tax at source, doest not amount to disclosure of income, nor does it indicate the intention to disclose income most definitely when the same is not disclosed in the returns filed for the concerned assessment years - Non-disclosure of the income received by the assessee by way of salary was required to be treated as undisclosed income within the meaning thereof in Section 158B(b) under Chapter XIV-B of the Act liable to tax at 60% - Decided in favour of Revenue. Reduction of addition of unexplained investment Held that - At the time of search unexplained investment it was found and even after the search the assessee did not file the return of income and declared the same at the time of filing the return after the block assessment proceedings were initiated - the intention of the assessee is to be presumed that he was not to disclose the income and therefore, the same is required to be treated as undisclosed income within the meaning thereof in section 158B(b) under Chapter XIV-B of the Act - no specific reasons and/or evidence on record to reduce the addition on account of unexplained investment the Tribunal has materially erred in reducing the addition on account of unexplained investment Decided in favour of Revenue.

Summary

Issues Involved:
1. Whether the salary income declared in the return of undisclosed income can be treated as undisclosed income for levying tax at 60%.
2. Whether the salary income disclosed by the assessee in the return of the block period should be excluded.
3. Whether the reduction of the addition on account of unexplained investment from Rs. 1,88,884/- to Rs. 35,000/- by the Tribunal was justified.

Detailed Analysis:

Issue 1: Treatment of Salary Income as Undisclosed Income
The core issue was whether the salary income declared by the assessee in the return of undisclosed income could be treated as undisclosed income for the purpose of levying tax at 60%, despite the provisions of Section 158BB(1)(c) of the Income Tax Act. The Tribunal had initially ruled that since TDS was deducted on the salary income, it could not be treated as undisclosed income. However, the Court referred to the Supreme Court decision in the case of A.R. Enterprises, which clarified that mere deduction of tax at source does not amount to disclosure of income. It was emphasized that the obligation to file a return remains even if TDS is deducted, and failure to file such returns means the income remains undisclosed. Consequently, the Court concluded that the Tribunal erred in its decision and held that the salary income should indeed be treated as undisclosed income.

Issue 2: Exclusion of Salary Income in the Return of Block Period
The Tribunal had excluded the salary income disclosed by the assessee in the return of the block period from being treated as undisclosed income. The Court reiterated the principles laid out in the A.R. Enterprises case, emphasizing that the mere deduction of TDS does not equate to the disclosure of income. The Court noted that the assessee filed the return of income only after the initiation of block assessment proceedings, indicating an absence of intention to disclose the income. Therefore, the Tribunal's decision to exclude the salary income was incorrect, and the income should be treated as undisclosed.

Issue 3: Reduction of Addition on Account of Unexplained Investment
The Tribunal had reduced the addition on account of unexplained investment from Rs. 1,88,884/- to Rs. 35,000/-. The Court found that there was no evidence or specific reasons provided by the Tribunal for this reduction. It was noted that the unexplained investment was found during the search, and the assessee did not file a return of income declaring this investment until after the block assessment proceedings were initiated. The Court, referencing the A.R. Enterprises decision, inferred that the intention of the assessee was not to disclose the income. Thus, the Tribunal's reduction of the addition was deemed erroneous, and the original addition by the Assessing Officer was restored.

Conclusion:
The High Court quashed and set aside the Tribunal's judgment and restored the order passed by the Assessing Officer, confirming the CIT(A)'s decision. The Court held all the questions in favor of the revenue and against the assessee, emphasizing the importance of filing returns to disclose income and the insufficiency of TDS deduction alone as a disclosure of income.