2014 (11) TMI 482 - HC - Income Tax

Whether the amount brought to tax by the AO is not undisclosed income Amount deposited with bank taxable as income or not Held that - Shailendra Mahto, Suraj Mandal and Simon Marandi had never filed income tax returns u/s 139 of the Act between 1st April, 1986 and 26th April, 1996 - They were never assessed to tax for the period - Shailendra Mahto, in fact, did not file returns even on issue of notice u/s 158BC of the Act - The block assessment orders in the case of individual assessees would show that the major and substantial amount of undisclosed income relates to the period between 1st April, 1993 and 31st March, 1994 - sub-clause (ca) of Section 158BB(1) would be applicable as no return of income was filed by the individual asseessee before the due date of filing of return - The income returned accordingly would be treated as NIL inspite of the entries, if any, in the books of accounts or documents - Shibu Soren had filed return for the assessment year 1994-95 on 31st March, 1996, but this would be a return u/s 139(4) of the Act which permits filing of a belated return, but it would not be a return u/s 139(1) of the Act - this return cannot be treated as a return filed before the due date. Whether additions made relate to undisclosed income Held that - The Tribunal has only decided the second aspect, i.e. whether or not the deposits in Punjab National Bank, Naoroji Nagar, New Delhi could have been made subject matter of addition as undisclosed income in the block assessment proceedings - the assessees throughout had pleaded and claimed that the money deposited in the bank accounts did not belong to them but was money of JMM - there is a fundamental fallacy in the reasoning given by the Tribunal to hold that no addition could have been made in the block assessment proceedings for want of undisclosed income - The Tribunal ignored the position that the four individual assessees had not filed returns of income and therefore, Section 158BB(1) clause(ca) of the Act would be attracted - the factum that the details of SB A/cs and the FDRs were made available would not make any difference - The search undertaken had revealed several incriminating evidence/material relating to the opening and operation of bank accounts and on how the money was utilized, etc. - These details were relevant to examine and consider the contention of the respondent individual assessee that the money did not belong to them but to the political party, JMM - It would be incorrect or improper to state that the search did not reveal or unearth relevant material or evidence relating to undisclosed income as defined u/s 158B(b) of the Act. In the case of JMM notice u/s 158BD read with Section 158BC of the Act was issued and there was also a search of the premises of M/s Anjali Jain and Associates, Chartered Accountant and Auditor of JMM where books of accounts and other documents were found and seized. Subsequently, during investigation, statements of different persons referred to above, were recorded to ascertain and decipher whether the money deposited in the bank accounts had any connection or belonged to JMM or the said money was undisclosed income of the individual assessees - Assessment in the hands of JMM was on a protective basis - The Tribunal has not considered and examined the said evidence and has also not gone into the question whether and if in case no addition could be made in the hands of the individual assessee, substantive addition on the basis of the said evidence or material could be sustained in the hands of JMM - in case substantive addition in the hands of the individual assessee stands finally affirmed, the protective addition in the hands of the JMM would dissipate and would not be sustainable - there was no undisclosed income which could be made subject matter of block assessment and additions, if any, could be made only in the regular/normal assessment - the Tribunal has not gone into and examined the merits - Thus, an order of remand would be justified and is required as other issues on merits etc. have to be examined Decided in favour of revenue.

Summary

Issues Involved:
1. Whether the Tribunal erred in holding that the amount brought to tax by the AO is not undisclosed income.
2. Whether the Tribunal erred in setting aside the findings of lower authorities that the amounts deposited by the assessees with the bank were not taxable as income.

Issue-wise Detailed Analysis:

1. Whether the Tribunal erred in holding that the amount brought to tax by the AO is not undisclosed income:

The appeals pertain to block assessment periods of ten years from 1st April 1986 to 26th April 1996 for individual assessees and from 1st April 1986 to 27th September 1996 for JMM. Notices under Section 158BC and 158BD were issued. The Assessing Officer made additions based on deposits found in bank accounts during the search. The Tribunal annulled these additions, holding they did not represent undisclosed income and should have been made in regular assessments under Section 143(3) or Section 147 read with Section 148 of the Act.

The High Court examined the legal provisions under Chapter XIV-B, particularly Sections 158B(b), 158BA, 158BB, 158BC, and 158BD. It emphasized that "undisclosed income" includes any money, valuable article, or income based on entries in books of accounts or documents not disclosed for tax purposes. The Court referred to the Supreme Court's interpretation in A.R. Enterprises, which stressed that undisclosed income signifies income not stated in the return filed. The High Court concluded that the Tribunal's interpretation was incorrect as it failed to consider the retrospective amendments and the broader definition of "undisclosed income."

The High Court noted that none of the individual assessees had filed returns under Section 139(1) except for Shibu Soren, who filed a belated return under Section 139(4). The Court held that the failure to file returns before the due date had consequences under Section 158BB(1)(ca), treating the income as NIL despite entries in books of accounts. The Court disagreed with the Tribunal's finding that the deposits could not be treated as undisclosed income, emphasizing that the search unearthed material indicating the money belonged to the individual assessees, not JMM.

2. Whether the Tribunal erred in setting aside the findings of lower authorities that the amounts deposited by the assessees with the bank were not taxable as income:

The Tribunal set aside the findings of the lower authorities, holding that no material or evidence was found during the search to justify treating the deposits as undisclosed income. The High Court disagreed, noting that the search revealed substantial deposits in bank accounts, which were not disclosed in any returns. The Tribunal's reliance on statements recorded under Section 131 before the search was misplaced, as these statements claimed the money belonged to JMM, which required verification.

The High Court emphasized that the truth or veracity of the statements had to be verified through evidence, including examination of bank account entries, beneficiaries, and utilization of funds. The search and subsequent enquiries revealed that the money did not belong to JMM but to the individual assessees, making it undisclosed income under Section 158B(b).

The High Court also addressed the Tribunal's reliance on judgments like N.R. Paper and Board Ltd., distinguishing them based on the facts and emphasizing the broader scope of "undisclosed income" under the amended provisions. The Court concluded that the Tribunal ignored the fact that no returns were filed by the individual assessees and that the search revealed incriminating material, making the deposits undisclosed income.

Conclusion:

The High Court answered the substantial questions of law in favor of the Revenue, holding that the Tribunal erred in its interpretation and findings. The Court remanded the case to the Tribunal for a decision on other issues and merits, directing parties to appear before the Tribunal on 15th December 2014 for further proceedings.