2006 (4) TMI 68 - HC - Income Tax

Once the salary income of the block year has been taxed & tax has been deducted at source, there is no question of holding the income of assessee as the undisclosed income of the block year held that salary income disclosed by assessee on which tax at source was deducted couldn t have been treated as undisclosed income for the purpose of sec. 158BC - income which is below the taxable limit cannot be taxed merely because the return has not been filed before the date of the search and seizure

Summary

Issues:
1. Whether the Tribunal was right in adding the salaried income to the undisclosed income specified by the assessee in the return for the block period?
2. Whether an income exempt from income tax below the taxable limit can be charged to tax for any reason?
3. Whether the income shown by the assessee below the taxable limit can be brought to tax after the search?
4. Whether the income disclosed by the assessee on which tax at source was deducted could be treated as undisclosed income?

Analysis:
Issue 1:
The case involved an appeal under Section 260-A of the Income Tax Act against the order of the Income Tax Appellate Tribunal. The appellant, an individual employed by a company, had his salary income exceed non-taxable limits, with tax deducted at source. A search was conducted at his brother's premises, where some cash and jewelry were found in the appellant's bedroom but later returned. The Assessing Authority added the salary income to the undisclosed income, which was challenged before the Tribunal. The Tribunal upheld the decision, leading to the present appeal based on the substantial question of law regarding the addition of salaried income to undisclosed income.

Issue 2:
The appellant argued that income exempt from tax due to being below the taxable limit should not be charged to tax under any circumstances. The Revenue contended that since the income was not disclosed before the search, it should be added to the income from other sources. The court referred to precedents and emphasized that if income is below the taxable limit and tax was deducted at the source, it cannot be treated as income from undisclosed sources, supporting the appellant's position.

Issue 3:
The court considered whether the timing of income disclosure, either before or after a search, impacts its taxability. It was established that if the income was shown to be below the taxable limit before the search and tax was deducted at the source, it cannot be brought to tax post-search. Precedents were cited to support the position that timely disclosure of income, even after a search, prevents it from being treated as undisclosed income.

Issue 4:
The court concluded that income disclosed by the assessee, with tax deducted at the source, could not be categorized as undisclosed income. Citing judgments from other High Courts, the court emphasized that once tax is deducted, the income cannot be considered undisclosed. The decision highlighted the importance of timely disclosure and tax deduction in determining the taxability of income, affirming that income below the taxable limit should not be taxed merely due to the timing of return filing.

In conclusion, the court allowed the appeal, modifying the Tribunal's order based on the established principles regarding the tax treatment of disclosed income below the taxable limit with tax deducted at the source.