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TMI Blog2013 (1) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... nt financial year. It is significant to note that this income is an estimation that is made by the assessee and may not be the exact income, which may ultimately be declared in the return under Section 139 and assessed under Section 143. An estimate always has an element of guesswork. There could be various reasons due to which an estimate may be faulty and inaccurate which is why, there is a provision for payment of interest on deficient or excess payment of advance tax when there is variation between advance tax paid and actual liability to tax - See Commissioner of Income Tax Vs. Smt. Premlata Jalani [2003 (7) TMI 62 - RAJASTHAN HIGH COURT] Since the Advance Tax payable by an assessee is an estimate of his “current income” for the relevant financial year, it is not the actual total income, to be disclosed in the return of income. It will be a misconstruction of the law to construe the undisclosed income for purposes of Chapter XIVB as an “estimate” of the total income, which is assessable and chargeable to tax. Therefore, unable to accept that payment of Advance Tax based on “current income” involves the disclosure of “total income”, as defined in Section 2(45) which has to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eave granted in all the Special Leave Petitions. 2. This batch of six appeals, arises from separate judgments of the High Court of Madras in the appeals preferred by the revenue under Section 260A of the Income Tax Act, 1961 (for short "the Act") rendered in Tax Case (Appeal) Nos.238 of 2000 on 8th September 2004; 1371, 1372, 1373 of 2005 on 2nd January 2006; 687 of 2007 on 18th June 2007; and 620 of 2009 on 21st July 2009. This judgment shall govern all these appeals since they entail a common substantial question of law, as is evident from the adjudication of the High Court. However, to appreciate the issue involved, Civil Appeal No.2688 of 2006 is treated as the lead case. At the outset we may note that despite service of notice, no appearance was entered for the respondent-assesses, except in C.A. No. 2688/2006 and C.A. No. 2580/2010. Facts 3. The respondent-assessee is a firm which came into existence on 25th June, 1992. On 23rd February, 1996, a search operation under Section 132 of the Act was carried out at the premises of another concern, viz. M/s A.R. Mercantile Private Limited. During the course of search, certain books and documents pertaining to the assessee i. e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicate that the assessee has made known to the income tax department his income for the year and also paid the income tax thereon well before the due dates and of course well before the date of search also. Even this fact of income was voluntarily disclosed by the assessee to the ADI (inv.)…" Consequently, the Tribunal declared the said assessment, made under Section 158BD of the Act, as null and void. 6. Being dissatisfied, the Revenue preferred an appeal before the High Court of Madras under Section 260A of the Act, questioning the validity of the order of the Tribunal. Entertaining the appeal, the High Court formulated the following substantial question of law for adjudication: "Whether the Appellate Tribunal is right in law in cancelling the assessment under Chapter XIV-B in light of the specific provision contained in Section 158BB(1) (c) of the Income Tax Act?" 7. Before the High Court, the stand of the Revenue was that since return for the assessment year 1995-96 had not been filed by the due date, by filing the return after the search, the assessee could not escape the consequences as stipulated in Chapter XIVB of the Act. It was contended that payment of Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in the normal course by the assessee and as such the income disclosed on payment of the advance tax would fall within clause (d) of sub-section (1) of section 158BB. In any case although there is a difference between the regular assessment and the block assessment, as we have already noticed, unless the provisions of the block assessment specifically bar the assessing authority from taking into consideration the income disclosed by the assessee on payment of the advance tax to be taken into consideration, the income disclosed by the assessee on payment of advance tax would be an income disclosed to the Revenue and cannot be treated as an income undisclosed for the relevant assessment year." 9. Aggrieved thereby, as aforesaid, the Revenue is before us in these appeals. 10. The short question for consideration is whether payment of Advance Tax by an assessee would by itself tantamount to disclosure of income for the relevant assessment year and whether such income can be treated as undisclosed income for the purpose of application of Chapter XIVB of the Act? Scope of Chapter XIV-B and its Provisions 11. Sections 132 and 132A of the Act incorporate provision of search, sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the person with respect to whom search was conducted or a requisition was made. It is trite law that such satisfaction must be recorded for the benefit of the assessee. In Manish Maheshwari Vs. Asstt. Commissioner of Income Tax & Anr[(2007) 3 SCC 794]., this Court summarized the prerequisites of Section 158BD of the Act as follows: "11. …(i) satisfaction must be recorded by the assessing officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) the books of accounts or other documents or assets seized or requisitioned had been handed over to the assessing officer having jurisdiction over such other person; and (iii) the assessing officer has proceeded under Section 158-BC against such other person." 14. In Assistant Commissioner of Income Tax Vs. Hotel Blue Moon[(2010) 3 SCC 259 at page 264], one of us (H.L. Dattu, J.) while explaining the purport of Chapter XIVB of the Act, has observed that a search is the sine qua non for the block assessment; the special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the provisions of this Chapter. Procedure for block assessment. 158BC. Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,-- (a) the Assessing Officer shall-- (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days; XXX XXX XXX (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143 section 144 and section 145 shall, so far as may be, apply;..." [Emphasis supplied] 17. Section 158B of the Act, which encompasses the crux of the issue, reads as follows: "Definitions. 158B. In this Chapter, unless the context otherwise requires, - (a) "block period" means the previous years relevant to ten assessment years preceding the previous year in which the search was conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case. 19. One such fact, as the assessee claims, is the payment of Advance Tax. However, in our opinion, the degree of its material significance depends on the time at which the search is conducted in relation to the due date for filing return. Depending on which side of the due date the search is conducted, material significance of payment of Advance Taxes vacillates in construing the intention of the assessee. If the search is 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. Such a situation would find place within the first category carved out by Section 158B of the Act i.e. where income has clearly not been disclosed. The possibility of the intention to disclose does not arise since, as held earlier, the opportunity of disclosure has lapsed i.e. through filing of return of income by the due date. If, on the other hand, search is conducted prior to the due date for filing return, the opportunity to disclose income or, in other words, to file return and disclose income still persists. In which case, payment of Advance Tax may be a material fact for construing whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that 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. This amount is reduced by the aggregate of the total income, or as increased by the losses returned or determined earlier, in respect of such previous years in accordance with the provisions of this section. 24. Section 158BB(1) reads as follows- "158BB. (1) 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 this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,-- (a) XXX XXX XXX (b) XXX XXX XXX (c) where the due date for filing a return of income has expired but no return of income has been filed, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as "current income." 29. Section 208 specifies the conditions of liability to pay Advance Tax as:- "208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is one thousand five hundred rupees or more." 30. Thus, in every case where the amount of tax payable on the total income earned during the financial year is one thousand five hundred rupees or more, then, an assessee would be liable to pay in the financial year itself, Advance Tax on such income, also known as "current income." It is in this context the following questions arise: (i) What is the nature of the "current income" upon which the Advance Tax is paid and is it the same as the total income? and (ii) Whether the payment of Advance Tax results in the disclosure of the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Brij Lal & Ors. Vs. Commissioner of Income Tax, Jalandhar[ (2011) 1 SCC 1], while explaining the scope of the provisions on Advance Tax, this Court expressed the view that the "current income" in respect of which the assessee pays Advance Tax is not the same as understood in Section 2(45). In this regard, the Court held: "8. Liability to pay advance tax arises under Section 207. The said section is based on the principle "pay as you earn". It requires tax to be paid during the financial year. It has to be in respect of the total income of the assessee which would be chargeable to tax under the Act. The said total income is not as understood in Section 2(45) but it is equated to "current income" for the purposes of Chapter XVII. After the amending Act of 1987, advance tax is to be paid on the current income which would be chargeable to tax for the assessment year immediately following the financial year. Section 210 casts the responsibility of payment of advance tax on the assessee without requiring the assessee to submit his estimate of advance tax payable. Provision for payment of advance tax is a mode of quick collection of tax. 9. Thus, Section 207 defines liability to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently affirmed in Commissioner of Income Tax Vs. Kwality Biscuits Ltd.[[2006] 284 ITR 434 (SC)]]. 36. The Punjab and Haryana High Court in Commissioner of Income Tax Vs. Upper India Steel Mfg. and Engg. Co. Ltd.[[2005] 279 ITR 123 (P&H)] made the following important observations: "24. We fully concur with the view expressed in the aforesaid judgments. The Madras High Court has correctly pointed out that for the purpose of payment of advance tax, all assessees including companies, are required to make an estimate of their current income. Even before the introduction of the provisions of Section 115J of the Act, companies had been estimating their total income after providing deductions admissible under the Act. In fact, all assessees who maintain books of account have to undertake this exercise for the purpose of payment of advance tax. If a profit and loss account can be drawn up on estimate basis for the purpose of Income-tax Act, it is not understood as to why a similar profit and loss account on estimate basis under the Companies Act cannot be drawn up. If the explanation of the companies that the profits under Section 115J of the Act can only be determined after the close o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of income by the due date under Section 139 of the Act, payment of Advance Tax per se cannot indicate the intention of an assessee to disclose his income. 40. If we were to hold that the payment of Advance Tax reflects the intention of the assessee to disclose its income, it could result in a situation where the mandatory obligation of filing a return for disclosure of income under the provisions of the Act, would not be necessary. It will be open to an assessee to contend that payment of Advance Tax is tantamount to disclosure of income. Such a proposition would be contrary to the very purpose of filing of return, which ultimately leads to assessment of total income for the relevant assessment year. Any anomaly in the return entails serious consequences, which may not otherwise be attracted on estimation of income for the purpose of payment of Advance Tax. It would thus, be difficult to accept the plea that payment of Advance Tax is tantamount to the disclosure of income or that it indicates the intention of the assessee to disclose income. 41. In the instant case, after the search was conducted on 23rd February 2006, it was found that for the assessment year 1995-96, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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