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Judgment
Dr. R.K. Yadav, J.M.
Search and seizure operations were conducted on 17-12-1997, at the residential premises of the assessee, wherein cash and valuable securities were seized. Notice u/s 158BC of the Income Tax Act, 1961 (in short the Act) was served on the assessee and returns were filed belatedly on 15-12-1999, declaring total undisclosed income of Rs. 1,79,980. The assessee is a professor of Economics at Patna University, Patna. Though she has income from salary and other sources, she filed her return upto 1990-91 and thereafter no returns were filed. She claimed that the salary income is not concealed income. Her claim was denounced by the assessing officer, who assessed her undisclosed income as follows :
Rs.
Rs.
Rs.
Asst. yr. 1988-89 to 1990-91
...
Nil
Asst. yr. 1991-92:,
Income from salary Gross
63,619
12,000
51,619
51,619
Income from &O.P.
Annual value u/s 23(2)
Nil
Less: Iritt. payable to BSHW LTD.
5,000
(-)5,000
46,619
Dividend Income from Indian Co.
6,621
Dividend Income from UTI
1,620
Interest income :
N.S.C. Iritt. on 2,000 of 1984-85
448
Bank Intt.
204
55,512
P.P.F. Interest
13,467
68,979
Less: Deductions u/s 80CCB
10,000
Deduction u/s 80L
8,893
under section P.P.F. Iritt.
13,467
32,360
32,360
Total Income
36,619
36,619
Asst. yr. 1992-93
Income from salary
57,480
Less : u/s 16(1)
12,000
45,480
Income from S.O.P. :
Annual value u/s 23(2)
Nil
Less: Iritt. payable to BSHW
5,000
(-)5,000
40,480
Dividend Income:
From Indian Company
13.712
From UTI
1,620
Interest income from bank
246
Income from other sources
44,500
1,00,558
Less: Deduction u/s 80CCB
10,000
Less.: Deduction u/s 80L
10,000
20,000
20,000
Total income
80,558
80,558
Asst. yr. 1993-94
Income from salary
70,056
15,000
55,056
Income from S.O.P.
Annual value u/s 23(2)
Nil
Less: Intt. payable to BSHW ITD.
5,000
(-)5,000
50,056
Dividend income
From Indian Co.
9,167
From UTI
6,205
Interest income from bank
1,288
P.P.F. Interest
40,044
1,06,760
Less: u/s 10 P.P.F. interest u/s. 80L
40,044
7,000
47,044
47,044
Total income
59,716
59,716
Asst. yr. 1994-95:
Income from salary
74,115
Less: u/s 16(1)
18,000
56,115
56,115
Income from SOP
Annual value u/s 23(2)
Nil
Less: Intt. payable to BSHW ITD.
5,000
(-)5,000
51,115
Dividend Income
From Indian Co.
20,058
From UTI
9,325
Interest from bank
804
P.P.F. Interest
26,728
Income from other sources
60,000
1,68,030
Less : Deduction u/s. 10 P.P.F. Interest
26,728
Deduction u/s 80L
10,000
36,728
36,728
Total Income
1,31,302
1,31,302
Asst. yr. 1995-96:
Income from salary
78,178
Less : unders,. 16(1)
15,000
63.178
63.178
Income from SOP
Exempt.
Dividend Income
From Indian Co.
13,091
From UTI
3,600
Interest from bank
796
P.P.F. Interest
33,536
1,14,201
Less: Deduction u/s 10 P. P. F.
33,536
Less: Deduction u/s 80L
10,000
43,536
43,536
70,665
70,665
Asst. yr. 1996-97:
Income from salary
91,640
Less : u/s 16(1)
15,000
76,640
Dividend Income
From Indian Co.
24,419
From U17I
12,885
From UTI, RIP 1966
624
Bank Interest income
2,930
1,17,498
P.P.F. Interest
43,087
1,61,305
Less: Deduction u/s 1 OPPF
43,807
Less: Deduction u/s 90L
13,000
56,8F
56,807
Total income
1,04,498
1,04,498
Asst. yr. 1997-98
Income from salary
1,11,382
Less: u/s 16(1)
15,000
96,382
96,382
Income from S.O.P.
Nil
Dividend Income
From Indian Co.
32,198
From UTI
6,912
Interest from bank
608
P.P.F. Interest
54,913
1,91,013
Less: Deduction u/s 1 OPPF
54,913
Deduction u/s 80L
15,000
69,913
Total income
1,21,100
1,21,100
Asst. yr. 1998-99:
(Upto 17th Dec., 1997)
Income from salary
1,11,732
Less u/s 16(1)
20,000
91,732
Income from S.O.P.
Nil
Dividend Income
From Indian companies
14,681
(Exempted)
From UTI
6,912
Interest income from bank
625
Debenture interest
1,374
Capital gains
65,604
1,66,247
Less : Deduction u/s 80L
7,537
Total income
1,58,710
1,58,710
Thus total undisclosed income assessment year wise of the assessee are as under
Rs.
Asst. yrs. 1988-89 to 1990-91
Nil
Asst. yrs. 1988-89 to 1991-92
36,619
Asst. yrs. 1988-89 to 1992-93
80,558
Asst. yrs. 1988-89 to 1993-94
59,716
Asst. yrs. 1988-89 to 1994-95
1,31,302
Asst. yrs. 1988-89 to 1995-96
70,665
Asst. yrs. 1988-89 to 1996-97
1,04,498
Asst. yrs. 1988-89 to 1997-98
1,21,100
Asst. yr. 1998-99 (upto the date of search)
1,58,710
7,63,168 or
Total undisclosed income
7,63,170
Tax payable on total undisclosed income at Rs. 7,63,170 @ 60 per cent works out to
4,57,902
Interest payable u/s 158BFA
1,83,160
Payable
6,41,062
Her total undisclosed income was assessed at Rs. 7,63,170, vide assessment order dated 7-12-1999.
An appeal was preferred before the Commissioner (Appeals), who granted it, in part, concluding that salary income of the assessee cannot be considered as undisclosed income and its inclusion in undisclosed income for the block period was ordered to be deleted.
Aggrieved by the orders of Commissioner (Appeals) the revenue seeks indulgence of the Tribunal claiming that the appellate order is not based on correct proposition of law.
The assessee has filed cross objections, defending the orders of the first appellate authority.
When appeal and cross objections came up for hearing Shri P.C. Mishra, Sr. departmental Representative advanced arguments on behalf of the revenue. Shri K.N, Prasad Advocate, presented his point of view on behalf of the assessee. We have given our careful considerations to the arguments advanced at the bar and cautiously perused the record. Our findings are detailed in the succeeding sections.
Admittedly, the assessee is a professor of Economics at Patna University, Patna, which institution is controlled by the State Government. The claim of the assessee has been that she has been furnishing the details of the salary income in Form No. 16 to her employer. Her employer had deducted Income Tax from the salary, to the tune of Rs. 2,501 for the assessment year 1997-98. The University was duly filing annual returns under the provisions of section 206 of the Act, with the concerned Income Tax Officer. It had been agitated on her behalf that income from her salary cannot constitute undisclosed income.
The provisions of clause (b) of section 158B of the Act defines "undisclosed income". For the sake of convenience, said definition is extracted thus:
"(b) "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act."
Inclusive not exhaustive definition of "undisclosed income" has been given so as to include any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act.
Mechanics for computation of undisclosed income, detailed in the provisions of section 158BB of the Act provide us with a key to interpretation of the term. It would be profitable to detail those steps as under
(i) The undisclosed income of the block period shall be the aggregate of the total income of the previous year falling within the block period computed on the basis of evidence found as a result of search and such other enquiries as the assessing officer may make or such other materials or information as are available with him, as reduced by the aggregate of the total income, or as increased by the losses returned or determined in respect of such previous years.
(ii) Where assessment under sections 143, 144 or 147 have been concluded or determination of income has been made u/s 143(1A) or 143(B), the same will be reduced for determining the undisclosed income.
(iii) Where returns of income have been filed under any sub-section of section 139 or in response to notice issued u/s 142(1) or section 148 of the Act, but assessments have not been made till the date of search, income disclosed in such return of income shall be reduced for computing the undisclosed income.
(vi) In a case where due date for filing a return of income has expired but no return of income has been filed, there will be no reduction of any amount for determining the undisclosed income stated above.
(v) Where the previous year has not ended or the date of filing the return of income u/s 139(1) of the Act for any previous year has not expired, the income determined on the basis of transactions recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year shall be reduced.
(vi) However, in a case where undisclosed income has been determined in any earlier block assessment, the same shall be reduced from the total income for determining the undisclosed income.
(vii) Where any order of assessment u/s 245D of the Act has been passed by the Settlement Commission, the income determined in such order shall be reduced accord~ngly,
(viii) Brought forward losses or unabsorbed depreciation will be allowed to be carried forward for set off in regular assessment and will not be set off against undisclosed income determined in the block period assessment.
(ix) The total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation u/s 32 of the Act.
(x) In determination of undisclosed income of a firm, returned income and total income assessed for each of the previous year falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called. The undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement.
Under the provisions of section 158BB(1) read with section 158BC what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed in the normal regular assessment u/s 143(3) of the Act, where the AC) makes an enquiry to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner and on the basis of the evidence produced by the assessee, the evidence obtained on the specific points and all relevant material which he has gathered, assesses the total income or loss and determines the sum payable thereon as per the assessment. The method of working out total income is devised for the purpose of assessment of undisclosed income and would be alien to regular assessment under the provisions of sub-section (3) of section 143 of the Act. Any undisclosed income detected as a result of any search or requisition made shall be assessed separately as the income of the block years.
With above graphics in mind, now we would turn to the provisions of clause (b) of section 158B of the Act in order to interpret the phrase "disclosed for the purpose of this Act", used at the end of the said clause. The income, which the assessee has already disclosed or would have disclosed, is not to be treated as undisclosed income. The phrase "disclosed for the purpose of this Act" occurring in the provisions of clause (b) of section 158B of the Act signifies only what is required to be disclosed under the Act. What is a disclosure of an income for the purpose of this Act, is a question which confronts us. Simply and logically the answer would be that disclosure of income for the purpose of the Act should be in a manner and to the authotty concerned so that it may charge or deduct Income Tax out of the said income. The provisions of sub-section (1) of section 192 of the Act enjoins duty on an employer to deduct tax at the average rate of Income Tax computed on the basis of the rates in force on the estimated income of the assessee. It means that an estimate of the income under the head "salaries" in the financial year in which the payment has been made, will have to be made and on the basis of the estimate, the amount of tax payable, will have to be arrived at. After making the estimate of the income of the employee, the employer would deduct the Income Tax from the amount payable to an employee.''Failure to deduct Income Tax on salaries invites sanctions as contemplated by the provision of sections 201 and 221 of the Act. The employer deducting tax at source from the income under the head salaries is constrained to file returns as contemplated by the provisions of section 206 of the Act. Thus, it is clear that a co-extensive liability, with that of the employee to pay tax, has been created against the employer.
It is an admitted case that the assessee furnished the details of her salary income in Form No. 16 to her employer. On the basis of the said details, furnished by her, the employer formed an estimate of her income for that financial year and proceeded to deduct tax from her salaries. It is an admitted fact that a sum of Rs. 2,501 was deducted as tax from the salary of the asses see for the assessment year 1997-98. Therefore, it is clear that furnishing the details in Form No. 16 proves to be the basis for deduction of tax at source. It is a mode of disclosure of salary income for the purpose of this Act, since on the basis of the said disclosure the employer deducts tax, deposits it with the Government and submits its return as contemplated by the provisions of section 206 of the Act. The assessee furnished the details of her salary income to her employer in Form No. 16 and sleep-walked, covered the distance and reached the destination. She made the disclosure of her salary income to her employer for the purpose of this Act, as contemplated by the provisions of clause (b) of section 158B of the Act. This disclosure by the assessee satisfies the criteria of "disclosure under the provisions of this AcC and the assessing officer was not right in concluding that the assessee had not disclosed her salary income, since no returns were filed by her. Consequently, we conclude that by furnishing the details in Form No. 16 to her employer, the assessee made the disclosure of her salary income, under the provisions of the Act.
Provisions of Chapter XIVB of the Act lays down special procedure for assessment of search cases and provides for assessment of undisclosed income as a result of search. What is assessed u/s 158BC of the Act, is the undisclosed income of the block period and not the total income or loss,of the previous year. The exercise under the provisions of sub-section (3) of section 143 of the Act is in contrast to the exercise under the provisions of section 158BC of the Act. If any precedental support is needed then reference can be made to the judgment in N.R. Paper and Board Limited and Others Vs. Deputy Commissioner of Income Tax,
The assessing officer no where disputes that the assessee had furnished the particulars of the salary income to her employer for the block period under consideration. From the documents filed, it is clear that except the assessment year 1997-98, her salary income remained below the taxable limit. By furnishing the particulars of the salary income in Form No. 16, she had disclosed that income for the purpose of this Act and it was undisclosed income within the meaning of definition of the term contained in clause (b) of section 158B of the Act. The assessing officer was not justified in adding the said galary income to the undisclosed income of the assessee.
Resultantly, we find no fault with the orders of the Commissioner (Appeals). Consequently, the appeal of the revenue is declined and cross-objection of the assessee are granted.