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Judgment
Chitra Venkataraman, J.—The assessees are on appeal as against the common order of the Income Tax Appellate Tribunal, ""D"" Bench
dated 28.03.2005 passed in IT(SS)A No. 168/Mds/04 to IT(SS)A No. 177/Mds/04 for the block assessment period 1990-91 to 2000-01,
raising the following questions of law:
Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the salary and interest paid to
partners are undisclosed income in the hands of the partner appellant?
Whether the Tribunal was right in holding that there is no legal requirement of giving any opportunity of being heard before recording satisfaction
u/s 158BD of the Act?
Whether the Tribunal was not right in holding that there were adequate materials to justify that there was undisclosed income in the hands of the
appellant partner?
The issues are common. The Income Tax Appellate Tribunal had also considered the assessees appeals relating to the Block Assessment period
01.04.1989 to 19.01.2000 and passed a common order in respect of the different assessee''s herein.
It is seen from the facts narrated that on 19.01.2000, there was a search and seizure operation at the residence and the business premises of
one P. Subramani and his group concerns including M/s. Sugajothi Tex conducted u/s 132 of the Income Tax Act, 1961. Admittedly, the
assessees were the partners in M/s. Sugajothi Tex and they were filing regular returns of income upto the assessment year 1994-95. For the period
from 1995-96 to 2000-2001 comprising the Block Period from 01.04.1989 to 19.01.2000, long after the date of search on 19.01.2000 the
assessees filed their returns on 05.01.2001. Based on the materials seized, notices u/s 158BD read with 158BC of the Income Tax Act, 1961
were issued to the assessees. The assessees'' claimed that the entire income of these assessment years could not be included as undisclosed
income for the block period while completing the block assessments on the ground that even before the issuance of the notices, the assessees had
filed their respective return of income. The Assessing Officer, however, rejected the contention on the ground that the returns were filed only after
the date of search, i.e. on 19.01.2000. Having regard to the notices issued u/s 158BB(ca) of the Act, the income was liable to be included in the
Block Period mentioned above.
One of the issues raised by the assessees in the course of the appeal proceedings was that the Officer had not recorded his satisfaction for
issuing the notices under 158BD of the Act and in any event the assessees could have been given an opportunity of hearing before proceeding
further. The First Appellate Authority rejected the said plea of the assessees and ultimately confirmed the assessment in respect of the assessees.
Aggrieved by this, the assessees went on appeal before the Income Tax Appellate Tribunal. As already pointed out in the preceding paragraphs,
the Income Tax Appellate Tribunal passed a common order covering the cases of all the assessees, confirming the assessment.
One of the contentions taken by the assessees before the Income Tax Appellate Tribunal was that when in respect of the firm assessment, the
salary and interest paid to the partners were already disclosed within the time allowed for filing the return, the same could not be the subject matter
of undisclosed income under Chapter XIV B of the Act. These are for the individual assessments. Though the returns were filed belatedly, they
were filed before the issuance of notice u/s 158BD of the Act. Hence, the Block Assessment made was without jurisdiction. The Income Tax
Appellate Tribunal, however, rejected the plea of the assessees and pointed out that the assessees had not filed the returns of income before the
date of search. Thus, the income disclosed in the returns filed after the date of search could not be treated as disclosed income. The Income Tax
Appellate Tribunal further pointed out that considering the above said admitted fact, the case of the assessees would fall for consideration u/s
158BB (ca) of the Act. Thus, the filing of the returns after the date of search and before issuance of notice u/s 158BD of the Act would not in any
manner make the return of income as valid for the purposes of taking the jurisdiction out. The Income Tax Appellate Tribunal considered the
decision of this court in the case of The Assistant Commissioner of Income Tax Vs. A.R. Enterprises, , the decision of the Allahabad High Court
reported in Digvijay Chemicals Ltd. Vs. Assistant Commissioner of Income Tax, and Gujarat High Court reported in Rushil Industries Ltd. Vs.
Harsh Prakash, and held that Section 158BD does not require granting of an opportunity before recording prima facie satisfaction that after the
search operation there were materials to show the undisclosed income of the assessees. The Tribunal pointed out that the filing of the return by the
firm was not of any consequence while considering the question as to whether the income from salary and interest could be treated as disclosed
income at the hands of the individual partner. The Tribunal pointed out that on the admitted fact, the assessees had filed the returns only after the
search, the undisclosed income was found during the course of search, Block Assessments based on the materials recovered were rightly made
under Chapter XIV-B of the Act. The Income Tax Appellate Tribunal further pointed out that neither the firm nor the assessees had paid any
advance tax on the income from salary and interest from the firm and the firm had also not deducted any TDS. On this admitted fact and on the
provisions of 158BB(ca) of the Act, the Income Tax Appellate Tribunal upheld the assessments against the assessees. Aggrieved by this, the
present appeals have been filed at the instance of the assessees.
We find from the decision reported in The Assistant Commissioner of Income Tax, Chennai Vs. A.R. Enterprises, , the Apex Court had an
occasion to consider the case falling u/s 158B(b) and 158BD, wherein the Apex Court pointed out that mere deduction of tax at source, was not a
disclosure within the meaning of Section 158B(b) of the Act. Considering the scope of Section 158BB as well as 158BD of the Act, the Supreme
Court pointed out that the Legislature has chosen to define ""undisclosed income"" as income not disclosed for the purposes of the Act. The
Supreme Court pointed out that for the income to be disclosed, the only course of disclosing income on the part of the assessee is through filing of
a return. Therefore, undisclosed income signified, income not stated on the returns filed. It observed there are two scenarios where income would
be deemed to be undisclosed (1) Where the income has clearly not been disclosed and (2) Where income would not have been disclosed. For
this, reliance must be placed on the surrounding facts and circumstances of the case. It held that 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. If the search is
conducted prior to due date for filing return, opportunity to disclose the income by filing the return is there, in which case, the payment of advance
tax may be material for construing whether the assessee is intended to disclose the income. Thus, when the income had not been properly
disclosed, the assessment u/s 158BC and 158BD would be a case for consideration along with rest of Chapter XIV-B. It further pointed out that
according to Section 139(1) of the Act, every person who is assessable under the Act, must file his or her total income during the previous year on
or before the due date, for assessment u/s 143 of the Act. Payment of an advanced tax is based on estimated income and hence, it cannot result in
the disclosure of the total income assessable and chargeable to tax. Thus, in para 39 of the judgment, the Supreme Court pointed out thus:
Thus, for the purposes of computation of undisclosed income under Chapter XIV-B, an assessee can rebut the Assessing Officer''s finding of
undisclosed income by showing that such income was disclosed in the return of income filed by him before the commencement of search or the
requisition. In other words, when Section 158BB(3) is read with Section 158B(b), which defines undisclosed income, we reach the conclusion that
for income to be considered as disclosed income, the same should have been disclosed in the return filed by the assessee before the search or
requisition. In our opinion, on failure to file return of income by the due date u/s 139 of the Act, payment of advance tax per se cannot indicate the
intention of an assessee to disclose his income.
It rejected the plea of the assessee that payment of advance tax is tantamount to disclosure of income or that indicate the intention of the assessee
to disclose the income. Thus holding, the Supreme Court held that the assessee had not filed any returns of income by the due date, the Assessing
Officer was justified in assuming that the assessee would not have disclosed its total income.
The above decision would apply to the facts of the case herein. Admittedly, after the Search conducted on 19.01.2000, the assessees filed
returns on 05.01.2001. The notices u/s 158BD read with 158BC relating to the undisclosed income for the Block Period 1995-96 to 2000-2001
issued, thereafter would be nevertheless valid for making block assessment. The provisions particularly under Clause (ca) of Section 158BB(1) of
the Act, would be of relevance here and it reads as under:
Computation of undisclosed income of the block period.
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)...
(b)...
[(c) where the due date for filing a return of income has expired, but no return of income has been filed, -
(A) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of
search or requisition where such entries result in computation of loss of any previous year falling in the block period; or
(B) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the
search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block
period;
(ca) where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under clause
(c);]...
Learned counsel appearing for the assessee submitted that considering the fact that the returns had been filed by the assessee even prior to the
initiation of the proceedings under Chapter XIVB, the case of the assessee would not fall for consideration under clause (ca) of Section 158BB(1)
of the Act.
We disagree with the contention of the assessee. For, a case of non-filing of return would be one where the due date for filing a return of income
has expired, but no return of income has been filed by the assessee. Section 158BB of the Act states that in such case the undisclosed income has
to be computed as given under (c)(A), (c)(B) and (c)(ca). Thus the computation of the undisclosed income of the block period shall be the
aggregate of the income could be determined on the basis of the entries as recorded in the books of accounts. 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. Thus, as far as Clause (ca) is concerned, when the due date for filing of the return of income has expired and the
assessee had not filed the return even as stating that it was ''nil'' income, then Section 158BD would be of relevance.
Thus having regard to the facts and the provisions of law narrated above, the case of the assessee would certainly fall for consideration u/s
158BB read with 158BD of the Act and the assessment could not be faulted with.
Learned counsel appearing for the assessee placed reliance on the decision of the Bombay High Court reported in Commissioner of Income
Tax Vs. Vikram A. Doshi and Ms. Leena V. Doshi, . The said case, rested on the facts wherein the firm had disclosed, its income, as regards
salaries and interest payable to the assessee partner, which were the subject matter of regular assessment. Thus, the Bombay High Court rejected
the stand of the Revenue that the case of the assessee/partner was a case of undisclosed income.
The decision of the Bombay High Court does not advance the case of the assessee, in any manner, it being distinguishable on facts before this
court. It is evident that in respect of at least six of the partners on the assessment made u/s 158BD, no appeal was filed and the assessment had
been accepted by those assessees. Apart from that, even as regards income by way of salary and interest are concerned, admittedly, the
assessment under Chapter XIV B was the result of the search conducted on the residence and the business premises of one P. Subramani as well
as the group concerns and the returns were filed long thereafter the due date and after the search. In the back ground of this, we have no hesitation
in holding that the assessment made under Chapter XIV B of the Act is justifiable on facts and in law. In the circumstances, we reject these Tax
Case (Appeals) filed by the assessee. No costs.