The Commissioner of Income-TaxSalem v. K.Ramasamy

IN THE HIGH COURT OF JUDICATURE AT MADRASDated: 26.03.2007CoramThe Honourable Mr.Justice P.D.DINAKARANandThe Honourable Mr.Justice P.P.S.JANARTHANA RAJATax Case (Appeal) No.262 of 2007The Commissioner of Income-TaxSalem....Appellant Vs.K.Ramasamy...RespondentThe above T.C.(Appeal) is preferred under Section 260A of the Income-Tax Act, 1961 against the order of the Income Tax Appellate Tribunal,Madras ‘D’ Bench, dated 24.2.2006 made in IT(SS)A No.84/Mds/2003 for theblock assessment period 1.4.99 to 22.6.99.For Appellant: Mr.N.Murali Kumaran Sr. Standing CounselJ U D G M E N T(Delivered by P.D.DINAKARAN, J.)The above tax case appeal is directed against the order of theIncome-tax Appellate Tribunal made in IT(SS)A No.84/Mds/2003, dated24.2.2006 for the block assessment period 1.4.99 to 22.6.99.2.1. The brief facts of the case are stated as hereunder:-The Revenue is the appellant and the relevant block assessment periodinvolved is 1.4.99 to 22.6.99. The respondent/assessee is engaged in thebusiness of manufacture and sale of cloth. Concededly, even though therewas a search under Section 132 of the Income-tax Act, 1961 (hereinafterreferred to as 'the Act'), on 22.6.99 in the business and residentialpremises of the respondent/ assessee, even prior to the date of search,the assessee filed his regular returns for the previous years fallingwithin the block period as detailed hereunder:- https://hcservices.ecourts.gov.in/hcservices/ ------------------------------------------------------------Previous year ended/Date of filingIncome admittedAssessment year of return------------------------------------------------------------31-03-95/95-96 13-04-99Rs. 23,830/-31-03-96/96-97 13-04-99Rs. 14,260/-31-03-97/97-98 13-04-99Rs. 55,160/-31-03-98/98-99 13-04-99Rs. 65,810/-31-03-99/99-2000 11-06-2001Rs.1,33,870/-------------------------------------------------------------2.2. However, at the time of search, it was found that therespondent/assessee, Sri.K.Ramasamy, along with five others, had purchasedabout 4.26 acres of land from Sri.V.S.Kathirvel on 7.11.95 for aconsideration of Rs.31.68 lakhs and in order to ascertain the sources forthe purchase consideration, enquiries were made by the Deputy Director ofIncome-tax (Inv.) with the assessee. It was admitted by the assessee inhis sworn statement given on 5.7.99 before the Deputy Director of Income-tax (Inv.) that he had contributed Rs.5.28 lakhs, being 1/6th share of thepurchase consideration for the said piece of land. According to thisstatement, Rs.4.00 lakhs out of Rs.5.28 lakhs were borrowed from thirdparties and the assessee offered at that time to admit Rs.1.28 lakhs ashis undisclosed income and to pay the tax thereon.2.3. On the satisfaction that there were certain undisclosed incomes,action under Section 158BD of the Act was initiated and notice underSection 158 BC(a) of the Act was issued on 10.10.2000 and the same wasserved on the assessee on 17.10.2000. In response to the said notice, theassessee filed the return for the block assessment in Form No.2B on4.10.2002 admitting undisclosed income of Rs.1.28 lakhs for the previousyear 1995-96 falling within the block period. The case was taken up forscrutiny and after examining the documents seized during search and onhearing the submissions of the assessee, the assessing officer proceededto make the block assessment. 2.4. The assessing officer found that for the assessment years 1997-98 and 1998-99, the regular returns were filed beyond the due datespecified under Section 139(1) of the Act and hence, the incomes that wereadmitted for these years were also treated as undisclosed income for therespective years in terms of provisions of Section 158BB(1)(c) of the Act.2.5. Consequently, the assessing officer computed the undisclosedincome of each year comprised in the block period as under: https://hcservices.ecourts.gov.in/hcservices/ Previous year ended 31-03-96/Asst. Year 96-97Total income returned/assessed- Rs. 14,317Add: Undisclosed income admittedby the assessee- Rs.1,28,000---------Total income including undisclosed Rs.1,42,317income---------Previous year ended 31-03-97/Asst. Year 97-98Total income returned - Rs. NILAdd: Undisclosed income admittedby the assessee- Rs. 55,160---------Total income including undisclosed Rs. 55,160income---------Previous year ended 31-03-98/Asst. Year 98-99Total income returned- Rs. NILAdd: Undisclosed income admittedby the assessee- Rs. 65,810---------Total income including undisclosed Rs. 65,810income---------The total undisclosed income for the block period was computed as under:Previous year/Total income includingTotal incomeAsst. yearundisclosed incomereturned/assessed------------------------------------------------------------F.Y.94-95/95-96Rs.23,830Rs.23,830F.Y.95-96/96-97Rs.1,42,317Rs.14,317F.Y.96-97/97-98Rs. 55,160Rs. NIL F.Y.97-98/98-99Rs. 65,810Rs. NIL F.Y.98-99/99-2000Rs.1,33,874Rs.1,33,874Period ended22-6-1999----------------------------Rs.4,20,991Rs.1,72,021----------------------2.6. The assessing officer had not taken into account the totalincome for the previous year relevant to the assessment years 1990-91 to1994-95 while computing undisclosed income, since they were below taxablelimit. Thus, the undisclosed income was computed at Rs.2,48,970/-(Rs.4,20,991 – Rs.1,72,021) and accordingly, the total tax payable to thetune of Rs.2,12,344/- was demanded, as per the following calculation, ofcourse, reserving the penalty proceedings under Section 158BFA(2) of theAct, to be initiated separately:- https://hcservices.ecourts.gov.in/hcservices/ Income tax at 60%-Rs.1,49,382Surcharge at 15%-Rs. 22,407-----------Rs.1,71,789Less: Tax paid/adjusted-Rs. 20,000-----------Balance tax payable-Rs.1,51,789Add: Interest u/s 158BFA(1)for 7 month @ 2% andfor 17 month @ 1.25%-Rs. 60,555-----------Total Tax Payable-Rs.2,12,344-----------Accordingly, the assessing officer passed the order of demand dated31.10.2002 under Section 158BC(c) read with 158BD of the Act.2.7. Aggrieved by the same, the assessee preferred an appeal beforethe Commissioner of Income-tax (Appeals), challenging the finding of theassessing officer that since the regular returns for the assessment years1997-98 and 1998-99 were filed beyond the due date specified under Section139(1) of the Act, the income admitted for these years should be treatedas undisclosed income for the respective years in terms of provisions ofSection 158BB(1)(c) of the Act. The respondent/assessee also challengedthe levy of surcharge. The Commissioner, by order dated 10.02.2003, whileaccepting the case of the assessee on the first point, upheld that thelevy of surcharge on the tax determined on undisclosed income of Rs.1.28lakhs.2.8. Against the said order of the Commissioner, the Revenuepreferred an appeal before the Tribunal again contending that since thereturns of income for the assessment years 1997-98 and 1998-88 were filedbeyond the due date specified under Section 139(1) of the Act, the incomesadmitted in the said returns can be treated as undisclosed income for theblock assessment in terms of the provisions of Section 158BB(1)(c) of theAct. But, the Tribunal held in favour of the assessee holding that oncethe return of income was filed, even though the same was filed beyond thedate specified under Section 139(1) of the Act, the income admitted in thesaid belated returns cannot be treated as an undisclosed income for theblock assessment, since that information was available with the Departmenteven before the date of search. Hence, this appeal giving rise to thefollowing substantial questions of law for consideration:-"(i) Whether on the facts and in the circumstances of the case,the Income Tax Tribunal is right in law in holding that theincome disclosed in the regular returns filed by the assessee https://hcservices.ecourts.gov.in/hcservices/ after the date specified under Sec.139 of the Income Tax Act isnot undisclosed income ?(ii) Whether on the facts and in the circumstances of the case,the Income Tax Tribunal is right in not considering Section 158BB(1)(c) of the Income Tax Act whereby the regular returns ofincome filed beyond the due dates specified under Sec.139(1)would be treated as undisclosed income ?"3. Both the above questions revolve on the only point, whether theincome admitted in the belated returns can be treated as an undisclosedincome for the block assessment and therefore, they are dealt withjointly.4. Section 158B(a) defines the block period to mean a period ofprevious years relevant to the ten assessment years preceding the previousyear in which the search was conducted and the period upto the date ofcommencement of such search. Section 158BA(2) declares that the totalundisclosed income relating to the block period shall be charged to tax atthe rate specified in Section 113, as income of the block periodirrespective of the previous year or years to which such income relates.5. Of course, the returns for the assessment years 1997-98 and 1998-99 filed beyond the due date specified under Section 139(1) of the Act maybe invalid returns, but, it cannot be disputed that the informationcontained in such belated returns showing the earning of correspondingincome by the assessee is a valid information imparted by the assessee tothe assessing officer. If that be so, a mere search after such filing ofbelated returns of income, as in the instant case, where the search wasconducted on 22.6.99, by itself, will not entitle the revenue to treat theincomes admitted by the assessee in these years as undisclosed income ofthe assessee for the block assessment.6. The above view is also supported by the decision of anotherDivision Bench of this Court in T.C.No.268 of 2001 (between Commissionerof Income-tax v. JK.Narayanan) by judgment dated 1.4.2004.7. Mr.N.Murali Kumaran, learned senior standing counsel appearingfor the Revenue, invited our attention to the decision of a Division Benchof the Madhya Pradesh High Court in Dr.Brijesh Lahoti v. Commissioner ofIncome-tax [(2006) 282 ITR 349], to sustain the order of the assessingofficer treating the income admitted by the assessee as undisclosedincome. Admittedly, in the case before the Madhya Pradesh High Court,referred supra, there was no material to establish that the assessee haddisclosed his income before the date of search, that means, the return wasfiled after the date of search by the department. Therefore, the decisionof the Madhya Pradesh High Court in Dr.Brijesh Lahoti v. Commissioner ofIncome-tax [(2006) 282 ITR 349], cited supra, has no application to thefacts of the present case. https://hcservices.ecourts.gov.in/hcservices/ Accordingly, finding no question of law arises for consideration, theabove tax case appeal is dismissed. Sd/Asst.Registrar/true copy/Sub Asst.RegistrarsraTo1.The Assistant Registrar,Income Tax Appellate TribunalBench "D", Chennai.2.The Secretary, Central Board of Direct Taxes, New Delhi.3.The Commissioner of Income Tax (Appeals), Coimbatore.4.The Deputy Commissioner of Income-tax, Central Circle, Salem.1 cc To Mr.N.Muralikumaran, Advocate, SR.19259.T.C.(A) No.262 of 2007 VRK(CO)RVL 10.04.2007