Commissioner of Income Tax vs Jugal Kishore Gupta

Rajes Kumar, J.—This is an appeal u/s 260A of the IT Act, 1958 (hereinafter referred to as ''the Act'') against the order of the Tribunal dt. 21st April, 2006 arising from the appeal No. 699/Luck/2002.

The opposite party assessee (hereinafter referred to as ''the assessee'') was a partner in a firm M/s Sasta Vastra Bhandar. A search and seizure was conducted by the IT officials on 9th Feb., 2000 at the residential premises of the assessee as a result of which the proceeding u/s 158BC was initiated asking the assessee to file the return of the undisclosed income for the period of the asst. yrs. 1990-91, 1991.-92, 1994-95, 1995-96 and 1996-97. The claim of the assessee was that the total income for the aforesaid period was Rs. 2,22,365 comprising of income of Rs. 30,770 for the asst. yr. 1990-91, Rs. 47,640 for the asst. yr. 1991-92, Rs. 47,410 for the asst. yr. 1994-95, Rs. 52,725 for the asst. yr. 1995-96 and Rs. 43,820 for the asst. yr. 1996-97. The assessee could not file the return as the income in each year was below the taxable limit and as such there was no obligation u/s 139(1) to file the return. It was also submitted that M/s Sasta Vastra Bhandar was the IT assessee and assessed to tax for the aforesaid years and in the balance sheet and the capital accounts of the partners, the income from the share income and interest income was disclosed and in this view of the matter there was no undisclosed income.

The assessee had made investment in Kisan Vikas Patra in his own name and in the name of family members. The assessee admitted the investments made in Kisan Vikas Patra in his own name and in the name of wife and other family members as undisclosed income and accordingly filed the block return of the undisclosed income for Rs. 5,10,400.

The assessing authority has passed the block assessment order on 28th Feb., 2002 u/s 158BC of the Act. The assessing authority has not accepted the plea of the assessee in respect of the amount of Rs. 2,22,365 which was the share and interest income frdm M/s Sasta Vastra Bhandar and assessed to tax u/s 158BC treating it as undisclosed income for the asst. yrs. 1990-91, 1991-92, 1994-95, 1995-96 and 1996-97. Apart from the tax levied @ 60 per cent of income assessed surcharge @ 10 per cent has also been levied. Aggrieved by the assessment order, assessee preferred an appeal before the CIT(A)-III, Lucknow. The CIT(A) vide order dt. 14th May, 2002 allowed the appeal in part. The CFT(A) held that M/s Sasta Vastra Bhandar was a partnership firm in which the assessee was one of the partners and was regularly assessed to tax and the share and interest income from the said firm were disclosed in the return of the firm and deleted the addition relying upon the decision of Bombay High Court in the case of Commissioner of Income Tax Vs. Shamlal Balram Gurbani, . The surcharge @ 10 per cent has been deleted on the ground that the proviso to Section 113 under which the surcharge was chargeable, was inserted by Finance Act, 2002 w.e.f. 1st June, 2002, therefore, the surcharge was not leviable for the block period 1st April, 1989 to 9th Feb., 2000. Aggrieved by the order of CIT(A) III, Lucknow, the Asstt. CIT filed appeal No. 699/Luck/2002 before the Tribunal. The Tribunal by the impugned order remanded back the matter, so far as the levy of surcharge is concerned, on the ground that the dispute has been referred to the Special Bench of Tribunal for adjudication in the case of Merit Enterprises v. Dy. CIT (2006) 102 TTJ (Hyd) 748 : (2006) 101 ITD 1 (Hyd)(SB). So far as the addition of Rs. 2,22,365 is concerned the Tribunal upheld the order of CIT(A). Being aggrieved by the order of Tribunal present appeal has been filed. Appeal has been admitted on following questions:

Whether on the fact and circumstances of the case, the Hon''ble Tribunal was justified in law in setting aside the issue regarding the levy of surcharge to the file of the AO, without appreciating that the proviso to Section 113 inserted by the Finance Act, 2002 is only clarificatory in nature and the Finance Act of the relevant year clearly provided for levy of surcharge on Income Tax calculated as per the provisions of Section 113 of the Act?

Whether on the fact and in the circumstances of the case, the Hon''ble Tribunal was justified in upholding the order of the CIT(A), who deleted the addition of Rs. 2,22,365 made on account of undisclosed income in respect of the asst. yrs. 1990-91, 1991-92, 1994-95, 1995-96 and 1996-97 as the respondent had failed to furnish the returns before the expiry of due dates, without appreciating the provisions of Section 158BB(1)(ca) according to which the income is to be taken as Nil for any previous year falling in the block period, where the due date for filing of return of income has expired and no return of income has been filed?

Whether on the facts and in the circumstances of the case, the Hon''ble Tribunal was justified in upholding the order of the CIT(A), who deleted the addition of Rs. 2,22,365 made on account of undisclosed income in respect of asst. yrs. 1990-91, 1991-92, 1994-95, 1995-96 and 1996-97, as the respondent had failed to furnish the returns before the expiry of the due dates, without appreciating that the respondent had failed to discharge the burden of proving to the satisfaction of the AO that any undisclosed income has already been disclosed in any return of income filed by the respondent before the commencement of search?

Heard Sri D.D. Chopra, learned senior standing Counsel of the Revenue and Sri Ratnesh Chandra appearing on behalf of assessee.

Learned standing Counsel submitted that the apex Court in the case of Commissioner of Income Central II Vs. Suresh N. Gupta, , has held that in a case of block assessment even prior to the amendment made in Section 113 of the Act w.e.f. 1st June, 2002 surcharge was leviable and further it has been held that the amendment made w.e.f. 1st June, 2002 was only clarificatory in nature. This view has been followed by the Division Bench of this Court in CIT v. Lakhan Lal Ahuja IT Appeal No. 121 of 2006. He further submitted that so far as the addition of Rs. 2,22,365 is concerned, the CIT(A) and the Tribunal have erred in deleting the addition inasmuch as at no point of time the assessee has disclosed the aforesaid income in the return. He further submitted that the assessee had not filed any return for the period in dispute disclosing the aforesaid income and, therefore, the aforesaid amount represented the undisclosed income liable to block assessment.

Learned Counsel for the assessee relied upon the order of the Tribunal.

So far as the question No. 1 relating to surcharge is concerned, the issue is squarely covered by the decision of the apex Court in the case of Suresh N. Gupta (supra) in which it has been held that in a case of block assessment even prior to the amendment made in Section 113 of the Act w.e.f. 1st June, 2002 surcharge was leviable. The apex Court had further held that the amendment made in Section 113 w.e.f. 1st June, 2002 is only clarificatory in nature. This being the position the surcharge was leviable on the tax of undisclosed income and, therefore, the remand of the case to the assessing authority on this issue is not justified. However, the assessing authority is directed to calculate the amount of surcharge afresh in accordance to the law.

So far as the question Nos. 2 and 3 are concerned which relate to the addition of Rs. 2,22,365 we do not find any error in the order of the Tribunal. The Tribunal has held as follows:

The facts apropos this issue are that in the relevant period, the assessee was partner in M/s Sasta Vastra Bhandar. The AO observed that for the asst. yrs. 1990-91, 1991-92, 1994-95 to 1996-97, the assessee had not furnished any evidence with regard to filing of return and the returned income claimed for the respective assessment years was as under:

------------------------------------------------- Assessment Year Revenue income claimed ------------------------------------------------- 1990-91 39,770 ------------------------------------------------- 1991-92 47,640 ------------------------------------------------- 1994-95 47,410 ------------------------------------------------- 1995-96 52,725 ------------------------------------------------- 1996-97 43,820 ------------------------------------------------- Total 2,22,365 -------------------------------------------------

He added the sum of Rs. 2,22,365 as undisclosed income of the assessee u/s 158BB of the Act. The learned CIT(A) deleted the addition following the decision of the Hon''ble Bombay High Court in the case of Commissioner of Income Tax Vs. Shamlal Balram Gurbani, , after considering the assessee''s submission that the partnership firm M/s Sasta Vastra Bhandar was regularly assessed to tax and interest received from the said firm and NSC interest was disclosed in the returns of the firm. The learned Counsel for the assessee submitted that the return of firm from which the assessee derived income had duly been filed. The assessee''s share was reflected in his capital account with the firm and, therefore, the income stood duly disclosed and could not be treated as undisclosed income. He further submitted that the income was below taxable limit and, therefore, the assessee has not filed the return of income. The learned Counsel relied on the decision of Bombay High Court in the case of CIT v. Shamlal Balram Gurbani (supra) and also (2004) 90 TTJ 623

We have carefully considered the submissions of the learned Representatives of the parties and have perused the records of the case. As per the provisions of Section 158BB, it is for the assessee to establish that income earned by it in various assessment years comprised in the block period stood duly disclosed to the Department prior to the date of search. It is not disputed that the return of firm from which interest and salary income was earned by the assessee was filed prior to the date of search and in the relevant assessment years, the income were below taxable limit. Hon''ble Bombay High Court in the case of Shamlal Balram Gurbani (cited supra) held that where income from interest salary and rent was reflected in the audited balance sheet of the respective assessment years of the firm, the said amounts cannot be treated as undisclosed income of the assessee. In view of the decision of Hon''ble Bombay High Court (supra), we uphold the order of the CIT(A). Ground is rejected.

It would be relevant to reproduce Section 158B, Section 158BA and Section 158BB(c) as below:

158B.- Definitions. - In this Chapter, unless the context otherwise requires,-

(a) ''block period'' means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted u/s 132 or any requisition was made u/s 132A and also includes the period upto the date of the commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made:

Provided that where the search is initiated or the requisition is made before the 1st June, 2001, the provisions of this clause shall have effect as if for the words ''six assessment years'', the words ''ten assessment years'' had been substituted;

(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 purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false.

158BA. Assessment of undisclosed income as a result of search�(1) Notwith standing anything contained in any other provisions of this Act, where after the 30th June, 1995, a search is initiated u/s 132 or books of account, other documents or any assets are requisitioned u/s 132A in the case of any person, then, the AO shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.

(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in Section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.

Explanation.: For the removal of doubts, it is hereby declared that-

(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period;

(b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period;

(c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.

(3) Where the assessee proves to the satisfaction of the AO that any part of income referred to in Sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under Sub-section (1) of Section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period.

158BB....

(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 the search or requisition where such entries result in computation of loss for 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).

Chapter XIV-B of the Act provides a special procedure for the assessment of search cases of undisclosed income found as a result of search. Section 158BA of the Act contemplates the assessment of undisclosed income. Section 158B(b) defines undisclosed income which says any money, bullion, jewellery or other valuable Article or thing , which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false. Section 158BB provides the computation of undisclosed income of the block period and is of procedural in nature and cannot override the provision of Section 158BA. Therefore, under Chapter XIV-B of the Act, the assessment of only undisclosed income is contemplated. Therefore, for the purposes of making the assessment under this chapter it is to be determined that what is the undisclosed income for the block period which will be followed by the computation as provided u/s 158BB of the Act. As per Section 158B(b) of the Act undisclosed income includes any money, bullion, jewellery or other valuable Article or thing which has not been or would not have been disclosed for the purpose of this Act. In our view, relevant consideration is whether the assessee has an intention to disclose the income or to evade. If on the facts and circumstances, it is established that the intent was to disclose the said income, it cannot be said to be undisclosed income. The intention of the assessee is to be considered on the facts and circumstances of each case.

In the case of Commissioner of Income Tax Vs. N. Vellaiyan, , the Division Bench of the Madras High Court following its earlier decision in the case of The Assistant Commissioner of Income Tax Vs. A.R. Enterprises, held that the income in respect of which the advance tax has been paid cannot be said to be undisclosed income.

In the case of CIT v. B.K. Agarwal ITA No. 17 of 2001, decided on 27th March, 2008, it has been held by the Division Bench of this Court that since the details of the payment of salary and commission etc., were available as per the record of the employer for the purpose of audit u/s 44AB of the Act, the tax was deducted at source and the assessee also paid advance tax and even the balance amount was paid as self-assessment tax. Therefore, there was no intention on the part of the assessee for hiding the said income from the IT Department. Merely because the return for the year under consideration could not be furnished within the specified period it cannot be said to be undisclosed income.

In the present case, Tribunal held that the return of the firm from which the interest and salary income was earned by the assessee was filed prior to the date of search and in the relevant assessment year, the income was below the taxable limit and, therefore, it cannot be said that the return was not filed to hide the income of interest and salary. The finding of the Tribunal is finding of fact based on the material on record.

In view of the above facts and circumstances and the various decisions referred hereinabove, the income of interest and salary from the firm for the block period cannot be said to be undisclosed income under the provisions of Section 158BC of the Act. The order of the Tribunal is accordingly, upheld on this issue.

In the result the appeal is allowed in part.

Substantial question No. 1 is answered in favour of Revenue and against the assessee and question Nos. 2 and 3 are answered in favour of the assessee and against the Revenue and the order of the Tribunal in this regard is upheld.