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Wednesday, January 16, 2013

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? - 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. - Section 158BB(3) of the Act states- (3) The burden of proving to the satisfaction of the Assessing Officer that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee.- the payment of Advance Tax, which is based upon estimated income, cannot tantamount to the disclosure of the total income, which must be declared in the return. = mere deduction of tax at source, also, does not amount to disclosure of income, nor does it indicate the intention to disclose income most definitely when the same is not disclosed in the returns filed for the concerned assessment year. 45. Consequently, we allow the appeals; set aside the impugned judgments and answer the question formulated by the High Court, extracted in para 6 (supra), in favour of the Revenue. The Revenue shall be entitled to costs, quantified at Rs.50,000/- in each set of appeals.



                                                     REPORTABLE
|IN THE SUPREME COURT OF INDIA                                     |
|CIVIL APPELLATE JURISDICTION                                      |
|CIVIL APPEAL  NO.2688 OF 2006                                     |
|                                                                  |
|THE ASSISTANT COMMISSIONER OF INCOME|—    |      APPELLANT        |
|TAX, CHENNAI                        |     |                       |
|                                                                  |
|VERSUS                                                            |
|M/S A.R. ENTERPRISES                |—    |RESPONDENT             |

                                    WITH
                        CIVIL APPEAL NO.3127 OF 2006,
                        CIVIL APPEAL NO.3848 OF 2006,
                        CIVIL APPEAL NO.2580 OF 2010,

                        CIVIL APPEAL NO. 270  OF 2013
                  (Arising Out of SLP (C) NO.12537 of 2006)

                                     AND

                        CIVIL APPEAL NO.  271 OF 2013
                  (Arising Out of SLP (C) NO.7635 of 2008)


                               J U D G M E N T


D.K. JAIN, J.

1. Leave 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.   M/s   A.R.
   Enterprises, were seized.
On scrutiny, the Assessing Officer found  that
   though the assessee had taxable income for the assessment  year  1995-96,
   no return of income had been filed (due to be filed  on  or  before  31st
   October, 1995) till the date of search.
 Based on the material  seized  by
   virtue of the aforesaid search, the Assessing Officer was satisfied  that
   the assessee had not disclosed their income pertaining to the  assessment
   year  1995-96.  
Accordingly  (without  recording  any  reasons  for   his
   satisfaction), he  initiated  action  under  Section  158BD  of  the  Act
   requiring the assessee to file their return  of  income.   
The  assessee,
   after filing return  for  the  block  period  (ten  years  preceding  the
   previous year),  which  covered  assessment  years  1993-94  to  1995-96,
   pointed out that they had already filed returns for the assessment  years
   1993-94 and 1994-95. 
They objected to action initiated under Chapter XIVB
   of the Act on the ground that in relation to the assessment year 1995-96,
Advance Tax had already been paid in three installments  and,  therefore,
 income for that period could not be deemed to be undisclosed.

4. Rejecting the plea of the assessee,  the  Assessing  Officer  formed  the
   opinion that the assessee had failed to file the return as on the date of
   search, and the seized documents did show income, which had not  been  or
   would not have been declared.  
Accordingly, he proceeded to compute total
   undisclosed income for the block period 1993-94 to 1995-96 (upto the date
   of search), treating the income returned by the assessee for  the  period
      1995-96 as NIL, as stipulated in Section 158BB (1)(c) of the Act.

5. Against the said order, the  assessee  preferred  an  appeal  before  the
   Tribunal.
Accepting the stand of the assessee, the Tribunal allowed  the
   appeal, and held that having paid  the  Advance  Tax,  the  assessee  had disclosed his income for  the  relevant  assessment  year.  
The  Tribunal
   observed thus:


      “Now coming to the facts of the present case,  as  stated  supra,  the
      assessee has not filed his return in time, but even  after  that  date
      the assessee has filed his return voluntarily.  
Moreover not only that
      the assessee has also estimated his  income  for  the  year  and  paid
      advance tax thereon as detailed below:


      |15.09.1994       |Bank of Baroda,     |Rs.1,60,000     |
|                 |T.Nagard.           |                |
|12.12.1994       | -do-               |Rs.1,60,000     |
|16.03.1994       | -do-               |Rs.1,60,000     |
|                 |                    |Rs.4,80,000     |


      This would indicate 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 Advance Tax by itself did not establish the intention  to
   disclose the income.  In support of the proposition, reliance was  placed
   on the decision of the High Court of Madras in B. Noorsingh Vs. Union  of
   India & Ors.[1].          
 In that judgment, the High Court had observed:
      “…Counsel submitted that in cases (sic) whereas in  the  case  of  the
      present petitioner, the assessee had paid advance  tax,  such  payment
      would clearly indicate his intention to disclose  his  income  and  it
      could not be said that  such  person  would  not  have  disclosed  his
      income. The payment of advance tax by itself  does  not  establish  an
      intent to disclose the income. The disclosure is to be made by  filing
      the return. Even in search cases where the time for filing the  return
      under section 139(1) has not expired, income disclosed in the books of
      account is not treated as undisclosed income. All that  is  denied  to
      the assessee in search cases is the opportunity to file a return after
      the period specified in section 139(1) and to claim  that  the  income
      that he would have disclosed in a belated return is not to be regarded
      as undisclosed income. The reason  for  denying  such  opportunity  in
      search cases is obvious. After having suffered a search, the  assessee
      is not to be enabled to escape the  consequences  of  his  failure  to
      disclose all his income by filing a return after the search and  after
      the expiry  of  the  time  prescribed  under  section  139(1)  and  by
      disclosing therein income which had remained undisclosed upto the date
      of the search.”

8. Revenue’s plea did not find favour  with  the  High  Court.   Inter-alia,
   observing  that  payment  of  Advance  Tax  itself  necessarily   implies
   disclosure of the income on which the advance is  paid,  the  High  Court
   held as follows:
      “Under clause (d) of sub-section(1) of section 158BB  while  assessing
      the aggregate of the total income, the income recorded in the books of
      account and other documents maintained in  the  normal  course  on  or
      before the date of the search or requisition relating to such previous
      year shall be taken into consideration where the previous year has not
      ended or the date of filing the return of the income under sub-section
      (1) of section 139 has not expired.  When the assessee is required  to
      file the self-assessment for payment of the  advance  tax  before  the
      income-tax authorities the return of assessment would fall within  the
      documents maintained 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,
   seizure and requisition which were resorted to for the conduct of  search
   at the premises of M/s A.R. Mercantile Pvt. Ltd. For  the  evaluation  of
   the material seized during the operation or  proceedings  under  Sections
   132 or 132A of the Act, as the case may be, the provisions  contained  in
   Chapter XIV-B come into play. This chapter, consisting of  sections  158B
   to 158BH  was  inserted  by  the  Finance  Act,  1995  with  effect  from
   1.07.1995. The heading of Chapter  XIV-B  reads  “Special  Procedure  for
   Assessment of Search Cases”. It was  introduced  for  the  assessment  of
   undisclosed income determined as a result of  search  carried  out  under
   Section 132 of the Act or requisitioning of  documents  or  assets  under
   Section 132A of the Act. The chapter is a self-contained  code  and  gets
   attracted as a result of search proceedings initiated by the  income  tax
   authorities, under Section 132 of  the  Act,  notwithstanding  any  other
   provisions of the Act except to the extent provided for in the chapter.

12. In the facts before us, resort to this chapter was required to  be  made
   since on conduct of search at the premises of M/s  A.R.  Mercantile  Pvt.
   Ltd.,  documents  of  M/s  A.R.  Enterprises,  i.e.  the  assessee   were
   recovered, that indicated non-disclosure of income by the latter. In such
   a scenario, Section 158BD gets attracted, which reads as follows:
       “Undisclosed income of any other person.

      158BD. Where the Assessing Officer is satisfied that  any  undisclosed
      income belongs to any person, other than the person  with  respect  to
      whom search was made under section 132 or whose books  of  account  or
      other documents or any assets were requisitioned under  section  132A,
      then, the books of  account,  other  documents  or  assets  seized  or
      requisitioned shall be handed over to  the  Assessing  Officer  having
      jurisdiction over such other person and that Assessing  Officer  shall
      proceed [under section  158BC]  against  such  other  person  and  the
      provisions of this Chapter shall apply accordingly.”



13. A bare reading of the afore-extracted provision makes it clear that  the
    condition  precedent  for  invoking  a  block  assessment  is  a  search
   conducted under Section 132, or documents or assets  requisitioned  under
   Section 132-A. Moreover, Section 158BD permits  the  application  of  the
   provisions of this chapter only on  the  satisfaction  of  the  assessing
   officer that the seized documents show undisclosed  income  of  a  person
   other than 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[2].,  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[3],  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  regular
   assessments covering the previous years  falling  in  the  block  period,
   intended to provide a mode of assessment of undisclosed income, which has
   been detected as a result  of  search.  Hence,  from  the  aforementioned
   discussion it is clear that a valid search under Section 132 of  the  Act
   is a sine qua non for invoking block assessment proceedings under Chapter
   XIVB.  Further according to  Section  158BD  of  the  Act  the  assessing
   officer must record his or her satisfaction 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.

15. It seems that these requisites were  in  fact  not  adhered  to  in  the
   present case. During the course  of  hearing,  learned  counsel  for  the
   assessee did contend that the Revenue did not have jurisdiction to invoke
   Chapter XIVB of the Act, against the assessee. According to  the  learned
   counsel, before initiating proceedings under Section 158BD  of  the  Act,
   the  assessing  officer  had  not  recorded  his  satisfaction  that  any
   undisclosed income belonged to the assessee or that the assessee did  not
   have the intention to disclose their income. Hence, the block  assessment
   proceedings against the assessee should  be  quashed.   However,  we  are
   unable to appreciate the submission of the learned counsel at this stage,
   since the same was never urged before the High Court  and  the  Tribunal.
   Hence, we refrain from making any observations on a contention  that  had
   never been argued before the High  Court  and  the  Tribunal.   We  shall
   restrict our opinion strictly to the issue before us,  viz.  whether  the
   payment of Advance Tax for the relevant assessment year is tantamount  to
   disclosure of income for the purpose of application of  Chapter  XIVB  of
   the Act.

16. The relevant provisions for assessment,  computation  and  procedure  of
   block assessment, which would  come  into  play  on  the  application  of
   Section 158BD, in their erstwhile form at  the  relevant  time,  read  as
   follows: -
      “Assessment of undisclosed income as a result of search.

      158BA. (1) Notwithstanding anything contained in any other  provisions
      of this Act, where after the 30th  day  of  June,  1995  a  search  is
      initiated under section 132 or books of account,  other  documents  or
      any assets are requisitioned under section 132A in  the  case  of  any
      person, then, the  Assessing  Officer  shall  proceed  to  assess  the
      undisclosed income in accordance 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  conducted
      under section 132 or any requisition was made under section 132A,  and
      includes, in the previous year in which such search was  conducted  or
      requisition made, the period up to the date  of  the  commencement  of
      such search or, as the case may be, the date of such requisition;

      (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.”
                                             [Emphasis supplied]


18. The genesis of the issue  before  us  lies  within  the  folds  of  this
   section. Sections 158BD and 158BC, along with the rest of Chapter  XIV-B,
   find application only in the event of discovery of  “undisclosed  income”
   of an assessee. Undisclosed income is defined by  Section  158B  as  that
   income “which has not been or would  not  have  been  disclosed  for  the
   purposes of this Act”. The legislature has chosen to define  “undisclosed
   income”  in  terms  of  income  not  disclosed,  without  providing   any
   definition of “disclosure” of income in the first place. We  are  of  the
   view that the only way of disclosing income, on the part of an  assessee,
   is through filing of a return, as stipulated in the Act, and therefore an
   “undisclosed income” signifies income not stated  in  the  return  filed.
   Keeping that in mind, it seems that the legislature  has  clearly  carved
   out two scenarios for income to be deemed as undisclosed: (i)  where  the
   income has clearly not been disclosed and (ii) where the income would not
   have been disclosed. If a situation is covered by any  one  of  the  two,
   income would be undisclosed in the eyes of the Act and hence  subject  to
   the machinery provisions of Chapter XIVB. The second category, viz. where
   income would not have been  disclosed,  contemplates  the  likelihood  of
   disclosure; it is a presumption of the intention of the assessee since in
   concluding that an assessee would or would not have disclosed income, one
   is ipso facto making a statement with  respect  to  whether  or  not  the
   assessee possessed the intention to do the same. To gauge this,  however,
   reliance must be placed on the surrounding facts and circumstances of the
   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  whether  an  assessee  intended  to
   disclose. An assessee is entitled to make the legitimate claim that  even
   though the search or the documents recovered, show an  income  earned  by
   him, he has paid Advance Tax for the relevant assessment year and has  an
   opportunity to declare the total income, in the return of  income,  which
   he would file by the due date. Hence, the fulcrum of such a  decision  is
   the due date for filing of return of income  vis-à-vis  date  of  search.
   Payment of Advance Tax may be a relevant factor in  construing  intention
   to disclose income or filing return as long as the assessee continues  to
   have the opportunity to file return and disclose his income and not  past
   the due date of filing return. Therefore, there can be no generic rule as
   to the significance of payment of Advance Tax in construing intention  of
   disclosure of income. The same depends on the  facts  of  the  case,  and
   hinges on the positioning of the search operations qua the due  date  for
   filing returns.

20. Thus, at the very  outset,  in  our  view,  the  question  that  whether
   payment of Advance Tax by an assessee per se is tantamount to  disclosure
   of total income, for the relevant assessment year, must  be  answered  in
   the negative. On further scrutiny, we find yet another  reason  to  opine
   so. Payment of  Advance  Tax  and  filing  of  return  are  functions  of
   completely different notions of income i.e. estimated  income  and  total
   income respectively. The payment of Advance Tax is based on an estimation
   of the total income that is chargeable to tax and not on the total income
   itself.


21. Section 2(45) of Act defines “total income” as-
      "total income" means the total amount of income referred to in section
      5, computed in the manner laid down in this Act ;”



22. Section 5 of the Act lays down the “scope of total income” as-

      “5. (1) Subject to the provisions of this Act, the total income of any
      previous year of a person who is a resident includes all  income  from
      whatever source derived which—


      (a)  is received or is deemed to be received in India in such year  by
      or on behalf of such person ; or
      (b)  accrues or arises or is deemed to accrue or arise to him in India
      during such year ; or
      (c)  accrues or arises to him outside India during such year :…”



23. Section 158BB(1) of the  Act  provides  the  method  of  computation  of
   undisclosed income for a block period. It is significant to note 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, as nil

25. Further, the explanation to Section 158BB(1) reads-

      “Explanation: For  the  purposes  of  determination   of   undisclosed
      income,—


      (a) the total income or loss of each  previous  year  shall,  for  the
      purpose of aggregation, be taken as the total income or loss  computed
      in accordance with the provisions of Chapter IV without giving  effect
      to set off of brought forward losses under Chapter  VI  or  unabsorbed
      depreciation under sub-section (2) of section 32;
      (b) of  a  firm,  or  its  partners,  the  method  of  computation  of
      undisclosed income and its allocation to  the  partners  shall  be  in
      accordance with the method adopted for determining the assessed income
      or returned income for each of the previous years falling  within  the
      block period;...”


26. Hence, the computation of  “undisclosed  income”  for  the  purposes  of
   Chapter XIVB has to be construed in terms of the “total income” received,
   accrued, arisen; or which is deemed to have  been  received,  accrued  or
   arisen in the previous year, and is computed  according to the provisions
   of the Act. According to Section 139(1) of the Act, every person  who  is
   assessable under the Act, must file a return declaring his or  her  total
   income during the previous year on or before the due date, for assessment
   under Section 143 of the Act. Hence, the ‘disclosure of  income’  is  the
   disclosure of the total income in  a  valid  return  under  Section  139,
   subject to assessment and chargeable to tax under the provisions  of  the
   Act. It is important to bear in mind that total income is  distinct  from
   the estimated income, upon the basis of which, Advance Tax is paid by  an
   assessee. Advance Tax is based on estimated income, and hence, it  cannot
   result in the disclosure of the total income assessable and chargeable to
   tax.

27. Before we proceed further to elaborate upon this distinction,  it  would
   be useful to refer to the provisions relating to payment of  Advance  Tax
   under the Act. Chapter XVII of the Act, which deals with “Collection  and
   Recovery of Tax”, contains provisions for the payment of Advance Tax  and
   tax deducted at source. Advance Tax is the tax payable on  the  estimated
   total income of the relevant financial year which is chargeable to tax in
   the assessment year but is payable in that very financial year.

28. Section 207 of the Act lays down the liability for  payment  of  Advance
   Tax as:-

          “207.  Tax shall be payable in advance during 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 actual total income?

31. Section 210(1) of the Act refers to the payment of Advance  Tax  by  the
   assessee of his own accord:-
      “210. (1) Every person who is liable to pay advance tax  under section
      208 (whether or not he has been previously assessed by way of  regular
      assessment) shall, of his own accord, pay, on or before  each  of  the
      due  dates  specified  in section  211,  the  appropriate  percentage,
      specified in that section, of the advance tax on his  current  income,
      calculated in the manner laid down in section 209.”


32. Section 209(1)(a) lays down the method of computation of Advance Tax  to
   be paid by an assessee as follows:
      “209. [(1) The amount of advance tax payable by  an  assessee  in  the
      financial year shall, subject to the provisions  of  sub-sections  (2)
      and (3), be computed as follows, namely :—


      (a)  where the calculation is made by the assessee for the purposes of
      payment of advance tax under sub-section (1) or sub-section (2) or sub-
      section (5) or sub-section (6) of section 210, he shall first estimate
      his current income and income-tax thereon shall be calculated  at  the
      rates in force in the financial year..”




33. According to Section 210(1) of the Act, every person who  is  liable  to
   pay Advance Tax under Section 208 (whether or not he has been  previously
   assessed by way of regular assessment) shall,  of  his  own  accord,  pay
   Advance Tax on his “current income”, calculated in the manner  laid  down
   in section 209. Further according  to  Section  209(1)(a),  the  assessee
   shall first estimate his “current income” and thereafter pay  income  tax
   calculated on this estimated income on the rates in force in the relevant
   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  of  the  Act.   Needless  to  emphasise  that
   payment of Advance Tax does not absolve an assessee from an obligation to
   file return disclosing total income for the relevant assessment year.  In
   short, the disclosure of total income  by  the  filing  of  return  under
   Section 139 of the Act is mandatory even after the payment of Advance Tax
   by an assessee, since the “current income” which forms the basis  of  the
   Advance Tax is a mere estimation and not the final total income  for  the
   relevant assessment year liable to be assessed.
34. In Brij Lal & Ors. Vs. Commissioner of Income Tax,  Jalandhar[4],  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 advance tax  in  respect
      of incomes referred to in Section 208. However, advance  tax  paid  is
      adjustable towards the tax due. Advance tax is collected  even  before
      the income tax becomes due and payable. By its  very  nature,  advance
      tax is pre-assessment collection of taxes either by deduction  of  tax
      at source or by payment of  advance  tax  which  has  to  be  adjusted
      towards income tax levied on the total income. The above  two  methods
      of realisation even before any assessment  is  authorised  by  Section
      4(2) are incorporated in Chapter XVII which deals with “collection and
      recovery”.

      15. Now, Chapter XVII deals with “collection and recovery”. It  covers
      tax deduction at source and advance  payment  of  taxes  (see  Section
      190). Part C Chapter XVII deals with advance payment of taxes. Section
      207 refers to liability to pay advance tax whereas Section  209  deals
      with computation of  advance  tax.  Section  215  refers  to  interest
      payable by the assessee. Section 210(1) inter alia provides that every
      person who is liable to pay interest (sic advance tax)  under  Section
      208, shall of his own accord pay, on each of the due  dates  specified
      in Section 211, the appropriate  percentage  of  advance  tax  on  his
      current income calculated in the manner under Section 209.”


35. A catena of decisions by various High Courts  has  reiterated  that  the
   Advance Tax payable under Chapter XVII is based on  an  estimate  of  the
   total income of the assessee for the relevant financial year, and is  not
   the final “total income” which must be disclosed for  assessment  through
   the filing of a return under Section 139 of  the  Act  in  the  following
   assessment year. 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[5], Bill & Peggy  Marketing  India
   Pvt. Ltd. Vs. Assistant Commissioner of Income Tax[6],  Prime  Securities
   Ltd. Vs. Assistant Commissioner of Income Tax[7], Commissioner of  Income
   Tax  Vs.  Nilgiri  Tea  Estate  Ltd.[8],  Kwality   Biscuits   Ltd.   Vs.
   Commissioner  of  Income  Tax[9]  which  was  subsequently  affirmed   in
   Commissioner of Income Tax Vs. Kwality Biscuits Ltd.[10]].

36. The Punjab and Haryana High Court in  Commissioner  of  Income  Tax  Vs.
   Upper India  Steel  Mfg.  and  Engg.  Co.  Ltd.[11]  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 of the year were  to  be  accepted,
      then no assessee who maintains  regular  books  of  account  would  be
      liable to pay advance tax as in those cases also, income can  only  be
      determined after the close of the books of account at the end  of  the
      year.”



37. We are, therefore, of the view that 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.  To  repeat,  the  vital  distinction  being  that  the
   “current income” is an estimation or  approximation,  which  may  not  be
   accurate or final;  whereas  the  “total  income”  is  the  exact  income
   disclosed in a valid return, assessable by the Revenue. The fact that the
   “current income” is an estimation implies that it is  not  final  and  is
   subject to further adjustments in the form of additions or reductions, as
   the case may be, and would have to be  succeeded  by  the  disclosure  of
   final and total income in a valid return. 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, we are unable to accept that payment  of  Advance  Tax
   based on “current income” involves the disclosure of “total  income”,  as
   defined in Section 2(45) of the Act, which has to be stated in the return
   of income. The same is evidenced  in  the  scheme  of  Chapter  XIVB,  in
   particular.

38. Section 158BB(3) of the Act states-
      (3) The burden of proving to the satisfaction of the Assessing Officer
      that any undisclosed income had already been disclosed in  any  return
      of income filed by the assessee before the commencement of  search  or
      of the requisition, as the case may be, shall be on the assessee.



39. Thus, for the  purposes  of  computation  of  undisclosed  income  under
   Chapter XIVB, 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 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 respondent-assessee had not filed its return of  income  by  the  due
   date.
 It is only when block assessment proceedings were initiated by  the
   assessing officer, that the  assessee  filed  its  return  for  the  said
   assessment year on 11th July,  1996  under  Section  158BC  of  the  Act,
   showing its total income as Rs.7,02,768/-.
The  assessee  claimed,  that
   since Advance Tax had been paid in three installments, it could not  have
   been said that the income had not been disclosed or  that  there  was  no
   intention to disclose income.
We have already held that  the  payment  of
   Advance Tax, which is based upon estimated income, cannot  tantamount  to
   the disclosure of the total income, which must be declared in the return.
   In our opinion, the fact that the assessee had not filed  its  return  of
   income by the due date, the Assessing Officer  was  correct  in  assuming
   that the assessee would not have disclosed  its  total  income.  For  all
   these reasons, the decision of the High Court cannot be sustained.
42. Lastly, since C.A. No. 2580/2010 refers to a slightly  different  issue,
   we deem it fit to record our observations with respect to  the  same.  In
   this appeal, the issue is whether tax deducted at source (and not payment
   of Advance Tax) amounts to the disclosure of income.

43. Section 190 of the Act states-
      190 (1) Notwithstanding that the regular assessment in respect of  any
      income is to be made in a later  assessment  year,  the  tax  on  such
      income shall be payable by deduction [12][or collection] at source  or
      by advance payment  [13][or  by  payment  under  sub-section  (1A)  of
      section 192], as the case may be, in accordance with the provisions of
      this Chapter.

      (2) Nothing in this section shall prejudice the charge of tax on  such
      income under the provisions of sub-section (1) of section 4.



44. Since the tax  to  be  deducted  at  source  is  also  computed  on  the
   estimated income of an assessee for the  relevant  financial  year,  such
   deduction cannot result in the disclosure of the  total  income  for  the
   relevant assessment year.
Subject to the  monetary  limit  of  the  total
   income, every person is obligated to file his return of income even after
   tax is deducted at source.
Hence, for the reasons stated in the preceding
   paragraphs, we are of the opinion that
mere deduction of tax  at  source,
   also, does not amount to disclosure of income, nor does it  indicate  the
   intention to disclose  income  most  definitely  when  the  same  is  not
   disclosed in the returns filed for the concerned assessment year.

45. Consequently, we allow the appeals; set  aside  the  impugned  judgments
   and answer the question formulated by the High Court, extracted in para 6
   (supra), in favour of the Revenue.  The  Revenue  shall  be  entitled  to
   costs, quantified at Rs.50,000/- in each set of appeals.


|                            |……..………………………………….                      |
|                            |(D.K. JAIN, J.)                         |
|                            |                                        |
|                            |                                        |
|                            |……..………………………………….                      |
|                            |(H.L. DATTU, J.)                        |
|                            |                                        |
|                            |                                        |
|                            |……..………………………………….                      |
|                            |(JAGDISH SINGH KHEHAR, J.)              |
|                                                                     |
|NEW DELHI,                  |                                        |
|JANUARY 14, 2013.           |                                        |

ARS
-----------------------
[1]    (2001) 249 ITR 378
[2]    (2007) 3 SCC 794
[3]    (2010) 3 SCC 259 at page 264
[4]    (2011) 1 SCC 1
[5]    [2003] 264 ITR 744 (Raj)
[6]    191 (2012) DLT 249
[7]    [2011] 333 ITR 464 (Bom)
[8]    [2009] 312 ITR 161 (Ker)
[9]    [2000) 243 ITR 519 (Kar)
[10]   [2006] 284 ITR 434 (SC)
[11]   [2005] 279 ITR 123 (P&H)
[12]   Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-6-
1988.
[13]   Inserted by the Finance Act, 2002, w.e.f. 1-6-2002.

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