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2014 (8) TMI 1258 - AT - Income TaxRevision u/s 263 - Computation of undisclosed income of the block period - case of the assessee falls in provisions of section 158BB(1)(ca) which is according to the amendment by Finance Act 2002 wherein such income is to be included in the block assessment order - HELD THAT - Return for the assessment year 2002-03 filed on 01.09.2004 declaring income was non-est but it was regularized by the AO by issuing notice u/s. 148 of the IT Act and the income declared therein was accepted vide assessment order dated 29.03.2006 u/s. 143(3)/148 and income declared for assessment year 2002-03 was accepted. Equally it is also a fact that the assessee while filing the non-est return on 01.09.2004 declaring income had deposited only Rs. 5, 71, 000/- as advance tax on 14.03.2002. Admittedly no other advance tax has been paid by the assessee. According to the Income-tax Act advance tax could be paid latest by 15.03.2002 for the assessment year 2002-03. Therefore the letters written by the assessee later on for adjustment of tax from the seized cash etc. could not be construed as payment of advance tax for the remaining amount. The assessee in the computation of income filed with the return of income also made the same request that since the assessee is not in a position to liquidate the present demand of tax therefore requested the department for adjustment of the cash seized by the department for payment of tax. Such request would also not absolve the assessee from making payment of advance tax in accordance with the IT Act before expiry on 15.03.2002. Thus considering the facts of the case in the light of the decision of Hon ble Supreme Court in the case of A.R. Enterprises 2013 (1) TMI 345 - SUPREME COURT we are of the view that the assessee could be given benefit of such income to be considered as disclosed income on which he has paid the advance tax of Rs. 5, 71, 000/- and the same could not be considered as undisclosed income within the meaning of section 158BB. CIT was therefore not justified in directing the AO to include entire income in the block assessment order. We accordingly set aside the order of the ld. CIT u/s. 263 to the extent that the AO shall not consider such income as undisclosed income in block period on which the assessee had paid advance tax. AO shall make necessary computation/determination of such disclosed income on which the advance tax is paid after giving reasonable and sufficient opportunity of being heard to the assessee. The disclosed income in proportion to which advance tax has been paid shall be excluded from the addition to be made in the block assessment order and whatever undisclosed income is left or determined thereafter will be added in the block assessment. The AO thereafter shall make necessary amendment in the order u/s. 143(3)/148 dated 29.03.2006 and shall reduce the undisclosed income from the computation of income which has been added in the block assessment order. The impugned order u/s. 263 to that extent is modified accordingly. Appeal of the assessee is partly allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are: 1. Whether the income declared by the assessee for the assessment year 2002-03, filed after the due date, should be included as undisclosed income in the block assessment under Section 158BB(1)(ca) of the Income Tax Act. 2. The validity and implications of the CIT's order under Section 263 of the IT Act, which set aside the block assessment order by the AO, directing inclusion of the income as undisclosed. 3. The impact of the assessee's payment of advance tax and the subsequent actions by the Income Tax Department on the assessment of undisclosed income. ISSUE-WISE DETAILED ANALYSIS 1. Inclusion of Income as Undisclosed Income Relevant legal framework and precedents: The relevant legal provisions are Sections 158BB(1)(ca) and 158B(b) of the IT Act, which define undisclosed income and the computation of such income for block assessments. The case also references decisions from the Delhi High Court and the Supreme Court regarding the interpretation of undisclosed income and the significance of advance tax payments. Court's interpretation and reasoning: The Tribunal considered the fact that the return for the assessment year 2002-03 was filed after the due date and was thus non-est under Section 139(1). However, the Tribunal also noted that the delay in filing was partly due to the time taken by the department to supply seized documents. Key evidence and findings: The search was conducted before the due date for filing the return, and the assessee had paid advance tax of Rs. 5,71,000/-. The Tribunal found that the assessee had the intention to disclose income to the extent of the advance tax paid. Application of law to facts: The Tribunal applied the principles from the Supreme Court's decision in ACIT vs. A.R. Enterprises, which emphasized the relevance of advance tax payments in determining the intention to disclose income before the due date for filing returns. Treatment of competing arguments: The Tribunal weighed the CIT's reliance on Section 158BB(1)(ca) against the assessee's argument that the income was disclosed in regular books of account and that advance tax was paid. The Tribunal found that the CIT's directive to include the entire income as undisclosed was not justified. Conclusions: The Tribunal concluded that the income on which advance tax was paid should not be considered undisclosed. The AO was directed to exclude this income from the block assessment. 2. Validity of the CIT's Order under Section 263 Relevant legal framework and precedents: Section 263 of the IT Act allows the CIT to revise any order if it is erroneous and prejudicial to the interests of revenue. Court's interpretation and reasoning: The Tribunal found that the CIT's order was not entirely justified because it failed to consider the implications of the advance tax payment and the timing of the search relative to the due date for filing returns. Key evidence and findings: The Tribunal noted that the CIT's order did not adequately address the fact that the assessee had maintained regular books of account and had paid advance tax. Application of law to facts: The Tribunal applied the principles from relevant case law to determine that the CIT's directive to include the entire income as undisclosed was excessive. Treatment of competing arguments: The Tribunal balanced the CIT's emphasis on the late filing of the return against the assessee's compliance with advance tax obligations and the maintenance of regular accounts. Conclusions: The Tribunal modified the CIT's order, directing the AO to exclude the income corresponding to the advance tax paid from the block assessment. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: "The Tribunal concluded that the income on which advance tax was paid should not be considered undisclosed. The AO was directed to exclude this income from the block assessment." Core principles established: The decision emphasizes the importance of considering advance tax payments and the timing of searches relative to filing deadlines when determining undisclosed income. Final determinations on each issue: The Tribunal partially allowed the assessee's appeal, directing that only the income on which advance tax was not paid should be treated as undisclosed. The AO was instructed to adjust the block assessment accordingly.
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