S. 158B: Despite TDS & Advance-tax, income is “undisclosed” if ROI not filed by due date

ACIT vs. M/s A. R. Enterprises (Supreme Court)

A search u/s 132 was conducted on 23.2.1996 when it was detected that though the assessee had taxable income for AY 1995-96 it had not filed a ROI and the due date (31.10.1995) had lapsed. The AO issued a s. 158BD notice directing the assessee to file a return for the block period. The assessee claimed that as it had paid advance tax on the income for AY 1995-96, the income could not be said to be “undisclosed“. The AO rejected the claim though the Tribunal and High Court accepted the assessee’s claim on the basis that payment of Advance Tax itself necessarily implies disclosure of the income on which the advance is paid. On appeal by the department to the Supreme Court, HELD reversing the Tribunal and High Court:

 

S. 158B(b) defines the expression “undisclosed income” to mean that income “which has not been or would not have been disclosed for the purposes of this Act”. The only way of disclosing income on the part of an assessee is through filing of a return and therefore an “undisclosed income” signifies income not stated in the return filed. It cannot be said that payment of Advance Tax by an assessee per se is tantamount to disclosure of total income. There can be no generic rule as to the significance of payment of Advance Tax in construing intention of disclosure of income. This depends on the time at which the search is conducted in relation to the due date for filing return. 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 because it is a case where income has clearly not been disclosed. The possibility of the intention to disclose does not arise since the opportunity of disclosure has lapsed. If search is conducted prior to the due date for filing return, the opportunity to disclose income by filing a return still persists. In such a 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 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. Also, because Advance Tax is based on estimated income, it cannot result in the disclosure of the total income assessable and chargeable to tax. The proposition that payment of Advance Tax is tantamount to disclosure of income would be contrary to the very purpose of filing of return. On facts, as the assessee had not filed the ROI by the date of search and the due date had lapsed, the income found was “undisclosed” even though advance-tax thereon had been paid. Similarly, as TDS is also computed on the estimated income of an assessee for the relevant FY, it does not amount to disclosure of income, nor does it indicate the intention to disclose income if the ROI is not filed.