ORDER
N.L. Kalra, A.M.
The revenue has filed these appeals against consolidated order of the Commissioner of income-tax (Appeals)-I, Bangalore dated 18-4-2002 in the case of all the four assessees. Since issues involved are the same, therefore, all these four appeals are being disposed of by a single consolidated order.
2. The first ground of appeal is general and will stand disposed of in view of the findings to be recorded against other grounds of appeal.
3. Ground of appeal Nos. 2 to 8 are against relief of Rs. 38,12,790 given by Commissioner (Appeals) in respect of unaccounted receipts of three incomplete projects.
Search under section 132 was conducted at the business premises of M/s. Raja Housing Ltd., a concern belonging to Raja Housing Group. Assessees are partners of some firms of this group and also Director in some companies of the group. Total undisclosed income of Rs. 1,24,49,677 has been disclosed by all the four assessees by disclosing 1/4th of the above. Sri Raja Jayashankar is father and other three assessees are his sons.
The assessing officer in his order has determined undisclosed income from the seized documents and such income has been equally apportioned amongst all the four assessees. The assessees through various firms and companies are engaged in the construction of housing projects and their sales. Up to the date of search, three housing projects were completed and, therefore, profit as evident from undisclosed receipts and expenses have been taxed as the assessee is showing profit on project completion method. There is no dispute on this issue.
4. The following three projects were not completed till the date of search and unaccounted receipts against each such project is as under:
Eshwar Hills
Rs. 13,31,395
Palm Spring
Rs. 5,31,395
Raja Heaven
Rs. 19,50,000
Rs. 38,12,790
5. The above details are available at page No. 15 of seized material A/Raja/4. In the statement dated 7-3-2000 before DDIT(Inv.) Shri Datakumar admitted that cash receipts of Rs. 91,04,540 (i.e., receipts of Rs. 38,12,290 from incomplete projects and receipts of Rs. 52,91,750 from completed projects) are not reflected in books and that the same are unaccounted. It was stated that these amounts were received from customers as advances for these projects. Unaccounted expenditure incurred on these projects as per seized documents is Rs. 63,20,750. Since receipts are less than expenditure and hence, undisclosed income has not been shown from these projects. A claim has been made through statement that deduction of Rs. 25,07,960 be allowed from the undisclosed income. As per assessing officer, all the firms and companies of this group are disclosing the income on the project completion method and hence, expenses incurred are to be taken to Balance sheet as work-in-progress and amounts received from customers are to be credited in balance sheet as advances from customers. Hence excess of expenditure over receipts cannot be allowed as deduction on the regularly followed basis of project completion method while determining undisclosed income of the block period as the projects do not stand completed till the date of search. The assessee was asked to furnish customer-wise details of advances received. Shri Dattakumar stated that the relevant details were available when such summary was prepared and now he does not have any such detail. Since these receipts have been used for explaining the unexplained expense and hence, these will constitute cash credits in the documents maintained by the assessee. Hence provisions of section 68 will be applicable and the burden is on the assessee to prove the source of such cash credits. The assessee argued that only net income from incomplete project can be taxed and only credit side cannot be considered. The assessing officer rejected the contention. As per assessing officer profit from the projects is to be considered at the time of completion of the project and hence, expenses cannot be considered during block period as these projects are incomplete. The assessee had failed to give the source of advances and hence, such receipts are taxable under section 68 of the Income Tax Act during the block period. This undisclosed income of Rs. 38,12,790 was apportioned equally amongst all the four persons.
6. The learned Commissioner (Appeals) deleted the above additions of Rs. 38,12,790 made by the assessing officer by observing as under:
“Both before the assessing officer (page 15 of the assessment order) and during the appellate proceedings a claim has been made in respect of net loss of Rs. 25,07,960 in respect of the incomplete projects, particularly because the assessees after purchasing the land have made certain expenses for development such as levelling and plotting etc. These land are lying unsold. Further since the assessing officer has already taken the unaccounted receipts i.e., Rs. 38,12,790 separately as undisclosed income, set off of the loss should be allowed. This ground however looses its significance because I have already directed the assessing officer to exclude the unaccounted receipts of Rs. 38,12,790 in the preceding para. The assessing officer has followed the correct method of computing profit from the completed projects and adding the net of unaccounted expense over and above the total receipts. These three projects are still not completed. No deduction in respect of any loss arising out of development expenses may be allowed at this stage. The assessees are free to include this amount towards the cost of development and to claim it as deduction out of the sale proceeds of the plots to determine the net figure of profit from the project.”
7. During the course of hearing before us, the learned Departmental Representative submitted that learned Commissioner (Appeals) is not justified in holding that such unaccounted receipts have already suffered tax. The assessing officer has only considered the unaccounted expenses and unaccounted receipts. For determining the excess of expenses over receipts to ascertain the undisclosed income of the assessee in meeting such expenditure, credit of this sum has been allowed. It has been considered that this sum was available on receipt side. It does not mean that such receipt has suffered tax. Such receipts are revenue in nature and if the assessee fails to explain the nature and source of such receipts then such receipts are to be taxed as undisclosed income. The learned Commissioner (Appeals) has erred in mentioning that assessing officer himself has mentioned that the unaccounted receipts of Rs. 38,12,790 are from the prospective buyers of the three incomplete projects. It is seen from the assessment order that the assessee claimed that these receipts are from the prospective buyers. The learned Commissioner (Appeals) is not correct in saying that the assessing officer should have identified the persons who have given the advances and bring the amounts to tax in their hands. It was argued that the details of alleged customers were not given by the assessee and such details were also not available in seized material. The learned Commissioner (Appeals) has failed to appreciate that the amount has been added under section 68 of the Income Tax Act. Such receipts were noted in the document which was maintained during the course of business and hence, such documents should be treated as books of account.
8. The leaned Authorised Representative on the other hand submitted as under:
“The above amounts are added in the block period by the assessing authority under section 68 of Income Tax Act, 1961. From the commencement we have been contending that the additions under section 68 of Income Tax Act is not legally justifiable, since the amounts received represent the business receipts from customers by the way of cash on the incomplete projects, namely Eshwar Hills, Palm Springs and Raja Heaven. These amounts cannot be treated as cash credits within the meaning of section 68 of the Act, since no books of account are maintained for unaccounted transactions. There is, therefore, no attempt to bring in cash credits i.e., Liabilities in the Balance Sheet, which actually should have gone into computing profit in Trading Account. The assessing officer’s view only amounts to taxing the unaccounted sales figures and not the profit. This profit has not arisen as the three projects are not yet complete. The above amounts are taken out from seized material namely Raja 4 which is only a loose sheet of paper and the same cannot be constituted as ‘Books of Account’.
To substantiate this contention we have relied upon the decisions of Supreme Court, in the case of C.B.I. v. V.C. Shukla (1998) 3 SCC 410 (SC). It is further submitted that provisions of section 68 of the Act are not applicable to the advances received for the sale of goods or property and it is applicable only to the borrowed funds-loans or deposits. The Assessing officer has also admitted these as Trading Receipts (refer to page 16para 3(b)).
The unaccounted receipts of Rs. 38,12,790 received in cash by the above four assessees as advances for sale, are accounted subsequently in the Books of Account of Raja Housing Ltd., Bangalore by debiting the four assessees in equal portion and crediting the Advance Account. Thus, the transaction has been closed during the year 2004-05.
Similarly with regard to the unaccounted expenditure on the above three projects amounting to Rs. 63,20,750 has been debited to the respective project Accounts and Credited to above four assessees, in equal proportions in the books of Raja Housing Ltd.”
9. It was also submitted that assessing officer has computed profit from completed projects and, therefore, income including deeming income under section 68 from incomplete projects cannot be included as undisclosed income for the block period. Section 68 can be invoked when there is an attempt to bring profit or taxable income into the balance sheet as a credit or liability.
10. The learned Authorised Representative further stated that in case the Tribunal is not agreeing with order of Commissioner (Appeals) in respect of the deletion of addition of Rs. 38,12,790 then assessee should get relief of Rs. 25,07,960 which is the loss suffered by them i.e., excess of expenditure over the receipts in the incomplete projects on the basis of rule 27 of Income Tax Act rules, which reads as under :
“Respondent may support order on ground decided against him. The respondent though he may not have appealed, may support the order appealed against on any of the grounds decided against him.”
11. The learned Authorised Representative relied on the following judgments in support of its contention that it can rely on ground decided against him in an appeal filed by the department in spite of the fact that assessee has neither filed appeal nor cross-objection :
Hukumchand Mills Ltd. v. CIT ( 1967) 63 ITR 233 (SC)
N.P. Saraswathi Ammal v. CIT (1982) 138 ITR 191 (Mad.)
CIT v. Edward Keventer (Successors) (P.) Ltd. (1980) 123 ITR 200 (Del)
Marolia & Sons v. CIT(1981) 129 ITR 475 (All.)
CIT v. Dehati Co-Op. Marketing-cum-Processing Society (1981) 130 ITR 504 (Punj. & Har.)
CIT v. Gilbert & Barkar Mfg. Co. (1978) 111 ITR 529 (Bom.)
CIT v. P.B. Corpn. (2004) 266 ITR 548 (Guj.)
CIT v. Smt. S. Vijayalakhsmi (2000) 242 ITR 46 (Mad.)
12. It was submitted that respondents do not own any project except Eshwar Hills Projects which is owned by R. Suchindra & R. Dattakumar. Other projects belong to Raja Housing Limited which is an independent entity and it is following project completion method for accounting its profits. Respondents are not following project completed method. Under such circumstances, cash method of accounting should have been accepted and the excess of expenditure over receipts should have been allowed as deduction as excess of income over expenditure in respect of completed project has been assessed as undisclosed income.
13. The learned Departmental Representative in his counter reply submitted:
(a) Excess of aggregated unaccounted expenses over the aggregate unaccounted receipts has been subjected to tax.
(b) Sum of Rs. 38,12,790 pertaining to 3 incomplete projects has been treated as unexplained cash credit.
(c) The above referred sum has not been subjected to tax under item (a) above.
(d) The assessing officer has not accepted that the sum of Rs. 38,12,790 was received from prospective customers.
(e) Since these receipts are also the source of unaccounted expenses incurred, hence these represented cash credits in the documents maintained by the assessee.
(h The case laws relied on by learned Authorised Representative on the issue of supporting order on the ground decided against the assessee are not relevant.
14. We have heard both the parties. Undisclosed income is defined under section 158B(b) of Income Tax Act. The definition is as under:
“‘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 or valuable article, thing entry in the books of account or other document or transaction represents wholly or partly income of property which has not or would not have been disclosed for the purposes of this Act. . .”
15. Section 158BB(2) is as under:
“In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and reference to financial year in these sections shall be considered as reference to the relevant previous years failing in the block period including the previous year ending with the date of search or requisition.”
Section 68 is as under :
“Where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income-tax as income of the assessee of that previous year.”
16. From the definition of undisclosed income, it is clear that income based on any entry in the books of account or document can be treated as undisclosed income. The Legislature in section 158B(b) has used the words ‘books of account or documents’. Hence these two words do not carry the same meaning. A document may necessarily be not a book of account. Section 68 is applicable to any entry credited in the books of account. Section 158BB(2) has not enlarged the application of section 68 to an entry credited in the document. Books of account are not defined in Income Tax Act and hence, the word is to be interpreted as it is understood in common parlance. As per decision of Punjab High Court in the case of CIT v. Kartar Singh (1970) 77 ITR 338 (Punj), books of account may include memorandum books. For the purposes of Explanation 5 to section 27(1)(c), books of account would mean these books of account whose main object is to provide credible data and information to file tax returns. The learned Gujarat High Court had an occasion to consider the meaning of the word ‘book’ in the case of CIT v. Elecon Engg. Co. Ltd. (1974) 96 ITR 672 (Guj) at page 681, the learned High Court observed :
“Now, the word ‘book’ has not been defined in the Act and it is not a term of act. It is an ordinary English word of everyday use and it must, therefore, be assigned its natural meaning as understood in common parlance subject, of course, to the context in which it is used here. In popular sense, book means a collection of a number of leaves or sheets of paper or of other substance, blank, written or printed, of any size, shape and value, held together along with one of the edges so to form a material whole and protected on the front and back with a cover of more or less durable material. That this is how the word ‘book’ is understood in ordinary usage is evident from the third meaning of the word given in the Shorter Oxford English Dictionary.
17. Now the question before us is as to whether section 68 is applicable to any entry in document or whether document can be called as book. Section 68 is a deeming provision and it is to be strictly interpreted. Applicability of section 68 cannot be enlarged. Hence, section 68 is not applicable in respect of any entry in document. The assessing officer at page 18 of the order has mentioned that he is adding Rs. 38,12,790 as these are credits in the documents maintained by the assessee and hence, treated as unexplained credits under section 68 of the Income Tax Act. Such document cannot be treated as book and section 68 is applicable in respect of entry in book. Therefore, the assessing officer was not justified in including it under section 68 of Income Tax Act.
18. The learned Commissioner (Appeals) has deleted the addition as according to him such amounts stand already included while ascertaining the amounts available for expenses incurred outside the books of account. This amount was considered as available for explaining part of the expenses so that addition under section 69C is worked out. However, the assessing officer has included the above under section 68 of the Income Tax Act and the learned Commissioner (Appeals) has not considered this aspect. Since the assessee is following the project completion method, hence these amounts if not shown as receipts will become taxable on the basis of project completion method.
19. The learned Authorised Representative also took the argument that in incomplete projects, all the four persons are not having equal interest. Such argument is not accepted as the assessees have agreed in principle by filing the return of undisclosed income that undisclosed income as reflected by the documents belong to them in equal proportion. Hence, on this ground addition cannot be deleted.
20. The learned Authorised Representative also argued that in case addition of Rs. 38,12,790 is upheld then he must be allowed expenses in respect of incomplete projects. The assessing officer in his order has clearly mentioned that income is to be assessed on the basis of project completion method. He has not included the receipts of Rs. 38,12,790 in the income of the block period on account of trading receipts. The sum is being taxed under deeming provisions of section 68. Hence, the claim of the assessee raised during the appellate proceedings is not legally valid. Hence, this claim is rejected. The finding of learned Commissioner (Appeals) that claim of loss of Rs. 25,07,960 is not allowable will not support the case of assessee in respect of addition of Rs. 38,12,790 as that addition has been considered as deemed income under section 68 of the Income Tax Act and not as receipts from prospective buyers in respect of incomplete projects. The direction of the learned Commissioner (Appeals) to assessing officer that he should identify the persons from whom such amounts has been received and to tax the same in their hands cannot be upheld as it shifts onus from the assessee to the revenue in respect of fact which is in the exclusive knowledge of the assessee. When credit of such sum is taken by the assessee to explain the expenses for incomplete projects then the assessing officer can ask the assessee to lead evidence and in case assessee fails then necessary inference, as per law, can be taken.
21. Keeping in view the above discussion on the issue of addition of Rs. 38,12,790 it is held that the assessing officer was not justified in including the same under section 68 of Income Tax Act as that section has no application for an entry credited in document particularly when the amount received has been considered as available for explaining the unaccounted expenses. The action of the learned Commissioner (Appeals) in deleting the addition is confirmed.
22. Ground of Appeal Nos. 9 and 10 are against the relief of Rs. 1,38,500 given by learned Commissioner (Appeals) in respect of bribe payments.
23. In respect of completed projects, the assessee has declared unaccounted profit after deducting expenses from the receipts. The assessing officer noticed that unaccounted expenses also include certain payments with the narration bribe. Total payments for completed projects of their nature are Rs. 1,38,500. In view of Explanation to section 37(1), such expenditure was disallowed.
24. Before the learned Commissioner (Appeals), it was argued that Explanation to section 37(1) can be invoked to determine regular business income. in respect of undisclosed income, the learned Commissioner (Appeals) opined that only net accretion to assessee’s assets or investment or unaccounted outgoings are to be considered. Restrictive provisions cannot be considered for computation of undisclosed income.
25. The learned Departmental Repreasentative submitted that the learned Commissioner (Appeals) is not correct in holding that expenditure which is prohibited by law cannot be applied while determining undisclosed income. It was argued that undisclosed income of the block period is to be computed in accordance with the provisions of Chapter IV on the basis of evidence found during search.
Section 37(1) also falls in Chapter IV and hence, Explanation to section 37(1) is to be applied while determining undisclosed income.
26. The learned Authorised Representative supported the order of learned Commissioner (Appeals). The learned authorised representative relied on the decision of Allahabad High Court in the case of Dy. CIT v. Super Tannery (India) Ltd. (2005) 274 ITR 338 (All) in support of the proposition that amounts paid to avoid delays and harassment is permissible deduction.
27. We have heard both the parties. Section 158BB deals with the computation of the undisclosed income. By Finance Act, 2002, an amendment to this section was made with retrospective effect i.e., from 1-7-1995. As per this amendment, one has first to ascertain the total income of the previous years falling in the block period as per provisions of the Act. From such total income, disclosed income as ascertained as per provisions mentioned in section 158BB is to be reduced to ascertain the undisclosed income of the block period. From the language of section 158BB, it is clear that provisions of the Act are to be considered. Hence, we do not subscribe to the view that Explanation to section 37(1) will not be applicable for determining the undisclosed income. The case law quoted by the learned Authorised Representative is not applicable in the instant case as in that case payment was not made as bribe but it was given to some person who rendered assistance in getting the amount released. In the instant case, the seized material indicate that payments are bribe. Such payments are in contravention of provisions of prevention of Corruption Act. Shri Raja Datta vide question No. 54 was asked as to why such bribe payment be not disallowed. Shri Raja Datta has not rebutted in his answer that these payments were not bribe. He stated on 20-2-2002 in answer to question No. 54 that if Income Tax Act does not permit allowance of such expenditure then he has no objection for adding the same to his undisclosed income. In view of such factual position that payments represented bribe and considering the Explanation to section 37(1), it is held that learned Commissioner (Appeals) was not justified in allowing the expenses of Rs. 1,38,500. On this issue, the order of Commissioner (Appeals) is reversed and that of assessing officer is restored.
28. Ground of Appeal Nos. 11 to 13 are against the relief given by directing the assessing officer not to include the regular income of assessment year 1999-2000 in the undisclosed income of the block period.
29. Due date for filing the return for assessment year 1999-2000 was 31-8-1999 while search took place on 15-2-2000. Return of income was filed after search i.e., on 29-12-2000. As per section 158BB(1)(c) nil income is to be reduced, in case no return of income has been filed before the date of search and due date of filing of return has expired, from total income computed on the basis of documents seized for determining the undisclosed income. Hence, the assessing officer was of the view that income disclosed in the return for assessment year 1999-2000 filed after the search is not to be reduced from the total income determined for assessment year 1999-2000 to ascertain the undisclosed income. Before the assessing officer, the assessee relied on the following decisions in support of the propositions that income as per regular books of account is to be reduced from the total income to determine undisclosed income even though return has not been filed in spite of the fact that due date has expired before the date of search :
(a) P.R. Patel v. Dy. CIT (2001) 78 ITD 51 (Mum.)
(b) Smt. Sitadevi Daga v. Assa. CIT ( 1998) 67 ITD 151 (Indore).
30. The learned assessing officer relied on the order of Madras Bench in the case of P.K. Kaliannan v. Assistant Commissioner (1999) 68 ITD 401 (Mad), in not considering the returned income as disclosed income as return has not been filed before the date of search.
31. The learned Commissioner (Appeals) has directed that income disclosed in the return of assessment year 1999-2000 reduced from the total income computed for assessment year 1999-2000 on the basis of assets and documents etc. found during search for determining the undisclosed income for assessment year 1999-2000 after observing as under:
“Inclusion of regular income for assessment year 1999-2000 in undisclosed income : In the case of Shri Raja Jayashankar and Sri Raja Udaya Shankar, the returns were filed on 29-12-2000, i.e., after the search (13-2-2000) advance tax have been paid in time. In respect of the other two assessees, though there was marginal tax, regular income-tax could not be paid in advance due to lack of funds. Again in the case of the first two assessees substantial income arose out of capital gains (sale of land). All the assessees have maintained regular books of account. These books were found during the course of search but were not seized because these were regular books. The sources of acquisition the plots sold by Sri Raja Jayashankar and Sri Raja Udaya Shankar are reflected in the regular books. The Authorised Representative therefore, contends that regular books are maintained. The fact that the assesses have taxable income has not been discovered during the course of search. In two cases where there were major income, taxes have also been paid. So on the basis of the various ITAT’s decisions such as 78 ITD page 51 (Mum.), 67 ITD page 151 (Ind.), 80 ITD page 503 (Pat.) and the Bangalore Bench, ITAT’s decision in the case of Commercial Corporation IT (SS)A No. 24/1998, it should be held that in such a situation merely on the basis of delay in filing of regular returns by the assessees, regular income cannot be included in computation of undisclosed income entirely agree with the AR. The assessing officer is directed to exclude the regular income in respect of assessment year 1999-2000 in respect of the four assessees from undisclosed income computed under Chapter XIV-B.”
32. During the course of proceedings before us, the learned Departmental Representative submitted that provisions of section 158BB(1)(c) are unambiguous and hence, the returned income could not have been reduced to ascertain the undisclosed income as return was not filed before the date of search in spite of the fact that due date for filing such return has already expired, The learned Commissioner (Appeals) should have followed the decision of Chermai Bench in P.K Kaliannan v. Assistant Commissioner (1999) 68 ITD 401 (Che).
33. The learned Authorised Representative submitted that learned Commissioner (Appeals) was justified in considering the return as valid under section 139(4) of the Income Tax Act and clause (b) of section 158BB of the Income Tax Act. This was a regular income of the assessee and was not detected at the time of search. it is also submitted that view favourable to the assessee is to be adopted in case two views are possible an on issue CIT v. Naga Hills Tea Co. Ltd. ( 1973) 89 ITR 236 (SC), CIT v. Kulu Valley Transport Co. (P.) Ltd. (1970) 77 ITR 518 (SC). For not inclusion of returned income of assessment year 1999-2000, in the undisclosed income, the learned Authorised Representative relied on the following Tribunal orders:
(a) Bangalore Bench order in the case of Commercial Corpn. v. Dy. CIT (IT (SS) Appeal No. 24 (Bang.) of 1998, dated 12-9-2001).
(b) Kanakraj v. Dy. CIT 25 DTC 72 (Chennai).
(c) Sou. Vidya Madanlal Malani v. Assistant Commissioner (2000) 74 ITD 341 (Pune).
(d) B.K. Agarwalv. Assistant Commissioner 20 DTC 545 (Lucknow).
34. In the cases of Raja Udayashankar and Raja Jayashankar, advance tax to the extent of Rs. 40,000 and Rs. 70,000 has also been paid and income reflected as per these payments cannot be considered as undisclosed as per the following decisions :
Dr. Mrs. A lka Goswarni v. CIT (2004) 268 ITR 178 (Gauhati)
Assistant Commissionerv. A.R. Enterprises (2005) 274 ITR 110 (Mad.)
35. We have heard both the parties. Before we proceed further, it will be relevant to know the nature of income disclosed by all the four assessees in their return of income filed for assessment year 1999-2000.
Income from salary 8,000 /8,000
Rental income 74,083 /30,000/ 74,083 /74,122
Capital gain /7,20,400 /6,95,400
(short-term)
Interest 1,10,465 /77147 /117 2,743
Others 25,700 /10,418 –
Taxes paid
Adv. Tax 40,000/ 70,000 –
TDS /6,544
Self asst. tax /3,00,769/ 2,11,714/ 9,964 5,017
36. All the four assessees have declared property income from the same property for assessment year 1998-99 for which return was filed before the date of search. Capital gain has been declared from the sale of properties by R. Udaysbankar and R Jayashankar. Both of them applied for issue of certificates under section 230A of the Income Tax Act. Applications were made on 10-6-1998. In these applications the following informations were disclosed :
R . Udayshankar R. Jayashankar
Sale consideration 14 lakhs 13.5 lakhs
Cost of acquisition 6.5 lakhs 6.25 lakhs
37. R. Udayshankar while filing return has adopted 14 lakhs as sale consideration and cost of acquisition plus cost of improvement has been adopted at Rs. 6,79,600. Shri R. Jayashankar has adopted sale consideration at Rs. 13.5 lakhs and cost of acquisition plus cost of improvement has been taken at Rs. 6,54,600.
38. It is clear from the computation of income in the regular return that none of items of income included it have been found as a result of search. Undisclosed income is defined in section 158B(b).
39. Section 158BB(ca) refers to the income to be reduced from total income for computing the undisclosed income. This section is as under:
“(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 failing under clause (c).”
40. Block assessment has been completed on 28-2-2002 and before that return of income for assessment year 1999-2000 has been filed. Such return of income has been filed under section 139(4) of the Income Tax Act. Whether for purposes of section 158BB(a) can we say that no return has been filed.
41. The learned ITAT, Chandigarh Bench in the case of Smt. Shanti Rani v. Assistant Commissioner (2003) 126 Taxman 62 (Chd) held that income which is not undisclosed income as per definition in section 158B(b) cannot be brought to tax by way of computation under section 158BB. Computation provisions are to be applied subsequent to the charging provisions.
42. In the case before Patna Bench in the case of Jt. CIT v. Smt. Dr. Reeta Singh (2002) 80 ITD 503 (Pat), returns were not filed for some of the assessment years covered under block period. Her salary income held as not undisclosed as employer has deducted TDS on the basis of income disclosed. This was considered as a mode of disclosure.
43. Lucknow Bench in the case of B.K, Agarwal v. Assistant Commissioner (2002) 76 TTJ (Lucknow) 69 held that salary and commission receivable were available as per the record of employer and tax was deducted, advance tax paid and self assessment tax was also paid on such receipts, then such receipts cannot be treated as undisclosed.
44. The learned Authorised Representative has rightly relied on judgments in which it has been held that income on which advance tax has been paid cannot be taxed as undisclosed.
45. Madras Bench of ITAT in the case of Smt. Sivabala Devi v. Assistant Commissioner (2004) 88 ITD 333 held that investments as disclosed to ADI in the letter cannot be treated as undisclosed. Disclosed for the purpose of the Act means disclosed for the purposes required by various provisions contained in the Act. Disclosed for the purpose of Act does not mean disclosed for the purpose of making an assessment alone.
46. The facts in the instant case in respect of return filed under section 139(4) is similar to the case considered by Indore Bench in the case of Ravi Kataria v. Assistant Commissioner (2002) 122 Taxman 79 (ITAT). In that case Indore Bench held that income returned under section 139(4) is disclosed income.
47. This Bench in the case of Commercial Corporation v. Dy. CIT vide order dated 12-9-2001 in IT(SS) Appeal No. 24 (Bang.) of 1998 held that disallowance cannot be made in block assessment in respect of transactions as per regular books of account though returns were filed after date of search.
48. In the case of CIT v. Mrs. Kumkum Kohli (2005) 276 ITR 589 (Delhi), the income was included as undisclosed income as return was filed late. The ITAT deleted the addition. The learned High Court said that no substantial question of law arises as the income is not covered by definition of undisclosed income as given in section 158B. Moreover advance tax was also paid before the date of search.
49. In the instant case, the returned income is reflected from the books of account and sale of property stands disclosed by virtue of filing application under section 230A. Such income as shown in return is not undisclosed income as defined in section 158B(b) and income also stands disclosed by way of filing return under section 139(4) of the Income Tax Act. Section 158BB(ca) mentions that no return of income is filed. While in the instant case return of income has been filed under section 139(4) of the Income Tax Act. Hence, on this issue order of Commissioner (Appeals) is confirmed and grounds of Appeal Nos. 11 and 13 are dismissed.
50. Grounds of Appeal Nos. 14 to 17 are against the finding of learned Commissioner (Appeals) that surcharge should be levied in respect for assessment year 2000-01.
51. The order of learned Commissioner (Appeals) on this issue is as under :
“Surcharge: It has been argued by the Authorised Representative and correctly in the additional grounds of appeal that surcharge is leviable only in respect of assessment year 2000-01 falling in the block period. In respect of the earlier assessment years since for regular income there was no surcharge on the tax payable, the assessees cannot be subjected to payment of surcharge even in respect of tax on undisclosed income, because if the assessee had returned the correct income for each of these years surcharge would have been payable unless there is specific statutory provisions. I fully agree with the view taken by the AR. The assessing officer is, therefore, directed to restrict the levy of surcharge in respect of the tax on the undisclosed income in each of the restrict the levy of surcharge in respect of tax on the undisclosed income in each of the cases only for assessment year 2000-01. On going through the assessments, it is seen that in each of the four cases the undisclosed income is Rs. 7,37,904. Tax on this amount at the rate of 60 per cent comes to Rs. 4,42,742. The total surcharge payable in respect of each of the assessees shall, therefore, is restricted to Rs. 44,274 only.”
52. This Bench is consistently holding that surcharge is not leviable in respect of search conducted prior to 1-6-2002 ie., the date from which proviso has been inserted in section 113 of the Income Tax Act. The assessee has not filed the appeal against levy of surcharge. In written submissions, the assessee has mentioned that learned Commissioner (Appeals) was justified in restricting the surcharge for assessment year 2000-01. Hence, the grounds of appeal taken by revenue on the issue of surcharge are dismissed.
53. Grounds of Appeal Nos. 18 and 19 are against the direction of learned Commissioner (Appeals) to charge interest under section 158BFA at the rate of 1.25 per cent instead of 2 per cent charged by assessing officer.
54. The order of learned Commissioner (Appeals) on this issue is as under :
“It has been argued by the Authorised Representative that the interest under section 158BFA is levied on the basis of undisclosed income determined under section 158BC(c). The levy of interest, therefore, relates to the date of determination of undisclosed income i.e., the date of completion of the assessment. In the present cases the assessment orders have been passed on 28-2-2002. By Finance Act, 2001 effective from 1-6-2001 the rate of interest has been reduced to 1.25 per cent from 2 per cent. The interest under section 158BFA, therefore, should be levied only at the rate of 1.25 per cent and not 2 per cent. I fully agree with this agreement. The assessing officer is, therefore, directed to charge interest at the rate of 1.25 per cent and not at the rate of 2 per cent under section 158BFA.”
55. The worthy Supreme Court in the case of Smt. Maya Rani Punj v. CIT (1986) 157 ITR 330 (SC) held that non-filing of return is a continuing default. Bombay High Court in the case of CWT v. P.M. Ganger (1991) 189 ITR 579 (Bom) held in that case that penalty under section 18(l)(a) for the return for assessment years 1967-68 & 1968-69 filed after 1-4-1969 will be impossible under unamended section prior to 1-4-1969 and under amended section after 1-4-1969. The learned High Court followed Supreme Court judgment in Smt. Maya Rani Punj’s case (supra). Interest is either compensatory or penal or combination of both. Under all the circumstances, interest is to be levied at the rate prevailing during the period of default. Hence, the learned Commissioner (Appeals) was not justified in reducing the interest. On this issue order of learned Commissioner (Appeals) is received and that of assessing officer is restored.
In the result, all the appeals are partly allowed.