REPORTABLE
* IN THE HIGH COURT OF DELHI AT NEW DELHI
ITA 811 OF 2007,ITA 818 OF 2007,
ITA 378 OF 2008, ITA 742 OF 2007
ITA 416 OF 2008
Judgment reserved on: 30.092010
Judgment delivered on: 29.11.2010
(1) ITA 811 OF 2007
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through: Mr. N.P. Sahni, Advocate.
VERSUS
A.T. INVOIFIN INDIA (P) LTD. . . .RESPONDENT
Through: Mr. Ajay Vohra, Advocate with Ms.
Kavita Jha, Ms. Akansha Aggarwal
and Mr. Somnath Shukla,
Advocates.
(2) ITA 818 OF 2007
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through: Mr. N.P. Sahni, Advocate.
VERSUS
MEHROTRA INVOFIN INDIA (P) LTD. . . .RESPONDENT
Through: Mr. Ajay Vohra, Advocate with Ms.
Kavita Jha, Ms. Akansha Aggarwal
and Mr. Somnath Shukla,
Advocates.
(3) ITA 378 OF 2008
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through: Mr. N.P. Sahni, Advocate.
VERSUS
CELLPHONE CREDIT & ...RESPONDENT
SECURITIES INDIA (PVT.) LTD.
Through: Mr. Ajay Vohra, Advocate with Ms.
Kavita Jha, Ms. Akansha Aggarwal
and Mr. Somnath Shukla,
Advocates
(4) ITA 742 OF 2007
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through: Mr. N.P. Sahni, Advocate.
ITA 811 OF 2007,ITA 818 OF 2007,ITA 378 OF 2008, Page 1 of 14
ITA 742 OF 2007ITA 416 OF 2008
VERSUS
INTEL INVOFIN INDIA (P) LTD. ...RESPONDENT
Through: Mr. Ajay Vohra, Advocate with Ms.
Kavita Jha, Ms. Akansha Aggarwal
and Mr. Somnath Shukla,
Advocates.
(5) ITA 416 OF 2008
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through: Mr. N.P. Sahni, Advocate.
VERSUS
CELLCAP INVOFIN INDIA (P) LTD. ...RESPONDENT
Through: Mr. Ajay Vohra, Advocate with Ms.
Kavita Jha, Ms. Akansha Aggarwal
and Mr. Somnath Shukla,
Advocates
CORAM:-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MS. JUSTICE REVA KHETRAPAL
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
1. In all these appeals, common question of law arises for
determination. The question of law which was framed in ITA
811/2007 runs as follows:-
“Whether on the facts of the present case, the
Tribunal was justified in law in deleting the addition
of Rs.8,67,010 made as undisclosed income of the
assessee for assessment year 1999-2000 under
Section 158BC of the Act?”2. Except the difference of amount which is deleted in other
cases, the question of law is identical. Therefore, we are proceedings
to discuss the question of law on the basis of facts appearing in ITA
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811/2007. Record of factual matrix does not need a large canvas.Succinctly stated, the facts are that on 13th January, 2000, a search
and seizure operation was carried out on Shyam Telecom Group of
Companies (to which these assessee group of companies belonged).
There was no specific search warrant in the name of the assessee
company. However, according to the department, since the papers
relating to the assessee company were also seized during the course
of the search, notice under Section 158 BC read with Section 158 BD
of the Income-Tax Act (hereinafter referred to as „the Act‟) was also
issued to the assessee for the block assessment period 1 st April, 1989
to 13th January, 2000. The assessee in response thereto filed its
return declaring undisclosed income at „nil‟. The assessment was
however framed determining undisclosed income at ` 8,67,010/- for
the assessment year 1999-2000. While making this assessment, the
Assessing Officer treated the long term capital gain on the sale of
shares as undisclosed income. The CIT (A) confirmed the aforesaid
order of the Assessing Officer. However, the ITAT has allowed the
appeal of the assessee vide impugned judgment dated 12th October,
2006 thereby deleting the aforesaid addition.
3. We may note at this stage that the case of the assessee before
the authorities below was that shares in question which were sold
had already been disclosed to the department prior to the date of
search. The assessee had earned capital gain which were reflected
in the balance sheet as on 31st March, 1998 and the said balance
sheet was filed with the department alongwith the return of income
for the assessment year 1998-99. On this basis it was argued that
when the investment in the shares in question on which capital gain
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was realized by the assessee had been shown in the balance sheetfiled by the assessee prior to the date of search, it could not be
presumed that capital gain derived from the sale of said shares
would not have been shown by the assessee. This plea of the
assessee has been accepted by the Tribunal and validity of these
reasons on which addition is deleted, is the question before us. Few
dates which are relevant for this purpose are noted below:-
Return for the concerned assessment year was due on - 31.12.1999 Search operation carried out on -31.1.2000 Return filed under Section 139 (4) of the Act on - 31.3.2000This return was processed under Section 143 (1)of the Act.
4. Some of the provisions of Income Tax Act which are to be kept
in mind while answering the questions are as under:-
(1)As per Section 139 of the Act, every person whose
total income in respect of which he is assessable
under the Act during the previous year exceeds the
maximum amount which is not chargeable to income-
tax, is required to file the income tax return on or
before the due date in the prescribed from and
verified in the prescribed manner.
(2)After the return is filed, for the purpose of making
assessment, the Assessing Officer may serve notice
under Section 142 (1) of the Act. However, if it is
found that such a person has not made a return
within the time allowed under sub Section (1) of
Section 138, Clause (i) of sub Section (1) of Section
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142 of the Act authorizes the Assessing Officer toserve a notice regarding such defaulting person to
furnish a return of his income by the dates specified
therein. If the return is not filed within the time
allowed under Section 131 (1) or under a notice
issued under Section (1) of Section 142, such person
may still furnish the return of previous year at any
time before the expiry of one year from the end of the
relevant assessment year or before the completion of
assessment, whichever is earlier.
5. Chapter-XIV B of the Act, which was inserted by the Finance
Act, 1995 w.e.f. 1st July, 1995 deals with said procedure for
assessment of search cases and it starts with Section 158B which
provides certain definitions for the said Chapter. Clause (a) thereof
defines „block period‟. Clause (b) gives the definition of „undisclosed
income‟ and reads 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, 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 purpose of this Act, or any
expense, deduction or allowance claimed under
this Act which is found to be false.”6. Section 158BA deals with assessment of undisclosed income as
a result of search Section 158BB enumerates the procedure for
computation of undisclosed income for the block period. Sub Section
(1) thereof mandates that the undisclosed income of the block period
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shall be the aggregate of total income of the previous years fallingwithin 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 accounts or other documents and such other
material or information as are available with the Assessing officer
and relatable to such evidence, as reduced by the aggregated of the
total income, or as the case may be, as increased by the aggregate
of losses of such previous years. Clause (c) of sub section (1) deals
with the situation where the due date for filing a return has expired
but no return of income has been filed. In that case income can be
determined on the basis of the records mentioned therein.
7. In the present case, as noted above, due date by which the
return was to be filed was 31st December, 1999 but return was not
filed as on that date. Within a few days thereafter i.e. on 30th
January, 2000 search operation was carried out. Return was filed on
31st March, 2000. However, it was within the time stipulated under
Section 139 (4) of the Act. According to the Assessing Officer, since
the return was not filed within the stipulated date, the disclosure of
long term capital gain in the said return filed after warrants could not
be taken into consideration, more so, as till the date of search no
return was filed. In the opinion of the Assessing Officer, therefore, the
assessment could be made under Section 158 BB of the Act on the
basis of seized documents, as if no return was filed. The contention
of the assessee that income may be treated as disclosed was not
accepted on the basis of the following discussion:-
“I do not agree with the submission made by the
assessee. A provision contained in a section under any
chapter cannot be interpreted in isolation, rather itITA 811 OF 2007,ITA 818 OF 2007,ITA 378 OF 2008, Page 6 of 14
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should be interpreted keeping in mind all other provisions
of that chapter. Provisions of section 158B are contained
in Chapter XIV-B which also contains section 158 BA and
158 BB. Section 158 BA lays down procedure for
assessment of undisclosed income as a result of search.
The section starts with the words “Notwithstanding
anything contained in any other provisions of this Act….
the Assessing Officer shall proceed to assess the
undisclosed income in accordance with the provisions of
this Chapter”. Section 158 BB gives the procedure for
computation of undisclosed income of the block period
and is also contained in Chapter XIV-B. As per Section
158 BA therefore, the provisions of section 158 BB have
to be applied for computation of undisclosed income. I
will like to quote the decision of the Hon‟ble Calcutta High
Court in the case of Shaw Wallace & Co. Ltd. Vs. ACIT
(1999, 238, ITR 13) which is as under:-” It will be found from section 158 BB that the
Assessing Officer is to compute total income
twice. One has to emphasise the combination
of words „total income‟. The First computation
of total income under section 158BB is on an
aggregate of materials including returns. The
second computation of total income is as per
direction and definition given in section 158 BB
irrespective of whatever might be contained in
the other provisions of the Act. That such
computation of the second total income is to be
made irrespective of other provisions is seen
from the words of section 158BA, which states
that the Assessing Officer must proceed to
assess the undisclosed income as per section
158 BB notwithstanding any other provisions
contained in the Act.”From the discussion above, I am of the view that
the returned income of the assessee for A.Y.
1999-00 is to be taken at NIL for the purposes of
calculating of undisclosed income under the
provisions of section 158 BB (1)(c). This will
result in determination of undisclosed income at
` 8,67,010/- calculated as under…”
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8. The Income Tax Appellate Tribunal, on the other hand, has
held that as a return of income was filed under Section 139 of the
Act, wherein capital gains on the sale of shares were disclosed, it is
to be treated as return filed within the permissible limits and the
assessment could not take place under Section 158 BB (1) (c) of the
Act.
9. The Tribunal relied upon the judgment of this Court in CIT Vs.
Mrs. Kum Kum Kohli, 276 ITR 589. We may state at the outset
that the decision of Mrs. Kumkum Kohli (supra) cannot be the sole
basis for determining the real controversy. That was a case where
this Court upheld the decision of the Tribunal in Mrs.Kumkum
(supra). The assessee had paid advance tax much before the date of
search and the capital gains earned during the assessment year,
though the return was not filed and had also disclosed the said
transaction in the books of accounts. On this basis, it was held that
the income returned by the assessee disclosed the aforesaid income
and thus the provisions of Chapter XIV B were not applicable as
nothing new was found during the search.
10. Having regard to the fact that much before the date of search
advance tax had been paid and, therefore, it cannot be said that the
assessee would not have disclosed such amounts in the return to be
filed, for which the period had not expired, it was observed as under:
“At the time of hearing, ld. AR for the assessee
while taking us through the paper books
demonstrated that the shares in question which
were sold was already disclosed to the
department prior to the date of search. The
assessee earned capital gain which was reflected
in the balance sheet as on 31.3.1998 and that the
said balance sheet was filed with the department
alongwith the return of income for the AY 1998-
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99. Acknowledgement for filing of the return of
income for the AY 1998-99 on 30th December,
1999 has been filed at page 39 of the paper book.
In the circumstances, we are of the considered
opinion that when the investment in shares in
question on which capital gain was realized by the
assessee had been shown I the balance sheet
filed by the assessee, prior to the date of search,
it cannot be assumed that capital gain derived on
the sale of such shares would have been shown by
the assessee. In the above circumstances, in
view of the order of the Delhi High Court in the
case of CIT Vs Mrs. Kumkum Kohli, 276 ITR 589
(Del) (supra), in our considered opinion, capital
gains on such shares cannot be treated as
undisclosed income of the assessee under
Chapter XIV B of the Act. Hence, we set aside the
orders of the Ld. CIT (A) and allow the ground of
appeal of the assessee.”
11. In the present case, the search has taken place after the last
date of filing the return under Section 139 (1) of the Act. There is no
overt act on the part of the assessee which would indicate that
assessee had the intention to disclose the income. On the contrary,
when the aforesaid documents relating to the sale of shares leading
to income in the form of long term capital gain were seized during
the search on 13th January, 2000, it is thereafter that return was filed
on 13.1.2000 disclosing this transaction. However, this return is filed
under Section 139 (4) of the Act i.e. within the time stipulated in the
notice issued by the Assessing Officer but after the date of search
and after the expiry of normal date for filing the return. In such a
situation, can it be said that the filing of the return relates back to
the original date by which the return is to be filed. Answer to this has
to be in the negative in view of the two judgments – one of Madhya
Pradesh High Court and other of Madras High Court with which we
concur. In the case of Dr. Brijesh Lahoti Vs. CIT, 282 ITR 349,
Madhya Pradesh High Court, held as under:-
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“9.Mr.Chaphekar, learned senior counsel appearing
for appellant, submitted that there may be cases
outside Sub-section (3) of Section 158BA of the Act
where it can be held that income of the assessee
has been disclosed. In fact, he relied on the
Division Bench judgment of the Madras High Court
in the case of A.R. Enterprises (supra) in support of
his submission in which payment of advance tax
before the date of search, even in a case where no
return had been filed under Section 139(1) of the
Act, has been held to be a case where income has
been disclosed.
10. We agree with Mr. Chaphekar, learned senior
counsel for appellant, that where the assessee
discloses his income to the Department before the
date of search in some manner or the other, it may
be difficult to hold that such income is to be
treated as undisclosed income for the purpose of
assessment in accordance with Chapter XIV-B of
the Act. In A.R. Enterprises (supra), the Division
Bench of the Madras High Court has found that
search had taken place on 23rd Feb., 1996, but for
the asst. yr. 1995-96 even though the assessee
had not filed the return, it had paid advance tax of
Rs. 4,80,000 in three instalments on 15th Sept.,
1994, 12th Dec., 1994 and 15th March, 1995 much
before search and the Division Bench accordingly
held that the income of the assessee in that case
cannot be treated to be as ‘undisclosed income’ for
the purpose of assessment under Chapter XIV-B of
the Act. But, in the present case, the search took
place on 20th Dec., 1996 and there was no
material to show that before 20th Dec., 1.996 the
appellant had in any manner disclosed his income
to the authorities under the Act. Thus, even if we
accept the contention of Mr. Chaphekar learned
senior counsel, that Sub-section (3) of Section
158BA of the Act is not exhaustive of the cases in
which income should not be treated as undisclosed
income, in the present case, we find no material to
establish that the appellant had, in any manner,
disclosed his income for the purpose of the Act
before the date of search on 20th Dec., 1996.
12. Before Madras High Court, the issue cropped up, albeit in other
context where the provisions and constitutionality of Section 158 BB
of the Act was challenged. It was argued that once the return is not
filed after the due date under Section 139 (1), before the expiry of
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period specified in Section 139 (4) and the search take place before
filing of the return, the assessee would lose the benefit of filing the
return under Section 139 (4) of the Act and therefore provisions of
Section 158BB were ultra vires and unconstitutional. This contention
was rejected and relevant observations of the Court dealing with this
contention are as under:
“Learned counsel for the petitioner contended that
this provision is unconstitutional as it has the effect
of depriving an honest assessee the several
deductions allowable under other provisions of the
Act even in cases where an assessee has, by
relying on Section 139(4), filed a return of income
after the due date specified in Section 139(1), but
before the expiry of the period specified in Section
139(4). Section 139(4) enables a person who has
not filed a return within the time allowed under
Section 139(1) or under a notice issued under
Section 142(1) to furnish the return for any
previous year at any time before the expiry of one
year from the end of the relevant assessment year
or before the completion of the assessment,
whichever is earlier.
The petitioner in this case had not filed his return
for the assessment year 1994-95 as also for the
assessment year 1995-96 on or before August 31,
1994, and August 31, 1995, respectively. The
search was conducted in his premises on January
18, 1996. Thereafter the assessment was made for
the block period by taking into account the amount
ascertained as having been not disclosed at the
time of search and adding thereto, the income
shown in the return filed by the assessee on March
29, 1996, after search. According to the assessee,
the inclusion of the income shown in the returns
filed within the extended date provided under
Section 139(4) has the effect of depriving” the
petitioner of the valuable right conferred on him by
Section 139(4) and, therefore, Section 158BB(1)(c)
is arbitrary, ultra vires the Act and unconstitutional.
The provision with which we are concerned is a
provision in a taxing statute. It is open to
Parliament to classify the taxpayers on any rational
basis ; also treat the different classes of taxpayers
differently. It is also permissible for Parliament to
classify in a rational and non-arbitrary manner, the
assessees further in relation to their conduct.
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Parliament can legislate with respect to the
assessees who comply with the requirements of law
and extend such concessions as it deems fit to such
assessees, which concessions it may choose to
deny to those who have violated the law and such
violations have been established by reason of the
action taken by the authorities. It is in that
background and with the object of laying down a
special procedure for the assessment of the
assessees who fail to comply with the law by not
disclosing in full their taxable income and by not
paying the taxes properly due from them that
Chapter XIV-B consisting of sections 158B & 158BH
was inserted in the Income-tax Act by the Finance
Act, 1995, with effect from July 1, 1995.
The assumption made in the scheme of the Act that
a person who comes forward with the return or with
further information after a search, does so only on
account of the detection already effected under the
search and the likelihood of further exposure is a
reasonable assumption and it can in no way be
regarded as arbitrary. The special procedure
provided in Chapter XIV-B is meant to apply to all
such cases notwithstanding anything contained in
any other provisions of the Act, as provided in
Section 158BA(1), and the other provisions of the
Act, therefore cannot control the contents of this
Chapter except to the extent provided for in
Chapter XIV-B.
There is no fundamental right in an assessee to
commit breaches of the law. The right that can be
asserted by one who has chosen to violate the law
is the right to be treated in a manner similar to that
in which other similar offenders are treated.
Chapter XIV-B accords similar treatment to all
persons belonging to the class for whom that
Chapter is to apply. There is no discrimination
therein among those who suffer such searches.”
13. We may, however, clarify that in the aforesaid case, the Madras
High Court also observed that mere payment of advance tax by dates
would not establish and intend to disclose the income and the
disclosure is to be made by filing the return. However, with this
observation we would not agree, having regard to the judgment of
this court in Mrs. Kumkum Kohli (supra).
14. We thus summarize the position as under:-
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(a) Where the stipulated date of filing the return of
income as prescribed under Section 139 (1)of the
Act is over and return is not filed, it has to be
normally held that the income has not been
disclosed for the purpose of this Act.
(b) If the search takes place under Section 132 of the
Act and by that date return is not filed, and the date
of filing the normal return has expired, filing of the
return thereafter under Section 139 (4) of the Act
would be of no consequence for the applicability of
Chapter XIV B of the Act.
(c) Even if the return is not filed but the assessee is
able to demonstrate that he had disclosed his
income to the department before the date of search
in the some manner or the other, it would not be
treated undisclosed income for the purpose of
assessment in accordance with the Chapter XIV B
of the Act.
(d)Payment of advance tax would be one such step
which would warrant inference that the assessee
had disclosed his income to the department.
15. Applying the aforesaid principles in these cases, we are of the
opinion that it cannot be said that the assessee had made disclosure
of the long term capital gain before the date of search and as the
time for filing the return had expired by that time, the provisions of
Section 158 BB (1 (c) of the Act were rightly applied by the
Assessing Officer.
16. Learned counsel for the respondent has sought to argue that
during the search provisional balance sheet was found which
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contained profit shown on account of sale of the said shares and,
therefore, it be treated as disclosure. Such provisional balance
sheet which was within the possession of the assessee at the time of
search would not meet the test of “disclosure‟. As mentioned above
the overt act has to be of the nature from which it can be concluded
that the assessee had disclosed the income to the department
before the date of search in some form like payment of advance
tax, etc.
17. We thus do not agree with the approach of the Tribunal and set
aside the order of the Tribunal of by answering the question of law in
favour of the Revenue and against the assessee.
(A.K. SIKRI)
JUDGE
(REVA KHETRAPAL)
JUDGE
NOVEMBER 29, 2010
skb
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