ORDER
1. This is an appeal against the block assessment dt. 30th January, 1997, passed by Asstt. CIT, Investigation Circle 1(2), Kolhapur. The block period comprises of asst. yrs. 1986-87 to 1996-97.
2. The brief facts giving rise to this appeal are these. The assessee had been carrying on the business of tailoring and preparation and sale of Papads and pickles. A search and seizure action under s. 132 was carried out at the premises of Shri Madanlal Malani, the husband of the assessee, on 10th January, 1996, in the course of which neither any incriminating material nor any asset except 7.5 tolas gold ornaments was found from the possession of the assessee. Before the date of search, she was an income-tax assessee, since she had filed income-tax returns for asst. yrs. 1992-93 and 1993-94 disclosing the income from the aforesaid business activities. Income returned for these two years were to the extent of Rs. 22,310 and Rs. 28,800, respectively. The assessment for asst. yr. 1992-93 and asst. yr. 1993-94 were framed under s. 143(1) vide order dt. 10th December, 1993, accepting the return of the assessee. However, the assessment for asst. yr. 1993-94 was reopened under s. 143(2) and she was finally assessed under s. 143(3) on the total income of Rs. 31,800 against the returned income of Rs. 28,800 vide order dt. 15th September, 1994. The returns for asst. yrs. 1994-95 and 1995-96 were filed on 13th February, 1996, declaring income of Rs. 31,670 and Rs. 21,756, respectively. These returns were filed for the purpose of regular assessment before the issue of notice under s. 158BC. However, the return for the block period in pursuance of notice under s. 158BC was filed on 20th December, 1996, declaring undisclosed income of Rs. 16,000 as under :
Assessment years Amount
1986-87 to 1988-89
'Nil' 1989-90 2,000
1990-91 2,800
1991-92 3,200
1992-93 to 1995-96
'Nil' 1996-97 8,000
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Total 16,000
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3. In the course of the assessment proceedings, it was noticed by the AO that assessee had opened a bank a/c on 11th August, 1993, in Sangli Bank Ltd. and had deposited Rs. 15,000 and Rs. 10,000 on 19th August, 1993, and 25th August, 1993, out of cash balance as on 31st March, 1993. The AO doubted the fact that assessee had been carrying the activity of preparing and selling of Papad and pickles. According to AO, if the assessee had been carrying on such activity, she would have deposited the income in the bank a/c from time to time in asst. yr. 1992-93 and asst. yr. 1993-94. Further, according to AO, the bank a/c was only opened to justify the cash shown in the balance sheet as on 31st March, 1993. Despite this doubt, he accepted the fact that returns for asst. yrs. 1992-93 and 1993-94 were filed by the assessee and accepted by the Department and, therefore, the income relating to these years could not be considered as undisclosed income.
4. In respect of asst. yrs. 1989-90 to 1991-92 and 1995-96, the AO was of the view that since undisclosed income declared by the assessee were below the taxable limit, there could not be undisclosed income as such for the purpose of charging tax under Chapter XIV-B of the IT Act. Hence, no tax was levied. However, in respect of asst. yr. 1994-95, he was of the view that income declared at Rs. 31,670 being above the taxable limit was undisclosed income of the assessee liable to tax under the provision of Chapter XIV-B.
5. It was also noticed by the AO that assessee had deposited Rs. 50,000 with M/s. Om Traders on 29th April, 1995. In para 5.7 of his order, he also noticed the savings of Rs. 39,210 out of the income of the assessee for asst. yrs. 1992-93 and 1993-94 which could be available with the assessee for depositing with M/s. Om Traders. Accordingly, the balance amount of Rs. 10,790 was considered as undisclosed income. Since the assessee had declared income of Rs. 8,000 as undisclosed income, he determined the total undisclosed income at Rs. 18,790, but being below the taxable limit, he did not consider the same as undisclosed income chargeable to tax for asst. yr. 1996-97.
6. In view of the above findings, the AO determined the total undisclosed income at Rs. 31,670 and levied the tax of Rs. 19,002. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal.
7. The learned counsel for the assessee Mr. Vora has assailed the order of the AO. Firstly, he objected to the observations of the AO that the sum of Rs. 10,790 being part of deposit with M/s. Om Traders was from undisclosed source. He drew our attention to the statement of affairs of asst. yrs. 1992-93 and 1993-94 appearing at p. 10 and p. 12 to show that cash balance on 31st March, 1993, was Rs. 58,090 while credit has been given by the AO only for the income of these two years minus withdrawals. According to the learned counsel for the assessee, credit should have been given for the sum of Rs. 58,090 which was the cash available with the assessee on 31st March, 1993, particularly, when such statement of affairs was accepted by the Department vide order dt. 15th September, 1994, under s. 143(3) in respect of asst. yr. 1993-94. Therefore, the question of holding the sum of Rs. 10,790 as income from the undisclosed sources did not arise. He then contended that income of Rs. 31,670 declared by the assessee before the issue of notice under s. 158BC being income from known sources could not be held as undisclosed income within the scope of s. 158B. He drew our attention to the provisions of aforesaid sections and contended that before holding income as undisclosed income, the Revenue must establish that such income has not been or would not have been disclosed, but for the search. According to him, the income of Rs. 31,670 declared by the assessee was derived from the known sources of the business of the assessee i.e., sale of papad and pickles prepared by her as well as tailoring business. Therefore, there was no question of hiding the same from the Department. Further, the total income was slightly above the taxable limit of Rs. 30,000 and one could believe before finalising the statement of income and that her income was below the taxable limit. Merely because the returns were not filed before the due date, it could not be said that assessee could not have disclosed the said income. According to him, the assessee is required to disclose the income if such income is above the taxable limit. Even the AO has held that such income could not have been considered as undisclosed income. Even the Tribunal, Indore Bench in the case of Smt. Sitadevi Daga vs. Asstt. CIT (1999) 63 TTJ (Ind) 72 : (1998) 67 ITD 151 (Ind), has held that income below the taxable limit need not be disclosed by the assessee and therefore, the same cannot be held as undisclosed income. Therefore, merely such income exceeded by negligible amount, the entire income could not be considered as undisclosed income. At best, the sum of Rs. 1,670 could be considered as undisclosed income. In support of his contentions, he also relied on the decision of this Bench in the case of Parakh Foods Ltd. vs. Dy. CIT (1998) 64 ITD 396 (Pune) and in the case of Vinod Chodawat (ITA No. 61/Pn/1996) and the decision of the Tribunal in the case of Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai) and some other decisions of the Tribunal.
8. On the other hand, the learned Departmental Representative Mr. Bhake has supported the order of the AO. He did not dispute the legal position that where the income of the assessee was below the taxable limit, the same could not be considered as undisclosed income. However, he vehemently argued that where income exceeded the taxable limit, the entire amount could be considered as undisclosed income in view of the provisions of s. 158BB which does not provide any deduction. Specifically, he drew our attention to the provision of cl. (c) of s. 158BB. According to him, if the assessee had not filed any return before the date of search and due date for filing of the return has expired, then it has to be considered as undisclosed income within the meaning of cl. (c) of s. 158BB and no deduction is to be allowed against such income. Since in the present case, due date of the return in respect of asst. yrs. 1994-95 and 1995-96 had expired and no return had been filed before the date of search, the entire income of the assessee could be considered as undisclosed income and, therefore, the AO was justified in considering the income relating to asst. yr. 1994-95 and asst. yr. 1995-96 as undisclosed income though the income for asst. yr. 1995-96 could not be taxed being below the taxable limit.
9. Rival submissions of the parties as well as the materials placed before us have been considered carefully. We have also gone through the case law as well as the scheme of the Act. Regarding the first submission of Mr. Vora, we agree with him that the sum of Rs. 10,790 in respect of asst. yr. 1996-97 cannot be held as income from undisclosed sources. Admittedly, the assessee was assessed to tax for asst. yrs. 1992-93 and 1993-94 before the date of search. Reference may be made to the order of the AO under s. 143(3) for asst. yr. 1993-94 dt. 15th September, 1994. The income declared by the assessee was accepted after making ad hoc addition of Rs. 3,000. It is clearly mentioned in the order that assessee was deriving income from the sale of Papad and pickles as well as tailoring business. The statement of affairs filed along with the return shows cash balance of Rs. 58,090 as on 31st March, 1993. Therefore, it has to be held that assessee had cash availability of Rs. 58,090 out of which she could advance deposit of Rs. 50,000 to M/s. Om Traders after a long period i.e., on 29th April, 1995, inasmuch as there was no material on the record to prove that the aforesaid amount was spent by the assessee for some other purposes. The AO has only given credit of Rs. 39,210 being the amount available from the income of the two years, namely, asst. yrs. 1992-93 and 1993-94. In our opinion, once the statement of affairs as on 31st March, 1993, was accepted, he could have given credit of Rs. 58,090 which was available with the assessee. Even otherwise, AO was not right in holding that Rs. 10,790 was from undisclosed sources because he had failed to take into account the income for asst. yrs. 1994-95 and 1995-96. Had he taken into consideration this income, he could not have arrived at such finding. Therefore, it is held that sum of Rs. 50,000 was advanced to M/s. Om Traders out of his known sources of income and therefore, the sum of Rs. 10,790 could not be considered as undisclosed income.
10. Now the real issue for our consideration is whether the sum of Rs. 31,670 being the income declared by the assessee for asst. yr. 1994-95 could be rightly held as undisclosed income by the AO. In our opinion, the answer is in negative. We have gone through the scheme of Chapter XIV-B. Sec. 158BA is the charging section which is also non obstante clause vis-a-vis the entire provisions of the Act. Therefore, in case of any conflict, this section will prevail over the other sections including sections enacted in Chapter XIV-B. Sub-s. (1) of s. 158BA empowers the AO to proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. Undisclosed income has been defined in s. 158B. So what is to be assessed is the undisclosed income as defined in s. 158B. Sec. 158BB provides how to compute such income. If the income does not fall within the ambit of s. 158B, then, in our opinion, the question of computation would not arise in view of the fact that provisions of s. 158BA are non obstante provisions which would prevail over the procedural provisions of s. 158BB.
11. The scope of provision of s. 158B(b) defining undisclosed income were considered by this Bench in the case of Parakh Foods Ltd. (supra) to which one of us (JM) was party. In that case, it was held in para 21 that definition clause in s. 158B is in two parts. First part is inclusive one which enlarges the natural meaning of undisclosed income while the second part is a restrictive one which specifies its boundaries inasmuch as the legislature has used the words “has not been or would not have been disclosed”. It was also held that scope of these two have to be considered with reference to the date of search. In para 23, at p. 416, the Tribunal considered the natural meaning of the words “undisclosed income” after referring to various dictionary meaning and held as under:
“A close look to the various dictionary meaning clearly shows that ‘undisclosed’ means something which is hidden from the knowledge of others. The word ‘hide’ shows deliberate intention of the person hiding the fact. But where a fact is brought within the knowledge of a person then it cannot be said that such fact is hidden from his knowledge. So it would include every income which is hidden from the knowledge of the Department whether detected as a result of the search or not.”
12. The aforesaid view was also supported by the decision of Delhi High Court in the case of L. R. Gupta vs. Union of India (1992) 194 ITR 32 (Del). The same conclusion was also arrived at by the Mumbai Bench of the Tribunal in the case of Sundar Agencies (supra) after referring to the aforesaid decision of the Delhi High Court.
13. Before applying the aforesaid legal position, it would be useful to mention that the legislature has used the words “has not been or would not have been disclosed” in s. 158B(b). As stated earlier, this Bench in the case of Parakh Foods Ltd. (supra) has held that scope of these words are to be considered with reference to the date of search. These words are to be construed harmoniously. Therefore, if so, construed, then in our opinion the words “has not been” are to be considered in those cases where the disclosure has already been made by the assessee in respect of its income for any assessment year before the date of search and the words “would not have been disclosed” are to be considered in those cases where the returns have not been filed by the assessee before the date of search.
14. In view of the above legal position, the question is whether the income of Rs. 31,670 declared by the assessee for asst. yr. 1994-95 should be considered as undisclosed income under s. 158B. Perusal of the statement of income filed along with the returns for asst. yrs. 1992-93 and 1993-94 shows that sources of income of the assessee were tailoring business as well as preparation and sale of Papads and pickles. Therefore, these sources were well known to the Department. There is no material on the record to show that assessee intended to hide her income for asst. yr. 1994-95 and asst. yr. 1995-96. The income declared by assessee and accepted by the AO for asst. yr. 1994-95 was just slightly higher than the taxable limit. In view of these facts, it cannot be said that assessee would not have disclosed such income to the Department. Assessee cannot be punished merely because he/she failed to file his/her income before the due date or before the date of search. There may be cases that due to various circumstances, beyond the control of the assessee the return could not have been filed on or before due date and the search might have taken place just after the due date. In such case, it would be unreasonable to hold that assessee would not have disclosed such income particularly when assessee is legally permitted to file the valid return under s. 139(4) i.e., after the expiry of the due date specified under s. 139(1). Though such income would fall under cl. (c) of s. 158BB, but would be outside the scope of s. 158B. Therefore, such income cannot be taxed under s. 158BA. Therefore, in our considered opinion, where there is a conflict between the provisions of s. 158BB and s. 158BA r/w s. 158B the provisions of s. 158BA must prevail being charging section and non obstante clause. Accordingly, in genuine cases, where income does not fall within the provisions of s. 158B, the same cannot be brought to tax under s. 158BA even though such income may be computed as undisclosed income under s. 158BB(c).
15. In view of the above discussions, it is held that income of the assessee for any assessment year falling in the block period from known sources of tailoring business and business of sale of Papad and pickles, in the absence of any incriminating material, could not be said to be income which assessee would not have disclosed. However, it is clarified that the fact whether the assessee would or would not have disclosed, but for the search operations would depend on the facts of each case and no uniform test can be laid down in this regard. Consequent to the above finding, it is held that the sum of Rs. 31,670 for asst. yr. 1994-95 cannot be considered as undisclosed income and therefore, the AO is directed to exclude the same from the block assessment.
16. In the result, appeal of the assessee is allowed.