The Assistant Commissioner of Income Tax, Chennai v. M/S A.R. Enterprises
D.K. JAIN, J. 1. Leave granted in all the Special Leave
Petitions.
2. This batch of six appeals, arises from separate
F judgments of the High Court of Madras in the appeals preferred
by the revenue under Section 260A of the Income Tax Act, 1961
(for short "the Act") rendered in Tax Case (Appeal) Nos.238 of
2000 on 8th September 2004; 1371, 1372, 1373 of 2005 on
2nd January 2006; 687 of 2007 on 18th June 2007; and 620
of 2009 on 21st July 2009. This judgment shall govern all these
G appeals since they entail a common substantial question of law,
as is evident from the adjudication of the High Court. However,
to appreciate the issue involved, Civil Appeal No.2688 of 2006
is treated as the lead case At the outset we may note that
despite service of notice, no appearance was entered for the
H respondent-assesses, except in C.A. No. 2688/2006 and C.A.
ASSISTANT COMMISSIONER OF INCOME TAX, 305
CHENNAI v. A.R. ENTERPRISES [D.K. JAIN, J.]
No. 2580/2010. A
Facts
3. The respondent-assessee is a firm which came into
existence on 25th June, 1992. On 23rd February, 1996, a
search operation under Section 132 of the Act was carried out B
at the premises of another concern, viz. Mis A.R. Mercantile
Private Limited. During the course of search, certain books and
documents pertaining to the assessee i. e. Mis A.R.
Enterprises, were seized. On scrutiny, the Assessing Officer
found that though the assessee had taxable income for ttie C
assessment year 1995-96, no return of income had been filed
(due to be filed on or before 31st October, 1995) till the date
of search. Based on the material seized by virtue of the
aforesaid search, the Assessing Officer was satisfied that the
assessee had not disclosed their income pertaining to the D
assessment year 1995-96. Accordingly (without recording any
reasons for his satisfaction), he initiated action under Section
15880 of the Act requiring the assessee to file their return of
income. The assessee, after filing return for the block period
(ten years preceding the previous year), which covered E
assessment years 1993-94 to 1995-96, pointed out that they
had already filed returns for the assessment years 1993-94 and
1994-95. They objected to action initiat~d under Chapter XIVB
of the Act on the ground that in relation to the assessment year
1995-96, Advance Tax had already been paid in three
installments and, therefore, income for that period could not be
deemed to be undisclosed.
4. Rejecting the plea of the assessee, the Assessing
Officer formed the opinion that the assessee had failed to file
the return as on the date of search, and the seized documents G
did show income, which had not been or would not have been
declared. Accordingly, he proceeded to compute total
undisclosed income for the block period 1993-94 to 1995-96
(upto the date of search), treating the income returned by the
assessee for the period 1995-96 as NIL, as stipulated in H
306 SUPREME COURT REPORTS (2013] 1 S.C.R.
A Section 158BB (1)(c) of the Act.
5. Against the said order, the assessee preferred an
appeal before the Tribunal. Accepting the stand of the
assessee, the Tribunal allowed the appeal, and held that having
B paid the Advance Tax, the assessee had disclosed his income
for the relevant assessment year. The Tribunal observed thus:
"Now coming to the facts of the present case, as stated
supra, the assessee has not filed his return in time, but
even after that date the assessee has filed his return
C voluntarily. Moreover not only that the assessee has also
estimated his income for the year and paid advance tax
thereon as detailed below:
15.09.1994 Bank of Baroda, Rs.1,60,000
T.Nagard.
12.12.1994 -do- Rs.1,60,000
16.03.1994 -do- Rs.1,60,000
Rs.4,80,000
This would indicate that the assessee has made known
to the income tax department his income for the year and
also paid the income tax thereon well before the due dates
and of course well before the date of search also. Even
F this fact of income was voluntarily disclosed by the
assessee to the ADI (inv.) ... "
Consequently, the Tribunal declared the said assessment,
made under Section 158BD of the Act, as null and void.
6. Being dissatisfied, the Revenue preferred an appeal
before the High Court of Madras under Section 260A of the Act,
questioning the validity of the order of the Tribunal. Entertaining
the appeal, the High Court formulated the following substantial
question of law for adjudication:
ASSISTANT COMMISSIONER OF INCOME TAX, 307
CHENNAI v. A.R. ENTERPRISES [D.K. JAIN, J.]
"Whether the Appellate Tribunal is rigbt in law in cancelling A
the assessment under Chapter XIV-B in light of the specific
provision contained in Section 15888(1) (c) ofthe Income
Tax Act?"
7. Before the High Court, the stand of the Revenue was 8 that since return for the assessment year 1995-96 had not been
filed by the due date, by filing the return after the search, the
assessee could not escape the consequences as stipulated in
Chapter XIVB of the Act. It was contended that payment of
Advance Tax by itself did not establish the intention to disclose
the income. In support of the proposition, reliance was placed C
on the decision of the High Court of Madras in B. Noorsingh
Vs. Union of India & Ors.1• In that judgment, the High Court had
observed:
" ... Counsel submitted that in cases (sic) whereas in the o
case of the present petitioner, the assessee had paid
advance tax, such payment would clearly indicate his
intention to disclose his income and it could not be said
that such person would not have disclosed his income. The
payment of advance tax by itself does not establish an
intent to disclose the income. The disclosure is to be made
by filing the return. Even in search cases where the time
for filing the return under section 139(1) has not expired,
income disclosed in the books of account is not treated
as undisclosed income. All that is denied to the assessee
in search cases is the opportunity to file a return after the
period specified in section 139(1) and to claim that the
income that he would have disclosed in a belated return
is not to be regarded as undisclosed income. The reason
for denying such opportunity in search cases is obvious. G
After having suffered a search, the assessee is not to be
enabled to escape the consequences of his failure to
disclose all his income by filing a return after the search
1. (2001) 249 ITR 378. H
A and after the expiry of the time prescribed under section
139(1) and by disclosing therein income which had
remained undisclosed upto the date of the search."
8. Revenue's plea did not find favour with the High Court.
lnter-alia, observing that payment of Advance Tax itself 8 necessarily implies disclosure of the income on which the
advance is paid, the High Court held as follows:
"Under clause (d) of sub-section(1) of section 15888 while
assessing the aggregate of the total income, the income
recorded in the books of account and other documents
maintained in the normal course on or before the date of
the search or requisition relating to such previous year shall
be taken into consideration where the previous year has
not ended or the date of filing the return of the income
under sub-section (1) of section 139 has not expired.
When the assessee is required to file the self-assessment
for payment of the advance tax before the income-tax
authorities the return of assessment would fall within the
documents maintained in the normal course by the
assessee and as such the income disclosed on payment
of the advance tax would fall within clause (d) of sub
section (1) of section 15888. In any case although there
is a difference between the regular assessment and the
block assessment, as we have already noticed, unless the
provisions of the block assessment specifically bar the
assessing authority from taking into consideration the
income disclosed by the assessee on payment of the
advance tax to be taken into consideration, the income
disclosed by the assessee on payment of advance tax
would be an income disclosed to the Revenue and cannot
be treated as an income undisclosed for the relevant
assessment year."
9. Aggrieved thereby, as aforesaid, the Revenue is before
us in these appeals.
ASSISTANT COMMISSION.ER OF INCOME TAX, 309
CHENNAI v. A.R. ENTERPRISES [D.K. JAIN, J.]
10. The short question for consideration is whether A
payment of Advance Tax by an assessee would by itself
tantamount to disclosure of income for the relevant assessment
year and whether such income can be treated as undisclosed
income for the purpose of application of Chapter XIV8 of the
A~ 8
Scope of Chapter XIV-B and its Provisions
11. Sections 132 and 132A of the Act incorporate
provision of search, ~eizure and requisition which were resorted
to for the conduct of search at the premises of M/s A.R. C
Mercantile Pvt. Ltd. For the evaluation of the material seized
during the operation or proceedings under Sections 132 or
132A of the Act, as the case may be, the provisions contained
in Chapter XIV-8 come into play. This chapter, consisting of
sections 1588 to 1588H was inserted by the Finance Act, 1995 D
with effect from 1.07.1995. The heading of Chapter XIV-8
reads "Special Procedure for Assessment of Search Cases".
It was introduced for the assessment of undisclosed income
determined as a result of search carried out under Section 132
of the Act or requisitioning of documents or assets under E
Section 132A of the Act. The chapter is a self-contained code
and gets attracted as a result of search proceedings initiated
by the income tax authorities, under Section 132 of the Act,
notwithstanding any other provisions of the Act except to the
extent provided for in the chapter.
12. In the facts before us, resort to this chapter was
required to be made since on conduct of search at the premises
of M/s A.R. Mercantile Pvt. Ltd., documents of M/s A.R.
Enterprises, i.e. the assessee were recovered, that indicated
non-disclosure of income by the latter. In such a scenario, G
Section 15880 gets attracted, which reads as follows:
"Undisclosed income of any other person.
15880. Where the Assessing Officer is satisfied that any
undisclosed income belongs to any person, other than the H
A person with respect to whom search was made under
section 132 or whose books of account or other
documents or any assets were requisitioned under section
132A, then, the books of account, other documents or
assets seized or requisitioned shall be handed over to the
8 Assessing Officer having jurisdiction over such other
person and that Assessing Officer shall proceed [under
section 158BC] against such other person and the
provisions of this Chapter shall apply accordingly."
13. A bare reading of the afore-extracted provision makes
C it clear that the condition precedent for invoking a block
assessment is a search conducted under Section 132, or
documents or assets requisitioned under Section 132-A.
Moreover, Section 15880 permits the application of the
provisions of this chapter only on the satisfaction of the
0 assessing officer that the seized documents show undisclosed
income of a person other than the person with respect to whom
search was conducted or a requisition was made. It is trite law
that such satisfaction must be recorded for the benefit of the
assessee. In Manish Maheshwari Vs. Asstt. Commissioner of
E Income Tax & Anr.2, this Court summarized the prerequisites
of Section 15880 of the Act as follows:
"11 .. .. (1) satisfaction must be recorded by the assessing
officer that any undisclosed income belongs to any person,
other than the person with respect to whom search was
made under Section 132 of the Act; (it) the books of
accounts or other documents or assets seized or
requisitioned had been handed over to the assessing
officer having jurisdiction over such other person; and (iit)
the assessing officer has proceeded under Section 158-
BC against such other person."
14. In Assistant Commissioner of Income Tax Vs. Hotel
Blue Moon3, one of us (H.L. Oattu, J.) while explaining the
2. (2007) 3 sec 794.
H 3. (2010) 3 sec 259 at page 264.
ASSISTANT COMMISSIONER OF INCOME TAX, 311
CHENNAI v. AR. ENTERPRISES [D.K. JAIN, J.]
purport of Chapter XIV8 of the Act, has observed that a search A
is the sine qua non for the block assessment; the special
provisions are devised to operate in the distinct field of
undisclosed income and are clearly in addition to the regular
assessments covering the previous years falling in the block
period, intended to provide a mode of assessment of 8
undisclosed income, which has been detected as a result of
search. Hence, from the aforementioned discussion it is clear
that a valid search under Section 132 of the Act is a sine qua
non for invoking block assessment proceedings under Chapter
XIV8. Further according to Section 15880 of the Act the C
assessing officer m,ust record his or her satisfaction that any
undisclosed income belongs to any person, other than the
person with respect to whom search was made under Section
132 of the Act.
15. It seems that these requisites were in fact not adhered D
to in the present case. During the course of hearing, learned
counsel for the assessee did contend that the Revenue did not
have jurisdiction to invoke Chapter XIV8 of the Act, against the
assessee. According to the learned counsel, before initiating
proceedings under Section 15880 of the Act, the assessing
officer had not recorded his satisfaction that any undisclosed
income belonged to the assessee or that the assessee did not
have the intention to disclose their income. Hence, the block
assessment proceedings against the assessee should be
quashed. However, we are unable to appreciate the
submission of the learned counsel at this stage, since the same
was never urged before the High Court and the Tribunal. Hence,
we refrain from making any observations on a contention that
had never been argued before the High Court and the Tribunal.
We shall restrict our opinion strictly to the issue before us, viz. G
whether the payment of Advance Tax for the relevant
assessment year is tantamount to disclosure of income for the
purpose of application of Chapter XIV8 of the Act.
16. The relevant provisions for assessment, computation H
A and procedure of block assessment, which would come into
play on the application of Section 15880, in their erstwhile form
at the relevant time, read as follows: -
8
"Assessment of undisclosed income as a result of
search.
158BA. (1) Notwithstanding anything contained in any
other provisions of this Act, where after the 30th day of
June, 1995 a search is initiated under section 132 or
books of account, other documents or any assets are
requisitioned under section 132A in the case of any
person, then, the Assessing Officer shall proceed to
assess the undisclosed income in accordance with the
provisions of this Chapter.
Procedure for block assessment.
158BC. Where any search has been conducted under
section 132 or books of account, other documents or
assets are requisitioned under section 132A, in the case
of any person, then,-
(a) the Assessing Officer shall-
(1) in respect of search initiated or books of account
or other documents or any assets requisitioned
after the 30th day of June, 1995, but before the 1st
day of January, 1997, serve a notice to such person
requiring him to furnish within such time not being
less than fifteen days;
xxxxxx xxx
(b) the Assessing Officer shall proceed to determine
the undisclosed income of the block period in the
manner laid down in section 15888 and the
provisions of section 142, sub-sections (2) and (3)
of section 143 section 144 and section 145 shall,
ASSISTANT COMMISSIONER OF INCOME TAX, 313
CHENNAI v. A.R. ENTERPRISES [D.K. JAIN, J.]
so far as may be, apply; ... " A
[Emphasis supplied]
17. Section 1588 of the Act, which encompasses the crux
of the issue, reads as follows:
"Definitions.
1588. In this Chapter, unless the context otherwise
requires, -\
8
(a) "block period" means the previous years relevant to ten C
assessment years preceding the previous year in which
the search was conducted under section 132 or any
requisition was made under section 132A, and includes,
in the previous year in which such search was conducted
or requisition made, the period up to the date of the D
commencement of such search or, as the case may be,
the date of such requisition;
(b) "Undisclosed income" includes any money, bullion,
jewellery or other valuable article or thing or any income · E
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 purposes of this Act." F
[Emphasis supplied]
18. The genesis of the issue before us lies within the folds
of this section. Sections 15880 and 1588C, along with the rest G
of Chapter XIV-B, find application only in the event of discovery
of "undisclosed income" of an assessee. Undisclosed income
is defined by Section 1588 as that income "which has not been
or would not have been disclosed for the purposes of this Acf'.
The legislature has chosen to define "undisclosed income" in H
A terms of income not disclosed, without providing any definition
of "disclosure" of income in the first place. We are of the view
that the only way of disclosing income, on the part of an
assessee, is through filing of a return, as stipulated in the Act,
and therefore an "undisclosed income" signifies income not
B stated in the return filed. Keeping that in mind, it seems that
the legislature has clearly carved out two scenarios for income
to be deemed as undisclosed: (i) where the income has clearly
not been disclosed and (ii) where the income would not have
been disclosed. If a situation is covered by any one of the two,
C income would be undisclosed in the eyes of the Act and hence
subject to the machinery provisions of Chapter XIVB. The
second category, viz. where income would not have been
disclosed, contemplates the likelihood of disclosure; it is a
presumption of the intention of the assessee since in concluding
0 that an assessee would or would not have disclosed income,
one is ipso facto making a statement with respect to whether
or not the assessee possessed the intention to do the same.
To gauge this, however, reliance must be placed on the
surrounding facts and circumstances of the case.
E 19. One such fact, as the assessee claims, is the payment
of Advance Tax. However, in our opinion, the degree of its
material significance depends on the time at which the search
is conducted in relation to the due date for filing return.
Depending on which side of the due date the search is
F conducted, material significance of payment of Advance Taxes
vacillates in construing the intention of the assessee. 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. Such a situation
G would find place within the first category carved out by Section
1588 of the Act i.e. where income has clearly not been
disclosed. The possibility of the intention to disclose does not
arise since, as held earlier, the opportunity of disclosure has
lapsed i.e. through filing of return of income by the due date. If,
H on the other hand, search is conducted prior to the due date
ASSISTANT COMMISSIONER OF INCOME TAX, 315
CHENNAI v. A.R. ENTERPRISES [D.K. JAIN, J.]
for filing return, the opportunity to disclose income or, in other A
words, to file return and disclose income still persists. In which
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 an B
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-a-vis date of search. Payment of c
Advance Tax may be a relevant factor in construing intention
to disclose income or filing return as long as the assessee
continues to have the opportunity to file return and disclose his
income and not past the due date of filing return. Therefore,
there can be no generic rule as to the significance of payment 0 of Advance Tax in construing intention of disclosure of income.
The same depends on the facts of the case, and hinges on the
positioning of the search operations qua the due date for filing
returns.
20. Thus, at the very outset, in our view, the question that E
whether payment of Advance Tax by an assessee per se is
tantamount to disclosure of total income, for the relevant
assessment year, must be answered in the negative. On further
scrutiny, we find yet another reason to opine so. Payment of
Advance Tax and filing of return are functions of completely F
different notions of income i.e. estimated income and total
income respectively. The payment of Advance Tax is based on
an estimation of the total income that is chargeable to tax and
not on the total income itself.
21. Section 2(45) of Act defines "total income" as-
"total income" means the total amount of income referred
to in section 5, computed in the manner laid down in this
Act;"
22. Section 5 of the Act lays down the "scope of total
income" as-
"5. (1) Subject to the provisions of this Act, the total
income of any previous year of a person who is a resident
includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in
such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to
c him in India during such year ; or
(c) accrues or arises to him outside India during such year
. "
23. Section 15888(1) of the Act provides the method of
D computation of undisclosed income for a block period. It is
significant to note that the computation of the undisclosed
income of the block period shall be the aggregate of the total
income of the previous years falling within the block period,
computed in accordance with the provisions of the Act. This
E amount is reduced by the aggregate of the total income, or as
increased by the losses returned or determined earlier, in
respect of such previous years in accordance with the
provisions of this section.
24. Section 15888(1) reads as follows-
"15888. (1) The undisclosed income of the block period
shall be the aggregate of the total income of the previous
years falling within 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 account or other documents and such other materials
or information as are available with the Assessing Officer
and relatable to such evidence, as reduced by the
aggregate of the total income, or as the case may be, as
increased by the aggregate of the losses of such previous
ASSISTANT COMMISSIONER OF INCOME TAX, 317
CHENNAI v. A.R. ENTERPRISES [D.K. JAIN, J.]
years, determined,- A
(a) XXX
(b) xxx
xxx
xxx
xxx
xxx
(c) where the due date for filing a return of income has 8
expired but no return of income has been filed. as nil
25. Further, the explanation to Section 15888(1) reads
" Explanation: For the purposes of determination of
undisclosed income,- C
(a) the total income or loss of each previous year shall, for
the purpose of aggregation, be taken as the total income
or loss computed in accordance with the provisions of
Chapter IV without giving effect to set off of brought forward o
losses under Chapter VI or unabsorbed depreciation under '
sub-section (2) of section 32;
(b) of a firm, or its partners, the method of computation of
undisclosed income and its allocation to the partners shall E
be in accordance with the method adopted for determining
the assessed income or returned income for each of the
previous years falling within the block period; ... "
26. Hence, the computation of "undisclosed income" for the
purposes of Chapter XIV8 has to be construed in terms of the F
"total income" received, accrued, arisen; or which is deemed
to have been received, accrued or arisen in the previous year,
and is computed according to the provisions of the Act.
According to Section 139( 1) of the Act, every person who is
assessable under the Act, must file a return declaring his or her G
total income during the previous year on or before the due date,
for assessment under Section 143 of the Act. Hence, the
'disclosure of income' is the disclosure of the total income in a
valid return under Section 139, subject to assessment and
chargeable to tax under the provisions of the Act. It is important H
A to bear in mind that total income is distinct from the estimated
income, upon the basis of which, Advance Tax is paid by an
assessee. Advance Tax is based on estimated income, and
hence, it cannot result in the disclosure of the total income
assessable and chargeable to tax.
B 27. Before we proceed further to elaborate upon this
distinction, it would be useful to refer to the provisions relating
to payment of Advance Tax under the Act. Chapter XVII of the
Act, which deals with "Collection and Recovery of Tax'', contains
provisions for the payment of Advance Tax and tax deducted
C at source. Advance Tax is the tax payable on the estimated total
income of the relevant financial year which is chargeable to tax
in the assessment year but is payable in that very financial year.
28. Section 207 of the Act lays down the liability for
D payment of Advance Tax as:-
"207. Tax shall be payable in advance during any financial
year, in accordance with the provisions of sections 208 to
219 (both inclusive), in respect of the total income of the
assessee which would be chargeable to tax for the
assessment year immediately following that financial year,
such income being hereafter in this Chapter referred to as
"current income."
29. Section 208 specifies the conditions of liability to pay
F Advance Tax as:-
"208. Advance tax shall be payable during a financial year
in every case where the amount of such tax payable by the
assessee during that year, as computed in accordance with
the provisions of this Chapter, is one thousand five hundred
rupees or more."
30. Thus, in every case where the amount of tax payable
on the total income earned during the financial year is one
thousand five hundred rupees or more, then, an assessee would
H be liable to pay in the financial year itself, Advance Tax on such
ASSISTANT COMMISSIONER OF INCOME TAX, 319
CHENNAI v. AR. ENTERPRISES [D.K. JAIN, J.]
income, also known as "current income." It is in this context the A
following questions arise: (i) What is the nature of the "current
income" upon which the Advance Tax is paid and is it the same
as the total income? and (ii) Whether the payment of Advance
Tax results in the disclosure of the actual total income?
B 31. Section 210(1) of the Act refers to the payment of
Advance Tax by the assessee of his own accord:-
"210. (1) Every person who is liable to pay advance tax
under section 208 (whether or not he has been previously
assessed by way of regular assessment) shall, of his own C
accord, pay, on or before each of the due dates specified
in section 211, the appropriate percentage, specified in
that section, of the advance tax on his current income,
calculated in the manner laid down in section 209."
32. Section 209(1 )(a) lays down the method of
computation of Adva,nce Tax to be paid by an assessee as
follows:
"209. [(1) The amount of advance tax payable by an
assessee in the financial year shall, subject to the E
provisions of sub-sections (2) and (3), be computed as
follows, namely :-
(a) where the calculation is made by the assessee for the
purposes of payment of advance tax under sub-section (1) F
or sub-section (2) or sub-section (5) or sub-section (6)
of section 210, he shall first estimate his current income
and income-tax thereon shall be calculated at the rates in
force in the financial year .. "
33. According to Section 210(1) of the Act, every person G
who is liable to pay Advance Tax under Section 208 (whether
or not he has been previously assessed by way of regular
assessment) shall, of his own accord, pay Advance Tax on his
"current income", calculated in the manner laid down in section
209. Further according to Section 209(1)(a), the assessee shall H
A first estimate his "current income" and thereafter pay income
tax calculated on this estimated income on the rates in force
in the relevant financial year. It is significant to note that this
income is an estimation that is made by the assessee and may
not be the exact income, which may ultimately be declared in
B the return under Section 139 and assessed under Section 143
of the Act. Needless to emphasise that payment of Advance
Tax does not absolve an assessee from an obligation to file
return disclosing total income for the relevant assessment year.
In short, the disclosure of total income by the filing of return
c under Section 139 of the Act is mar:idatory even after the
payment of Advance Tax by an assessee, since the "current
income" which forms the basis of the Advance Tax is a mere
estimation and not the final total income for the relevant
assessment year liable to be assessed.
34. In Brij Lal & Ors. Vs. Commissioner of Income Tax,
Jalandhar', while explaining the scope of the provisions on
Advance Tax, this Court expressed the view that the "current
income" in respect of which the assessee pays Advance Tax
is not the same as understood in Section 2(45). In this regard,
the Court held:
"8. Liability to pay advance tax arises under Section 207.
The said section is based on the principle "pay as you
earn". It requires tax to be paid during the financial year. It
has to be in respect of the total income of the assessee
which would be chargeable to tax under the Act. The said
total income is not as understood in Section 2(45) but it
is equated to "current income" for the purposes of Chapter
XVII. After the amending Act of 1987. advance tax is to
be paid on the current income which would be chargeable
to tax for the assessment year immediately following the
financial year. Section 210 casts the responsibility of
payment of advance tax on the assessee without requiring
the assessee to submit his estimate of advance tax
H 4. c2011) 1sec1.
ASSISTANT COMMISSIONER OF INCOME TAX, 321
CHENNAI v. AR. ENTERPRISES [D.K. JAIN, J.]
payable. Provision for payment of advance tax is a mode A
of quick collection of tax.
9. Thus, Section 207 defines liability to pay advance tax
in respect of incomes referred to in Section 208. However,
advance tax paid is adjustable towards the tax due. 8 Advance tax is collected even before the income tax
becomes due and payable. By its very nature, advance tax
is pre-assessment collection of taxes either by deduction
of tax at source or by payment of advance tax which has
to be adjusted towards income tax levied on the total C
income. The above two methods of realisation even
before any assessment is authorised by Section 4(2) are
incorporated in Chapter XVII which deals with "collection
and recovery".
15. Now, Chapter XVII deals with "collection and recovery". D
It covers tax deduction at source and advance payment of
taxes (see Section 190). Part C Chapter XVII deals with
advance payment of taxes. Section 207 refers to liability
to pay advance tax whereas Section 209 deals with
computation of advance tax. Section 215 refers to interest E
payable by the assessee. Section 210(1) inter alia
provides that every person who is liable to pay interest (sic
advance tax) under Section 208, shall of his own accord
pay, on each of the due dates specified in Section 211,
the appropriate percentage of advance tax on his current F
income calculated in the manner under Section 209."
35. A catena of decisions by various High Courts has
reiterated that the Advance Tax payable under Chapter XVII is
based on an estimate of the total income of the assessee for
the relevant financial year, and is not the final "total income" G
which must be disclosed for assessment through the filing of a
return under Section 139 of the Act in the following assessment
year. An estimate always has an element of guesswork. There
could be various reasons due to which an estimate may be
faulty and inaccurate which is wby, there is a provision for H
A payment of interest on deficient or excess payment of advance
tax when there is variation between advance tax paid and
actual liability to tax. [See: Commissioner of Income Tax Vs.
' Smt. Premlata Jalani5, Bill & Peggy Marketing India Pvt. Ltd.
Vs. Assistant Commissioner of Income Tax6, Prime Securities
B Ltd. Vs. Assistant Commissioner of Income Tax7 ,
Commissioner of Income Tax Vs. Nilgiri Tea Estate Ltd. 8,
Kwality Biscuits Ltd. Vs. Commissioner of Income Tax9 which
was subsequently affirmed in Commissioner of Income Tax
Vs. Kwality Biscuits Ltd.10].
36. The Punjab and Haryana High Court in Commissioner
of Income Tax Vs. Upper India Steel Mfg. and Engg. Co. Ltd.11
made the following important observations:
"24. We fully concur with the view expressed in the
aforesaid judgments. The Madras High Court has correctly
pointed out that for the purpose of payment of advance tax,
all assessees including companies, are required to make
an estimate of their current income. Even before the
introduction of the provisions of Section 115J of the Act,
companies had been estimating their total income after
providing deductions admissible under the Act. In fact, all
assessees who maintain books of account have to
undertake this exercise for the purpose of payment of
advance tax. If a profit and loss account can be drawn up
on estimate basis for the purpose of Income-tax Act, it is
not understood as to why a similar profit and loss account
on estimate basis under the Companies Act cannot be
5. [2003] 264 ITR 744 (Raj).
G 6. 191 (2012) DLT 249.
7. [2011] 333 ITR 464 (Born).
8. [2009] 312 ITR 161 (Ker).
9. [2000] 243 ITR 519 (Kar).
10. [2006) 284 ITR 434 (SC).
H 11. [2005] 279 ITR 123 (P&H).
ASSISTANT COMMISSIONER OF INCOME TAX, 323
CHENNAI v. A.R. ENTERPRISES [D.K. JAIN, J.]
drawn up. If the explanation of the companies that the A
profits under Section 11 SJ of the Act can only be
determined after the close of the year were to be accepted,
then no assessee who maintai~s regular books of account
would be liable to pay advance tax as in those cases also,
income can only be determined after the close of the books B
of account at the end of the year."'
37. We are, therefore, of the view that since the Advance
Tax payable by an assessee is an estimate of his "current
income" for the relevant financial year, it is not the actual total C
income, to be disclosed in the return of income. To repeat, the
vital distinction being that the "current income" is an estimation
or approximation, which may not be accurate or final; whereas
the "total income" is the exact income disclosed in a valid return,
assessable by the Revenue. The fact that the "current income"
is an estimation implies that it is not final and is subject to D
further adjustments in the form of additions or reductions, as
the case may be, and would have to be succeeded by the
disclosure of final and total income in a valid return. It will be a
misconstruction of the law to construe the undisclosed income
for purposes of Chapter XIVB as an "estimate" of the total E
income, which is assessable and chargeable to tax. Therefore,
we are unable to accept that payment of Advance Tax based
on "current income" involves the disclosure of "total income",
as defined in Section 2(45) of the Act, which has to be stated
in the return of income. The same is evidenced in the scheme F
of Chapter XIVB, in particular.
38. Section 15888(3) of the Act states-
'
(3) The burden of proving to the satisfaction of the
Assessing Officer that any undisclosed income had G
already been disclosed in any return of income filed by the
assessee before the commencement of search or of the
requisition, as the case may be, shall be on the assessee.
39. Thus, for the purposes of computation of undisclosed H
A income under Chapter XIV8, an assessee can rebut the
Assessing Officer's finding of undisclosed income by showing
that such income was disclosed in the return of income filed
by him before the commencement of search or the requisition.
In other words, when Section 15888(3) is read with Section
8 1588(b), which defines undisclosed income, we reach the
conclusion that for income to be considered as disclosed
income, the same should have been disclosed in the return filed
by the assessee before the search or requisition. In our opinion,
on failure to file return of income by the due date under Section
c 139 of the Act, payment of Advance Tax per se cannot indicate
the intention of an assessee to disclose his income.
40. If we were to hold that the payment of Advance Tax
reflects the intention of the assessee to disclose its income, it
could result in a situation where the mandatory obligation of
D filing a return for disclosure of income under the provisions of
the Act, would not be necessary. It will be open to an assessee
to contend that payment of Advance Tax is tantamount to
disclosure of income. Such a proposition would be contrary to
the very purpose of filing of return, which ultimately leads to
E assessment of total income for the relevant assessment year.
Any anomaly in the return entails serious consequences, which
may not otherwise be attracted on estimation of income for the
purpose of payment of Advance Tax. It would thus, be difficult
to accept the plea that payment of Advance Tax is tantamount
F to the disclosure of income or that it indicates the intention of
the assessee to disclose income.
41. In the instant case, after the search was conducted on
23rd February 2006, it was found that for the assessment year
G 1995-96, the respondent-assessee had not filed its return of
income by the due date. It is only when block assessment
proceedings were initiated by the assessing officer, that the
assessee filed its return for the said assessment year on 11th
July, 1996 under Section 1588C of the Act, showing its total
income as Rs.7,02,768/-. The assessee claimed, that since
H Advance Tax had been paid in three installments, it could not
ASSISTANT COMMISSIONER OF INCOME TAX, 325
CHENNAI v. A.R. ENTERPRISES [D.K. JAIN, J.]
have been said that the income had not been disclosed or that A
there was no intention to disclose income. We have already
held that the payment of Advance Tax, which is based upon
estimated income, cannot tantamount to the disclosure of the
total income, which must be declared in the return. In our
opinion, the fact that the assessee had not filed its return of B
income by the due date, the Assessing Officer was correct in
assuming that the assessee would not have disclosed its total
income. For all these reasons, the decision of the High Court
cannot be sustained.
42. Lastly, since C.A. No. 2580/201 O refers to a slightly C
different issue, we deem it fit to record our observations with
respect to the same. In this appeal, the issue is whether tax
deducted at source (and not payment of Advance Tax) amounts
to the disclosure of income.
43. Section 190 of the Act states-
190 (1) Notwithstanding that the regular assessment in
respect of any income is to be made in a later assessment
year, the tax on such income sha!I be payable by E
deduction 12 [or collection] at source or by advance
payment 13 [or by payment under sub-section (1A) of
section 192], as the case may be, in accordance with the
provisions of this Chapter.
(2) Nothing in thi~ section shall prejudice the charge of tax F
oo such income under the provisions of sub-section (1) of
section 4.
44. Since the tax to be deducted at source is also
computed on the estimated income of an assessee for the G
relevant financial year, such deduction cannot result in the
disclosure of the total income for the relevant assessment year.
12. Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-6-1988.
13. Inserted by the Finance Act, 2002, w.e.f. 1-6-2002. H
A Subject to the monetary limit of the total income, every person
is obligated to file his return of income even after tax is
deducted at source. Hence, for the reasons stated in the
preceding paragraphs, we are of the opinion that mere
deduction of tax at source, also, does not amount to disclosure
B of income, nor does it indicate the intention to disclose income
most definitely when the same is not disclosed in the returns
filed for the concerned assessment year.
45. Consequently, we allow the appeals; set aside the
impugned judgments and answer the question formulated by the
C High Court, extracted in para 6 (supra), in favour of the Revenue.
The Revenue shall be entitled to costs, quantified at Rs.50,000/
- in each set of appeals.
R.P. Appeals allowed