THE COMMISSIONER OF INCOME TAX THRISSUR vs. C.S. AJAYAYAKUMAR, THRISSUR

Q: Which sections of the Income-tax Act were involved?

Section 158BB(1)(d), Section 143(3)

ITA/1806/2009HC KeralaKLHC01026567200905 March 2012Bench: HONOURABLE MR. JUSTICE BABU MATHEW P.JOSEPH,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR5 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal was justified in cancelling the assessment of undisclosed income for the broken period. The Court reasoned that Section 158BB(1)(d) of the Income Tax Act, 1961, provides for the exclusion of income for the block period up to the date of search if the assessee has recorded details of such income in their books. Although the accounts were irregular, the assessee's payment of advance tax on estimated business income, which was the same income assessed as undisclosed, constituted an admission of income. The Court found that paying advance tax on estimated income is sufficient to exclude it from the scope of undisclosed income for the broken period, as it indicates the assessee did not intend to suppress the income, even if accounts were not fully updated. Therefore, the Department's appeal was dismissed.

What were the facts?

The appeal concerns the assessment of undisclosed income for a broken period of a financial year, up to the date of a search. The assessee, Shri C.S. Ajayakumar, had paid advance tax of Rs. 5.80 lakhs for the previous year in which the search occurred, even before the search date. Subsequently, the assessee remitted a total of Rs. 16.90 lakhs as advance tax for an income of Rs. 36 lakhs, which was later assessed as undisclosed income for the block period up to the search date. The Revenue challenged the Income Tax Appellate Tribunal's decision to cancel the assessment of this undisclosed income.

What were the issues?

1. Whether the Tribunal was justified in cancelling the assessment of undisclosed income for the broken period of the previous year, up to the date of search, when the assessee had paid advance tax on such income? (Question of law, concerning Section 158BB(1)(d) of the Income Tax Act, 1961). Assessee's Contention: The assessee argued that the payment of advance tax on estimated business income, which constituted the undisclosed income for the broken period, should exclude such income from the scope of undisclosed income for the block period. The payment of advance tax itself is an admission of income. Revenue's Contention: The Revenue relied on the decision of the Division Bench of the Kerala High Court in CIT v. Binoy Mathai (311 ITR 226), implying that such income should be taxable as undisclosed income. The Revenue's argument was that despite the advance tax payment, the income remained undisclosed for the broken period.

Which sections of the Income-tax Act were involved?

Section 158BB(1)(d),Section 143(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HON'BLE MR. JUSTICE BABU MATHEW P.JOSEPH MONDAY, THE 5TH DAY OF MARCH 2012/15TH PHALGUNA 1933 ITA.No. 1806 of 2009 ( ) ----------------------------- ITA.91/2008 of I.T.A.TRIBUNAL,COCHIN BENCH ------------- APAPPELLANT/RESPONDENT.: ---------------------------------- THE COMMISSIONER OF INCOME TAX, THRISSUR

BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/APPELLANT.: ------------------------------------ SHRI.C.S.AJAYAKUMAR, CHITTIKAPPIL HOUSE, KURIACHIRA, THRISSUR. BY ADV. SRI.ANIL D. NAIR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 05-03-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: svs

I.T.A. NO. 1806/2009 APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A:COPY OF ORDER U/S.158 BC R.W.S143(3) OF THE INCOME TAX ACT, 1961 DATED 28/11/2003. ANNEXURE B:COPY OF THE ORDER CIT(APPEALS) IN APPEAL NO.R088/03-04 DATED 06/01/2005. ANNEXURE C:COPY OF THE ORDER OF INCOME TAX APPELLATE TRIBUNAL DATED 27/04/2009 (IT (SS)A NO.91/(COCH)/2005). ANNEXURE D:COPY CTR ENCYLOPAEDIA ON INDIAN TAX LAWS. RESPONDENT'S ANNEXURES: NIL /TRUE COPY/ P.A. TO JUDGE. svs

C.R. C.N.RAMACHANDRAN NAIR & BABU MATHEW P.JOSEPH, JJ. .................................................................... I.T.A. No.1806 of 2009 .................................................................... Dated this the 5th day of March, 2012. J U D G M E N T Ramachandran Nair, J. Heard learned Senior Standing Counsel for the Revenue and Shri.Anil D.Nair, learned counsel for the respondent assessee. 2. The question raised is whether the Tribunal was justified in cancelling assessment of undisclosed income for the broken period for which, time for filing return was not over as on date of search. Learned Senior Standing Counsel for the Revenue has relied on the decision of the Division Bench of this Court in CIT v. Binoy Mathai, reported in 311 ITR 226. However, we find that the facts in this case are different in as much as the assessee has paid at least one installment of advance tax of Rs.5.80 lakhs in respect of the income of the previous year in which search took place, even before date of

ITA No.1806/2009 -2- search. The further finding is that the assessee remitted total advance tax of Rs.16.90 lakhs for the income assessed, namely Rs.36 lakhs, as undisclosed income of the assessee. Section 158BB(1)(d) provides for exclusion of only income for the block period up to date of search, if the assessee has recorded in the books of accounts details of such income. In this case, even though accounts are irregular, assessee remitted advance tax on estimated income from business, which is the very same income assessed as undisclosed income for the block period up to the date of search. In our view, payment of advance tax on estimated income from business itself is admission of income, though estimation of income in regular assessment made by the Assessing Officer may not be in tune with the estimation of income made by the assessee. Since advance tax is paid in respect of an item of income, it cannot be said that the assessee intended to suppress it's income merely because accounts are not written up. So much so, payment of advance tax on estimated income

ITA No.1806/2009 -3- is sufficient to exclude such income from the scope of undisclosed income for the broken period of the previous year for which, time for filing of return was not over as on the date of search. We, therefore, do not find any merit in the Department Appeal. It is accordingly dismissed. (C.N.RAMACHANDRAN NAIR, JUDGE) (BABU MATHEW P.JOSEPH, JUDGE) jg

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