Jatin Mahendrabhai Chokshi V. Dy CIT (Assessment)

TAXAP/445/2000

AI Insights

The case revolves around the interpretation of 'undisclosed income' under Section 158B(b) of the Income Tax Act, 1961, in the context of a block assessment. The assessee, a partner in the firm M/s. Chandulal Govindlal Choksi, contested the inclusion of his share income from the firm as 'undisclosed income' for the years 1986-87 to 1996-97. The Income Tax Appellate Tribunal had earlier upheld the Assessing Officer's decision, which treated the share income as undisclosed, leading to its taxation at a higher rate. The High Court's decision overturned this, emphasizing that the income, being below the taxable limit and exempt under Section 10(2a), should not have been included in the 'total income' for the purpose of the block assessment.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 798875 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 10-06-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax and Another v. H.E. Mynuddin Pasha, Assistant Commissioner of Income Tax v. A.R. Enterprises
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K M PARIKH
• Assessee Lawyers: MANISH SHAH
• Keywords: Block assessment; Income Tax; Income tax appellate tribunal; Share Income; Undisclosed income
• Section: 139; 158BC; 158B(b); 10(2A)

Judgement Text

"O/TAXAP/445/2000 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 445 of 2000 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAH Sd/­ and HONOURABLE MR.JUSTICE K.J.THAKER Sd/­ ============================================= 1. Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2. To be referred to the Reporter or not ? Yes 3. Whether their Lordships wish to see the fair copy of the judgment ? No 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? No 5. Whether it is to be circulated to the civil judge ? No ============================================= JATIN MAHENDRABHAI CHOKSHI....Appellant(s) Versus DY C I T (ASSESSMENT)....Opponent(s) ============================================= Appearance: MR MANISH J SHAH, ADVOCATE for the Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER Date : 10/06/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as “Tribunal”) in ITA No.4053/AHD/1996 for the block assessment years 1986­87 to 1996­97, the assessee has preferred the present tax appeal to consider the following substantial Page 1 of 9 O/TAXAP/445/2000 JUDGMENT questions of law. 1. “Whether the tribunal, erred in law in holding that share income of the appellant from the firm which had filed its return of income, was undisclosed income within the meaning thereof in section 158B(b) of the Income Tax Act, 1961 under Chapter XIV­B? 2. Whether the deductions under Chapter VI­A of the Income Tax Act, 1961 are to be given from the income computed as undisclosed income under Chapter XIV­B thereof?” [2.0] Facts leading to the present tax appeal in nut­shell are as under: [2.1] That the assessee is a partner in the firm of M/s. Chandulal Govindlal Choksi, Dabhoi (hereinafter referred to as “firm”) of Choksi Group. Such operations were conducted by the income tax authorities under Section 138 of the Income Tax Act, 1961 (hereinafter referred to as “Act”) at the residential and business premises of Choksi Group. That the Assessing Officer initiated the proceedings under Section 158BC and in response thereto the assessee submitted the return for the block period from 01.04.1985 till August 1985, on 16.07.1986. That the Assessing Officer made the block assessment, computing the undisclosed income at Rs.1,16,482/­ vide order dated 12.08.1996. That the Assessing Officer treated the share income of Rs.1,16,482/­ in the firm as undisclosed income for the years for which no returns for income were filed by the assessee. That it was the case on behalf of the assessee that as, since the income was below taxable income, the assessee did not file the return. It was also the case on behalf of the assessee that since the firm has been filing its return of income, the share income of the assessee from the said firm cannot be treated as undisclosed income in terms of the definition of “undisclosed income” as contained in clause (b) of section 158B of the Act. However, the Assessing Officer did not accept the same and treated the share income in the firm received by the assessee as undisclosed income and taxed the above income at the rate of 60%. Page 2 of 9 O/TAXAP/445/2000 JUDGMENT [2.2] Feeling aggrieved and dissatisfied with the assessment order passed by the Assessing Officer dated 12.08.1996 in treating the amount of Rs.1,16,482 – the share income in the firm as undisclosed income for the years for which no income tax returns were filed by the assessee, the assessee preferred appeal before the learned Tribunal in ITA No.4053/AHD/1996 and by impugned judgment and order the learned Tribunal has dismissed the said appeal preferred by the assessee by holding that it was the assessee who was required to disclose the income i.e. the disclosure envisaged under Section 158B(b) undoubtedly should have been made by the assessee and not by any other person. The learned Tribunal also held that filing of returns by a firm showing allocation of share income to the assessee would not amount to disclosure by the assessee in terms of Section 158B(b) of the Act. [2.3] Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal, the assessee has preferred the present tax appeal to consider the following substantial questions of law. 1. Whether the tribunal, erred in law in holding that share income of the appellant from the firm which had filed its return of income, was undisclosed income within the meaning thereof in section 158B(b) of the Income Tax Act, 1961 under Chapter XIV­B? 2. Whether the deductions under Chapter VI­A of the Income Tax Act, 1961 are to be given from the income computed as undisclosed income under Chapter XIV­B thereof? [3.0] Shri Manish Shah, learned advocate appearing on behalf of the appellant has also requested either to re­frame the question already formulated and/or to formulate one another substantial question of law that whether non­disclosure of the income which is exempted under Section 10 of the Act and which would not be forming part of the “total income” can be treated as undisclosed income within the meaning Page 3 of 9 O/TAXAP/445/2000 JUDGMENT thereof in section 158B(b) of the Act under Chapter XIV­B? In the facts and circumstances of the case, when the aforesaid question goes to the root of the matter and is a pure question of law, the following substantial question of law is formulated/raised as an additional question. “Whether in the facts and circumstances of the case, the share income derived by the assessee from the firm which is exempted as per Section 10 of the Act and which would not be forming part of “total income”, the non­disclosure of the same can be treated as undisclosed income within the meaning thereof in section 158B(b) of the Income Tax Act, 1961 under Chapter XIV­B?” [3.1] Shri Manish Shah, learned advocate appearing on behalf of the assessee has vehemently submitted that the learned Tribunal has materially erred in holding that share income of the appellant from the firm which was not disclosed and for which the return was not filed as “undisclosed income” within the meaning thereof in section 158B(b) of the Act under Chapter XIV­B. [3.2] It is submitted that as such the firm had filed its return of income disclosing the share income of the appellant from the firm and therefore, as such it cannot be said that the share income was “undisclosed income”. In support of his above submissions, he has relied upon the decision of the Karnataka High Court in the case of Commissioner of Income Tax and Another v. H.E. Mynuddin Pasha reported in [2011]338 ITR 533 (Karn). [3.3] It is further submitted by Shri Shah, learned advocate appearing on behalf of the assessee that even otherwise the share income of the appellant from the firm was an exempted income under Section 10 of the Act and the same do not form part of the “total income” and therefore, non­disclosure of the said income which was not forming part Page 4 of 9 O/TAXAP/445/2000 JUDGMENT of the “total income” cannot be treated as “undisclosed income” as the said income was neither assessable nor taxable. It is submitted that as such the share income received from the firm was exempted under Section 10(2) of the Act and therefore, the same do not form part of the “total income” of the assessee and therefore, not liable to be assessed and/or taxed and therefore, non­disclosure of the same, which was not forming part of “total income”, cannot be treated as “undisclosed income”. It is, therefore, submitted that if the aforesaid cannot be treated as “undisclosed income” within the meaning thereof in section 158B(b) under Chapter XIV­B, the whole proceeding under Section 158B(c) would be non est and consequently the assessment order confirmed by the learned Tribunal deserves to be quashed and set aside. [3.4] Shri Shah, learned advocate appearing on behalf of the assessee has relied upon the decision of the Hon’ble Supreme Court in the case of Assistant Commissioner of Income Tax v. A.R. Enterprises reported in [2013] 350 ITR 489 (SC). Relying upon the aforesaid decision it is submitted that as held by the Hon’ble Supreme Court in the said decision, computation of “undisclosed income” for the purposes of Chapter XIV­B has to be construed in terms of “total income” received, accrued, arisen, which is deemed to have been received, accrued or arisen in the previous year, and is computed according to the provisions of the Act. It is submitted that it is further observed and held that “disclosure of income” is the disclosure of the total income in a valid return under Section 139 of the Act and therefore, non­disclosure of “total income” assessable and chargeable to tax alone can be treated as “undisclosed income” within the meaning thereof in Section 158B(b) of the Act in Chapter XIV­B. Relying upon above decision of the Hon’ble Supreme Court, it is requested to answer the question No.3 (newly formulated) in favour of the assessee and against the revenue and consequently to hold that non­filing of the return and consequently non­ disclosing the share income received/derived by the assessee from the Page 5 of 9 O/TAXAP/445/2000 JUDGMENT firm, which had already filed its return disclosing the share income of the appellant cannot be treated as “undisclosed income” within the definition of “undisclosed income” as contained in clause (b) of section 158B of the Act and consequently to quash and set aside the block assessment order passed by the Assessing Officer confirmed by the learned Tribunal. [4.0] Present tax appeal is opposed by Shri K.M. Parikh, learned advocate appearing on behalf of the Revenue. It is submitted by Shri Parikh, learned advocate appearing on behalf of the Revenue that in the facts and circumstances of the case, when the assessee did not file the return disclosing the share income received by him from the firm despite even after search and seizure and the block assessment proceedings were initiated, the learned Tribunal has not committed any error in holding that the share income of the assessee from the firm was undisclosed income within the meaning of “undisclosed income” as contained in clause (b) of section 158B of the Act. It is submitted that the learned Tribunal has rightly held that it was for the assessee to disclose the share income from the firm and merely because the firm filed its return of income and disclosed the share income of the appellant – assessee, it would not bring the said share income out of the purview of “undisclosed income” within the meaning thereof in section 158B(b) of the Income Tax Act, 1961 under Chapter XIV­B. It is submitted that therefore the impugned order passed by the learned Tribunal and holding the share income of the assessee from the firm as “undisclosed income” is absolutely in consonance with the provisions of the Act more particularly Section 158B(b) of the Act. [4.1] It is further submitted by Shri Parikh, learned advocate appearing on behalf of the Revenue relying upon the decision of the Hon’ble Supreme Court in the case of A.R. Enterprises (Supra) that as even after the search and seizure the assessee did not file the return of income and Page 6 of 9 O/TAXAP/445/2000 JUDGMENT disclosed the share income derived and/or received towards its share in the partnership firm, the same can be said to be an “undisclosed income” within the meaning of section 158B(b) under Chapter XIV­B of the Act. It is submitted that therefore non­disclosure of the said share income derived by the assessee from the partnership firm and though the partnership firm might have declared the said income, when the same was not being disclosed by the assessee by not filing the return even after the search and seizure and even after initiation of block assessment proceedings, the same is to be treated as “undisclosed income” and therefore also, the same is rightly treated as undisclosed income. Making above submissions and relying upon above decision, it is requested to dismiss the present appeal. [5.0] Heard the learned advocate appearing on behalf of the respective parties at length. At the outset it is required to be noted that block assessment proceedings came to be initiated against the assessee under section 158B(c) of the Act on the ground that the assessee did not file the return of income disclosing the share income derived by the assessee from the firm M/s. Chandulal Govindlal Choksi and treating the same as “undisclosed income” within the meaning thereof in Section 158B(b) under Chapter XIV­B of the Act. Therefore, the short question which is posed for consideration of this Court is whether non­filing of the return by the assessee and not disclosing the share income derived / received by the assessee from the partnership M/s. Chandulal Govindlal Choksi can be said to be “undisclosed income” within the meaning thereof in Section 158B(b) under Chapter XIV­B of the Act? [5.1] It is the case on behalf of the assessee that as such the firm itself filed the return of income disclosing the share income paid to the appellant and therefore, it cannot be said there was a non­disclosure of the said income and therefore, the same cannot be treated as “undisclosed income” within the meaning of Section 158B(b) under Page 7 of 9 O/TAXAP/445/2000 JUDGMENT Chapter XIV­B of the Act. It is also the case on behalf of the assessee that in any case as the share income received by the assessee from the partnership firm was as such exempted under Section 10(2a) of the Act i.e. the said income was not required to be included in the “total income” and therefore, non­filing of the return disclosing the assessee income received from the firm cannot be treated as undisclosed income within the definition of “undisclosed income” as contained in clause (b) of section 158B of the Act, as same is not required to be included in the “total income”. “Total income” as per section 2(45) means the total amount of income referred to in section 5, computed in the manner laid down in the Act. Section 5 of the Act provides for scope of total income. However certain income/s is/are not required to be included in the total income as provided under Section 10 of the Act. In the case of A.R. Enterprises (Supra), it is observed and held by the Hon’ble Supreme Court that the computation of “undisclosed income” for the purposes of Chapter XIV­B of the Act, if any income which is not required to be included in computing the “total income” assessable and chargeable to tax, cannot be declared as “undisclosed income” within the meaning of “undisclosed income” as contained in clause (b) of section 158B of the Act. Under the circumstances, non­disclosure of the share income received by the assessee as partner of the firm and from the firm and non­filing of the return and not disclosing the aforesaid share income is wrongly treated as “undisclosed income” within the meaning of “undisclosed income” as contained in clause (b) of section 158B of the Act and consequently the assessment proceedings are required to be held bad in law. [5.2] Now, so far as the contention on behalf of the revenue relying upon the decision of the Hon’ble Supreme Court in the case of A.R. Enterprises (Supra) that the return was not filed even after search and seizure and initiation of the block assessment proceedings disclosing the aforesaid share income, the same is required to be treated as Page 8 of 9 O/TAXAP/445/2000 JUDGMENT “undisclosed income” is concerned, the aforesaid cannot be accepted in the facts and circumstances of the case when it is found that the share income received by the assessee as partner from the partnership firm was not required to be included in computing the “total income” assessable and chargeable to tax. The aforesaid can be accepted only when the income received which is not disclosed is required to be included while computing the “total income” of a previous year of the assessee. If the income which is undisclosed is not required to be included in computing the “total income” and therefore, is not assessable and chargeable to tax, the same cannot be treated as “undisclosed income”. [5.3] In view of the above and for the reasons stated above, it is held that non­filing of the return and non­disclosure of the share income received by the assessee as a partner of firm M/s. Chandulal Govindlal Choksi from the firm is wrongly treated as “undisclosed income” within the meaning thereof in section 158B(b) of the Act under Chapter XIV­B and consequently the block assessment proceedings are non est. Therefore, additional question raised in the present appeal is answered in favour of the assessee and against the revenue. Present Tax Appeal is allowed to the aforesaid extent. No costs. (M.R. SHAH, J.) (K.J. THAKER, J) Ajay Page 9 of 9 "