THE COMMISSIONER OF INCOME TAX V. M/S. HM EXPORTS

ITA/191/2009

AI Insights

The case revolves around the dispute concerning the classification of income disclosed by M/s. H.M. Exports under the Voluntary Disclosure of Income Scheme (VDIS) and a subsequent belated return, which the Revenue contended was undisclosed income. The income in question, amounting to Rs. 88,00,505/-, was derived from the export of exhibition rights of cinematographic films. The Revenue challenged the ITAT's decision, which had favored the assessee, arguing that the belated return did not constitute a valid disclosure under the Income Tax Act. The High Court examined whether the income disclosed by the assessee could be classified as undisclosed income under Section 158B(b) of the Act, considering the timing and nature of the disclosures made by the assessee.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 758945 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-08-2015
• Assessment Year: misc
• Other Referred Cases: Assistant Commissioner of Income Tax vs. A.R. Enterprises, The Commissioner of Income Tax vs. P.S. Mani, The Commissioner of Income-Tax vs. J.K. Narayanan
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JINITA CHATTERJEE
• Assessee Lawyers: K V ARAVIND; G KAMALADHAR
• Keywords: Block assessment; Income tax exemption; Undisclosed income; Voluntary Disclosure of Income Scheme; Export of exhibition rights
• Section: 148; 132; 139; 80HHC; 158BD; 158B(b); 158BB; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 4TH DAY OF AUGUST, 2015 PRESENT THE HON'BLE MR. JUSTICE VINEET SARAN AND THE HON’BLE MR. JUSTICE B.MANOHAR ITA NO.191/2009 BETWEEN 1. THE COMMISSIONER OF INCOME TAX C R BUILDING, QUEENS ROAD BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2 (3), C.R.BUILDING, QUEENS ROAD, BANGALORE. ... APPELLANTS (BY SRI.K.V.ARAVIND, ADV. & SRI G.KAMALADHAR, ADV.,) AND M/S.H.M.EXPORTS GENEVA HOUSE NO.14, CUNNINGHAM ROAD BANGALORE-560 070. ...RESPONDENT (BY SMT.JINITA CHATTERJEE, ADV., FOR SRI S.PARTHASARTHY) ® 2 THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 30.04.2008 PASSED IN IT(SS)A.NO.26/BANG/2007, FOR THE BLOCK ASSESSMENT PERIOD 1.4.1991 TO 29.05.2001, PRAYING TO I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN IT(SS)A.NO.26/BANG/2007, DATED 30.04.2008 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(3), BANGALORE. THIS ITA COMING ON FOR HEARING THIS DAY, VINEET SARAN J. DELIVERED THE FOLLOWING: JUDGMENT This appeal has been filed by the Revenue challenging the order of the Tribunal dated 30.04.2008 whereby the appeal of the assessee has been allowed. 2. The brief facts of this case are that for the assessment year 1994-95 the appellant had an income of `88,00,505/- from the export of exhibition rights of cinematographic films, for which there was no return filed by the appellant. In the year 1997, the Government came up with a 3 Voluntary Disclosure of Income Scheme (for short ‘VDIS’) which was a Scheme for voluntary disclosure by an assessee of income not assessed to tax. The respondent-assessee then, on 31.12.1997, disclosed such income of `88,00,505/- under the said Scheme. Initially, the assessee offered to pay tax on the same but later retracted and claimed that the same would be exempted under Section 80HHC of the Income Tax Act, 1961 (for short ‘the Act’) claiming that the said income was derived from export of the films and the revenue earned was in foreign currency which had been received by the assessee within six months of such export. 3. By communication dated 07.08.1998, the Department made some queries with regard to the claim of the assessee for exemption of the aforesaid amount from payment of income tax under Section 80HHC, to which a response was given by the assessee on 20.08.1998. On the same date, the assessee also filed a return of income before the Assessing Officer for assessment year 1994-95, acknowledgment of which was duly given to the assessee by the Income Tax Office on 20.08.1998 4 itself. Nearly three years later, on 29.05.2001, a search was conducted under Section 132 of the Act in the premises of the group companies of the assessee and consequently proceedings under Section 158BD of the Act were initiated against the petitioner, which was with regard to undisclosed income of same `88,00,505/- on the ground that it was not disclosed by the assessee. A notice in this regard was issued to the assessee on 06.02.2003, in response to which the assessee filed its return of income on 17.03.2003 for the block period from 01.04.1991 to 29.05.2001 declaring its undisclosed income as “NIL”. The Assessing Officer, vide its order dated 25.02.2005, treated the income of `88,00,505/- of the assessee as undisclosed income for the said block period and subjected it to tax @ 60% plus surcharge of 2%, along with interest. Challenging the said order, the assessee filed an appeal before the Commissioner of Income Tax, which was dismissed by order dated 15.03.2007. Aggrieved by the said order of the Appellate Commissioner, the assessee filed a further appeal before the ITAT, which has been allowed by 5 order dated 30.04.2008. Challenging the said order, this appeal has been filed by the Revenue and has been ADMITTED on the following substantial question of law: “Whether the Tribunal was correct in holding that a sum of Rs.88,00,505/- claimed by the assessee as earned from export of exhibition rights of cinematographic films would not constitute undisclosed income as per Section 158B(b) of the Act as the said amount has been declared in the regular return of income for the assessment year 1994-95 filed belatedly without noticing that the return is treated as non-est of law?” 4. We have heard Sri K.V.Aravind, learned counsel for the appellants as well as Smt.Jinita Chatterji, learned counsel for the respondent at length and perused the record. 5. The submission of learned counsel for the appellants is that disclosure of income referred to under Section 158B(b) of the Act can only be by way of a valid return filed under sub-sections(1), (4) or (5) of Section 139 of the Act or in response to notice under Section 148 of the Act, and any other return, as 6 the one filed by the asseessee on 20.08.1998, would be an invalid return and would thus be non-est in the eye of law. It has been contended that an Assessing Officer cannot take cognizance of a belated or invalid return, and thus any disclosure made in such invalid return would not constitute a valid disclosure of income for the purpose of Chapter XIV-B relating to Special Procedure for Assessment of Search cases. It has thus been contended that the order of the Tribunal be set aside and that of the Assessing Officer be restored after answering the substantial question of law in favour of the Revenue. 6. Per contra, learned counsel for the respondent has submitted that a return of income filed by an assessee may be a valid, invalid or irregular return but the same would always remain a return of income for the purposes of disclosure made by the assessee. According to the respondent-assessee, the return filed on 20.08.1998 may be termed as an irregular return but by filing such return, the intention of the assessee would be clear that he did not want to conceal the said income from the Department 7 and had disclosed (may be at a later stage) the true position as it stood. It is contended that even if the said return of income is to be treated as an invalid return under Section 139 of the Act, then too information supplied under the said return would be a disclosure of his income by the assessee which could have been used by the Department for initiating proceedings under Sections 148/147 of the Act. It is thus submitted that once the information regarding his income for the relevant assessment year has been given, or disclosure made, by the assesseee to the Department, which may be by way of valid, invalid or irregular return, the same would amount to disclosure to the Department by the assessee and such income so declared cannot be considered or treated by the Department as undisclosed income, as information of the same was already with the Department nearly three years before the search was conducted. 7. In support of their respective submission, learned counsel for the parties have relied on certain case laws which shall be considered and dealt with while dealing with their submissions. 8 8. Chapter XIV-B deals with Special Procedure for Assessment of Search Cases. Section 158B gives the definitions of certain terms for the purpose of the said chapter. Sub-section(b) of the said Section defines “undisclosed income” which is as under: “158B(b) : “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 purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false. The said definition may be simply read as to mean that an “undisclosed income” would include any money, bullion, jewellery or other valuable article or thing or any income which has not been or would not have been disclosed for the purposes of the 9 Act. Meaning thereby, if the search is conducted after the filing of return, what has to be considered is such income ‘which has not been’ disclosed; and if the search is conducted before the filing of the return, what has to be considered is such income ‘which would not have been’ disclosed by the assessee. In the present case, the search has been conducted on 28.5.2001 which was three years after the belated return dated 20.08.1998 was filed by the assessee for the assessment year in question. 9. The circumstances in which the return date 20.08.1998 had been filed may be noted. According to the assessee, he was under a genuine belief that the income of `88,00,505/- derived from the export of films was not to be subjected to tax and thus the same was not disclosed by the assessee at the initial stage. Thereafter, under VDIS 1997, which was a Scheme of the Department for voluntary disclosure of income not assessed to tax, the asseesee, under the impression that the said income may be subjected to tax, offered the same for tax vide disclosure dated 31.12.1997. Then, on advice given to 10 the assessee that the said income would be exempted under Section 80HHC of the Act as the income derived was on account of export and received in foreign exchange within six months of the export of films, the assessee withdrew the disclosure, regarding which the Department itself raised certain queries vide communication dated 07.08.2008 requiring the assessee to furnish information with regard to the claim of exemption under Section 80HHC of the Act. To such query, the assessee gave its response on 20.08.1998 and also, on the same date, filed its return of income for the relevant assessment year, which was duly received and acknowledged by the Department. Admittedly, it was the communication dated 20.08.1998 (and not the return filed on 20.08.1998), which was found during search conducted on 29.05.2001, which formed basis of the undisclosed income of `88,00,505/- of the assessee. 10. From the aforesaid, what we clearly find is that it was not any information suppressed by the assessee from the Department which was discovered during the search conducted 11 on 29.05.2001, but it was an earlier communication of the assessee to the Department itself disclosing the very same income nearly three years prior to the search, which the Department is claiming to be undisclosed income of the assessee. It is not a case where the Department has come across any such communication by the assessee to a third party from which it had got the information regarding such income. It is also not a case where the assessee was trying to conceal any information from the Department but on the other hand it was that very communication dated 20.08.1998 of the assessee to the Department which is the basis of treating the income of `88,00,505/- as undisclosed income of the assessee. From the facts of the case it appears that there was a confusion in the mind of the assessee (whether it be a genuine one or not) regarding his income of `88,00,505/- derived from export, being taxable or not. For such reason, the said income was initially not offered to tax. However, it is not disputed that the assessee had himself gone to the Department disclosing such income, initially by way of a disclosure under the VDIS on 12 30.12.1997 and then by filing a return on 20.08.1998, preceded by his communication dated 20.08.1998, which formed the basis of the notice under Section 158BD of the Act. 11. We have to consider the definition of “undisclosed income” in the light of the aforesaid facts. In the facts as narrated above, in our view, it cannot be said that there was no disclosure of the said income by the assessee either under the Scheme (VDIS) or under the provisions of the Act. Much emphasis has been laid by Sri K.V.Aravind, learned counsel for the Revenue, that sub-section (3) of Section 158BB of the Act provides that “the burden of proving to the satisfaction of the Assessing Officer that any undisclosed income had 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”. According to him, the disclosure should be in any return of income and the return of income should be a valid return filed under Section 139 of the Act or in response to notice under 13 Section 148 of the Act whereas in the present case, the return filed by the assessee on 20.08.1998 was not under either of the provisions. In support of his submission, he relied on the decision of the Apex Court in the case of Assistant Commissioner of Income Tax –vs- A.R. Enterprises (2013) 350 ITR 489. 12. We have gone through the said judgment which relates to the claim of having made disclosure on the basis that advance tax had been duly deposited after deducting TDS. On such basis, the assessee therein was claiming that there was disclosure of income made by it and that in such circumstances, it would not amount to undisclosed income. The Apex Court held that while dealing with a case of payment of advance tax, there would be a distinction when the search has been conducted before the period of filing of return and when search is conducted after search is conducted. Considering further that advance tax was based on estimated income, and hence it could not result in the disclosure of the total income assessable and chargeable to 14 tax, the Supreme Court rebutted the claim of the assessee and did not grant benefit of the alleged disclosure said to be made by payment of advance tax. It was while considering such facts of the case that in paragraph-26 of the judgment, the Supreme Court observed that the disclosure of income would be a disclosure made by a valid return of income under Section 139 of the Act. The question there was with regard to payment of advance tax and such payment being treated as a disclosure of income made by the assessee. In our view, the facts of the case in hand being totally different, the ratio laid down in the case of A.R.Enterprises (supra) would not apply to the present case. 13. In the present case, the disclosure by the assessee had been made to the Department by way of a disclosure under the Scheme (VDIS) of the respondent as well as by its communication dated 20.08.1998 and also the return of income filed by the assessee on the same date, which was duly acknowledged by the Department and hence it cannot be said that 15 there was no disclosure of such income made by the assessee prior to the search conducted by the Department. 14. Learned counsel for the respondent has relied on two decisions of Madras High Court (i) The Commissioner of Income Tax –vs- P.S.Mani (Tax Case (Appeal) No.549/2007 and (ii) The Commissionerof Income-Tax –vs- J.K.Narayanan (2007) 293 ITR 179 wherein it has been held that keeping in view the provisions contained in Section 158B(b) of the Act, the belated returns, which had been filed by the assessee, even though invalid, contained information showing the earning of the corresponding income and such information having been imparted by the assessee to the Assessing Officer long before the search, it would not be proper to hold that there was any undisclosed income requiring assessment under Chapter XIV-B of the Act. 15. Such income of the assessee which had not been disclosed and was found during the search conducted at its 16 premises to have been earned by the assessee would certainly attract the provisions of the Chapter XIV-B. However, if there was information of such income already given by the assessee to the Department much prior to conduct of the search, as is so in the present case, the same cannot be termed as undisclosed income. It is not disputed by either of the parties that search was conducted by the Department on 29.05.2001, whereas disclosure by way of information or by way of filing of the return of income (both on 20.08.1998) was already there with the Department, which was given by the assessee nearly three years prior to the search. In fact, it was that very communication of the assessee dated 20.08.1998 which was the basis on which the Department claims the said income to be an undisclosed income. We cannot thus accept the situation where the very communication of the assessee disclosing certain information regarding its income to the Department itself is treated as undisclosed income of the assessee, attracting the provisions of Chapter XIV-B of the Act. 17 16. In view of the aforesaid, in the facts of this case, we answer the substantial question of law in favour of the assessee and against the revenue. The appeal stands dismissed. No order as to costs. Sd/- JUDGE Sd/- JUDGE TL "