I paid advance tax for the year but had not filed my return when the search took place. Can the department still call that income undisclosed?
Yes. The Supreme Court held that payment of advance tax is not disclosure of income. Advance tax is paid on an estimate of current income; disclosure of total income happens only in a return. Where the due date under section 139(1) had passed and no return had been filed by the date of search, section 158BB(1)(c) requires the returned income to be taken as nil, and the officer was right to conclude the assessee would not have disclosed the income. Tax deducted at source is no different, being computed on the same estimated basis. The Revenue's six appeals were allowed with costs.
Decided by the Supreme Court (Supreme Court of India - Justice D.K. Jain, Justice H.L. Dattu and Justice Jagdish Singh Khehar (judgment by D.K. Jain, J)) on 2013-01-14, reported as (2013) 350 ITR 489; 2013 (3) SCC 196; (2013) 1 SCALE 326; AIRONLINE 2013 SC 103; (2013) 2 Mad LJ 555; (2013) 1 Ker LT 78. It bears on section 158BB(1)(c), section 158B(b), section 158BD, section 158BB(3), section 139(1), section 132, section 2(45), section 190 of the Income Tax Act 1961, in Search, Survey & Block Assessment and Assessment & Scrutiny matters.
This is the leading Supreme Court authority on what "disclosure" means for search assessments, and its reasoning has outlived Chapter XIV-B: courts apply it to section 153A cases through the definition of income that "would not have been disclosed". Two things make it worth reaching for. It fixes the pivot as the due date for filing the return against the date of search - before the due date, advance tax may well be a relevant factor showing an intention to disclose, because the assessee still has the opportunity to file; after it, the payment cannot help. And it separates "current income" under Chapter XVII, an estimate liable to adjustment, from "total income" under section 2(45), which is the exact figure declared in a valid return. Section 158BB(3) reinforces the point by putting the burden on the assessee to show that the income was already disclosed in a return filed before the search.
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Six appeals from the Madras High Court raised a common question; Civil Appeal No. 2688 of 2006 was the lead case. The assessee firm came into existence on 25 June 1992. On 23 February 1996 a search under section 132 was carried out at the premises of another concern, A.R. Mercantile Private Limited, and books and documents belonging to the assessee were seized. The Assessing Officer found that although the firm had taxable income for assessment year 1995-96, no return had been filed by the due date of 31 October 1995 or by the date of search. He initiated proceedings under section 158BD. The firm filed a block return covering assessment years 1993-94 to 1995-96, pointing out that returns for the first two years had already been filed, and objecting that for 1995-96 advance tax of Rs.4,80,000 had been paid in three instalments, so the income could not be treated as undisclosed. The officer rejected that, treated the returned income for 1995-96 as nil under section 158BB(1)(c), and computed undisclosed income for the block period. The Tribunal allowed the firm's appeal, holding that payment of advance tax amounted to disclosure and declaring the assessment null and void. The High Court agreed, reasoning that the advance tax computation was a document maintained in the normal course falling within section 158BB(1)(d). One of the six appeals, Civil Appeal No. 2580 of 2010, raised the parallel question about tax deducted at source.
All six appeals were allowed, the High Court judgments set aside, and the question answered in favour of the Revenue, with costs of Rs.50,000 in each set of appeals. Payment of advance tax is not, of itself, disclosure of total income for the relevant assessment year. There can be no generic rule about its significance: it may be a relevant factor in construing an intention to disclose so long as the assessee still has the opportunity to file a return, but not once the due date has passed. On these facts the return for 1995-96 had not been filed by the due date and was filed only after block proceedings began, so the officer was right to assume the firm would not have disclosed its total income. On the separate appeal, mere deduction of tax at source likewise does not amount to disclosure or indicate an intention to disclose, since it too is computed on estimated income and every person above the threshold must file a return regardless.
The Court's central distinction is between two different notions of income. Advance tax under Part C of Chapter XVII is payable on "current income", which is an estimate of what will be chargeable for the following assessment year; the assessee pays of his own accord on the due dates in section 211, and interest runs on deficient or excess payment precisely because an estimate has an element of guesswork and may be inaccurate. "Total income" under section 2(45), read with section 5, is the exact figure computed under the Act and declared in a valid return, and it is what the Revenue assesses. Since advance tax is a mode of pre-assessment collection, paying it says nothing final about total income. The Court reinforced this from the structure of Chapter XIV-B: section 158BB(1)(c) directs that where the due date has expired and no return has been filed, the figure is taken as nil, and section 158BB(3) places the burden on the assessee to prove that the undisclosed income had already been disclosed in a return filed before the search. Read with the definition in section 158B(b), it follows that income counts as disclosed only if it was disclosed in a return filed before the search. The Court also gave a practical reason: if advance tax were disclosure, the obligation to file a return would become dispensable, and the consequences that attach to anomalies in a return would be avoided. It approved the Madras High Court's earlier reasoning in B. Noorsingh that what a search denies the assessee is the chance to file a belated return and then claim that what he would have shown in it was never undisclosed.
on failure to file return of income by the due date under Section 139 of the Act, payment of Advance Tax per se cannot indicate the intention of an assessee to disclose his income.
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held that payment of advance tax is not disclosure of income. Advance tax is paid on an estimate of current income; disclosure of total income happens only in a return. Where the due date under section 139(1) had passed and no return had been filed by the date of search, section 158BB(1)(c) requires the returned income to be taken as nil, and the officer was right to conclude the assessee would not have disclosed the income. Tax deducted at source is no different, being computed on the same estimated basis. The Revenue's six appeals were allowed with costs. This was decided by the Supreme Court (Supreme Court of India - Justice D.K. Jain, Justice H.L. Dattu and Justice Jagdish Singh Khehar (judgment by D.K. Jain, J)) and bears on section 158BB(1)(c), section 158B(b), section 158BD, section 158BB(3), section 139(1), section 132, section 2(45), section 190 of the Income Tax Act 1961. It is reported as (2013) 350 ITR 489; 2013 (3) SCC 196; (2013) 1 SCALE 326; AIRONLINE 2013 SC 103; (2013) 2 Mad LJ 555; (2013) 1 Ker LT 78. This is the leading Supreme Court authority on what "disclosure" means for search assessments, and its reasoning has outlived Chapter XIV-B: courts apply it to section 153A cases through the definition of income that "would not have been disclosed". Two things make it worth reaching for. It fixes the pivot as the due date for filing the return against the date of search - before the due date, advance tax may well be a relevant factor showing an intention to disclose, because the assessee still has the opportunity to file; after it, the payment cannot help. And it separates "current income" under Chapter XVII, an estimate liable to adjustment, from "total income" under section 2(45), which is the exact figure declared in a valid return. Section 158BB(3) reinforces the point by putting the burden on the assessee to show that the income was already disclosed in a return filed before the search. If it applies to you, the first step is this: Establish two dates before anything else: the due date under section 139(1) for the year in question and the date of the search. If the return was still within time when the search took place, advance tax paid is a fact worth pleading; if not, it will not help.
Six appeals from the Madras High Court raised a common question; Civil Appeal No. 2688 of 2006 was the lead case. The assessee firm came into existence on 25 June 1992. On 23 February 1996 a search under section 132 was carried out at the premises of another concern, A.R. Mercantile Private Limited, and books and documents belonging to the assessee were seized. The Assessing Officer found that although the firm had taxable income for assessment year 1995-96, no return had been filed by the due date of 31 October 1995 or by the date of search. He initiated proceedings under section 158BD. The firm filed a block return covering assessment years 1993-94 to 1995-96, pointing out that returns for the first two years had already been filed, and objecting that for 1995-96 advance tax of Rs.4,80,000 had been paid in three instalments, so the income could not be treated as undisclosed. The officer rejected that, treated the returned income for 1995-96 as nil under section 158BB(1)(c), and computed undisclosed income for the block period. The Tribunal allowed the firm's appeal, holding that payment of advance tax amounted to disclosure and declaring the assessment null and void. The High Court agreed, reasoning that the advance tax computation was a document maintained in the normal course falling within section 158BB(1)(d). One of the six appeals, Civil Appeal No. 2580 of 2010, raised the parallel question about tax deducted at source. The matter was decided on 2013-01-14 by the Supreme Court (Supreme Court of India - Justice D.K. Jain, Justice H.L. Dattu and Justice Jagdish Singh Khehar (judgment by D.K. Jain, J)). On those facts the Supreme Court held as follows. All six appeals were allowed, the High Court judgments set aside, and the question answered in favour of the Revenue, with costs of Rs.50,000 in each set of appeals. Payment of advance tax is not, of itself, disclosure of total income for the relevant assessment year. There can be no generic rule about its significance: it may be a relevant factor in construing an intention to disclose so long as the assessee still has the opportunity to file a return, but not once the due date has passed. On these facts the return for 1995-96 had not been filed by the due date and was filed only after block proceedings began, so the officer was right to assume the firm would not have disclosed its total income. On the separate appeal, mere deduction of tax at source likewise does not amount to disclosure or indicate an intention to disclose, since it too is computed on estimated income and every person above the threshold must file a return regardless.
The Court's central distinction is between two different notions of income. Advance tax under Part C of Chapter XVII is payable on "current income", which is an estimate of what will be chargeable for the following assessment year; the assessee pays of his own accord on the due dates in section 211, and interest runs on deficient or excess payment precisely because an estimate has an element of guesswork and may be inaccurate. "Total income" under section 2(45), read with section 5, is the exact figure computed under the Act and declared in a valid return, and it is what the Revenue assesses. Since advance tax is a mode of pre-assessment collection, paying it says nothing final about total income. The Court reinforced this from the structure of Chapter XIV-B: section 158BB(1)(c) directs that where the due date has expired and no return has been filed, the figure is taken as nil, and section 158BB(3) places the burden on the assessee to prove that the undisclosed income had already been disclosed in a return filed before the search. Read with the definition in section 158B(b), it follows that income counts as disclosed only if it was disclosed in a return filed before the search. The Court also gave a practical reason: if advance tax were disclosure, the obligation to file a return would become dispensable, and the consequences that attach to anomalies in a return would be avoided. It approved the Madras High Court's earlier reasoning in B. Noorsingh that what a search denies the assessee is the chance to file a belated return and then claim that what he would have shown in it was never undisclosed. In the words reproduced by the source cited on this page: "on failure to file return of income by the due date under Section 139 of the Act, payment of Advance Tax per se cannot indicate the intention of an assessee to disclose his income."
It was decided by the Supreme Court on 2013-01-14 and is reported as (2013) 350 ITR 489; 2013 (3) SCC 196; (2013) 1 SCALE 326; AIRONLINE 2013 SC 103; (2013) 2 Mad LJ 555; (2013) 1 Ker LT 78. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 158BB(1)(c), section 158B(b), section 158BD, section 158BB(3), section 139(1), section 132, section 2(45), section 190, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. All six appeals were allowed, the High Court judgments set aside, and the question answered in favour of the Revenue, with costs of Rs.50,000 in each set of appeals. Payment of advance tax is not, of itself, disclosure of total income for the relevant assessment year. There can be no generic rule about its significance: it may be a relevant factor in construing an intention to disclose so long as the assessee still has the opportunity to file a return, but not once the due date has passed. On these facts the return for 1995-96 had not been filed by the due date and was filed only after block proceedings began, so the officer was right to assume the firm would not have disclosed its total income. On the separate appeal, mere deduction of tax at source likewise does not amount to disclosure or indicate an intention to disclose, since it too is computed on estimated income and every person above the threshold must file a return regardless. It arises in Search, Survey & Block Assessment and Assessment & Scrutiny matters, on section 158BB(1)(c), section 158B(b), section 158BD, section 158BB(3), section 139(1), section 132, section 2(45), section 190 of the Income Tax Act 1961, and was decided by Supreme Court of India - Justice D.K. Jain, Justice H.L. Dattu and Justice Jagdish Singh Khehar (judgment by D.K. Jain, J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where returns are late, get them filed before any search or survey; a return filed only after block proceedings begin does not undo the position. Under section 158BB(3), be ready to point to the actual return filed before the search in which the income was disclosed - that is the statutory route to rebutting the officer's finding. Do not argue that tax deducted at source shows disclosure; the Court rejected that for the same reason as advance tax.
Still good law. A three judge Supreme Court judgment read through to its operative order allowing the appeals; it binds unless a larger Bench departs from it, and it continues to be applied to the "would not have been disclosed" limb of search assessments, as the Delhi High Court did in CIT v Harjeev Aggarwal. Chapter XIV-B itself applies only to searches initiated before 1 June 2003, so the direct statutory setting is historical. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line listed section 158BC; the officer proceeded under section 158BD, and the block return was filed under section 158BC. Sections 158BB(3), 2(45), 190 and 139(1) are added from the judgment. The text carries two slips I could not resolve: paragraph 41 dates the search to 23 February 2006 while paragraph 3 gives 23 February 1996, which is the date consistent with the rest of the facts; and paragraph 3 describes the block period as ten years preceding the previous year while identifying it as assessment years 1993-94 to 1995-96. Paragraph 3 also records in parenthesis that the officer initiated section 158BD proceedings "without recording any reasons for his satisfaction", but the Court did not decide anything on that footing and the point was not in issue. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All six appeals were allowed, the High Court judgments set aside, and the question answered in favour of the Revenue, with costs of Rs.50,000 in each set of appeals. Payment of advance tax is not, of itself, disclosure of total income for the relevant assessment year. There can be no generic rule about its significance: it may be a relevant factor in construing an intention to disclose so long as the assessee still has the opportunity to file a return, but not once the due date has passed. On these facts the return for 1995-96 had not been filed by the due date and was filed only after block proceedings began, so the officer was right to assume the firm would not have disclosed its total income. On the separate appeal, mere deduction of tax at source likewise does not amount to disclosure or indicate an intention to disclose, since it too is computed on estimated income and every person above the threshold must file a return regardless.
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