Whether when assessee has paid advance tax in certain FYs but chooses not to file returns for many years, income of years for which no returns were filed, partakes character of undisclosed income - YES: HC

THE issue before the Bench is - Whether when the assessee has paid advance tax in certain financial years but chooses not to file returns for many years, the income of the years for which no returns were filed, partakes the character of undisclosed income. And the answer is YES.

Facts of the case

The assessee, is an individual, whose premises was searched for the preceding ten years. During block assessment, it was found that the assessees had paid advance tax for some assessment years, but did not file returns. The AO held the income for the corresponding years for which the returns were not filed partakes the character of undisclosed income and accordingly tax was levied. On appeal against the orders of AO, the Tribunal accepted the contention of the assesseess that failure to file a return by the assessee, who paid the advance tax, cannot lead to a situation of treating the income as the undisclosed one. Reliance was placed upon an order passed by itself in relation to another case. On certain other aspects, the Tribunal rejected the contention of the assessees.

Before HC, the Revenue's counsel had urged that the failure to file income tax return may itself lead to the conclusion of non-disclosure of income for the corresponding year and mere payment of the advance tax does not change the situation. Reliance was also placed upon the recent judgment of SC in CIT v. B.R.Shah and others 2013-TIOL-04-SC-IT-LB. In the block assessment undertaken against the assessees, Revenue had noticed the manner in which the income for a year as regards which the returns were not filed, must be treated. The assessees appeared to had remained a bit complacent on the ground that they had already paid the advance tax. The payment of advance tax by itself does not absolve the obligation of an assessee to file returns. It was only when a return was filed, that an AO would be in a position to examine the details of income, expenditure and deductible incomes etc.

Held that,

++ there existed some lack of clarity in law on this aspect, when the Tribunal decided the matter. That ambiguity is set at rest with the judgment of the SC in B.R. Shahs case. Their Lordships held that payment of advance tax does not absolve an assessee from an obligation to file return disclosing total income for the relevant assessment year. The consequences would be that income for that year would be treated as an undisclosed one. On this short point, the appeals deserve to be allowed. However, allowing of appeals would not put the controversy at rest. The other details have to be worked out. It is too well known that even where a block assessment is made under Chapter XIVB of the Act, the assessment must be made as if it is an ordinary one. Section 158BH of the Act mandates this. Remand becomes necessary for working out the details;

++ while accepting the contention of the assessee as regards the manner in which the income for a year for which no declaration was filed even after paying the advance tax, the Tribunal rejected the contention of the assessee on certain other aspects. Once we feel it appropriate to remand the matter to the Tribunal, it is essential that the remand is on all the controversies or issues. It is difficult to segregate the issues or to treat the findings on them as final. It is not uncommon that the finding on one issue would have its impact on the other. Now that the view taken by the Tribunal on an important aspect is not found to be correct, the remaining issues also must be examined afresh. We, therefore, allow the appeals and set aside the respective orders under appeals. The matters are remanded to the Tribunal for fresh consideration and disposal on every aspect that is urged before it, duly giving opportunity to both the parties. There shall be no order as to costs. The miscellaneous petitions, if any, filed in these appeals shall stand disposed of.