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REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL  NO.2688 OF 2006

THE ASSISTANT COMMISSIONER  OF INCOME TAX, CHENNAI

—       APPELLANT  

VERSUS

M/S A.R. ENTERPRISES — RESPONDENT

WITH CIVIL APPEAL NO.3127 OF 2006, CIVIL APPEAL NO.3848 OF 2006, CIVIL APPEAL NO.2580 OF 2010,

CIVIL APPEAL NO. 270  OF 2013 (Arising Out of SLP (C) NO.12537 of 2006)  

AND

CIVIL APPEAL NO.  271 OF 2013 (Arising Out of SLP (C) NO.7635 of 2008)  

J U D G M E N T

D.K. JAIN, J.

1. Leave granted in all the Special Leave Petitions.

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2. This batch of six appeals, arises from separate judgments  

of the High Court of Madras in the appeals preferred by  

the revenue under Section 260A of the Income Tax Act,  

1961 (for short “the Act”) rendered in Tax Case (Appeal)  

Nos.238 of 2000 on 8th September 2004; 1371, 1372, 1373  

of 2005 on 2nd January 2006;  687 of 2007 on 18th June  

2007; and 620 of 2009 on 21st July 2009.  This judgment  

shall govern all these appeals since they entail a common  

substantial  question  of  law,  as  is  evident  from  the  

adjudication of the High Court.  However, to appreciate the  

issue involved, Civil Appeal No.2688 of 2006 is treated as  

the  lead case.  At  the  outset  we may note that  despite  

service  of  notice,  no  appearance  was  entered  for  the  

respondent-assesses,  except  in  C.A.  No.  2688/2006 and  

C.A. No. 2580/2010.

Facts

3. The  respondent-assessee  is  a  firm  which  came  into  

existence on 25th June, 1992.  On 23rd February, 1996, a  

search operation under Section 132 of the Act was carried  

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out  at  the  premises  of  another  concern,  viz.  M/s  A.R.  

Mercantile Private Limited.  During the course of search,  

certain books and documents pertaining to the assessee i.  

e.  M/s  A.R.  Enterprises,  were  seized.   On  scrutiny,  the  

Assessing  Officer  found  that  though  the  assessee  had  

taxable  income  for  the  assessment  year  1995-96,  no  

return  of  income had been filed  (due  to  be  filed  on or  

before 31st October, 1995) till the date of search. Based on  

the material seized by virtue of the aforesaid search, the  

Assessing Officer was satisfied that the assessee had not  

disclosed their income pertaining to the assessment year  

1995-96. Accordingly (without recording any reasons for  

his satisfaction), he initiated action under Section 158BD  

of  the  Act  requiring  the  assessee to file  their  return of  

income.   The assessee,  after  filing  return  for  the  block  

period  (ten  years  preceding  the  previous  year),  which  

covered assessment  years  1993-94 to  1995-96,  pointed  

out that they had already filed returns for the assessment  

years  1993-94  and  1994-95.  They  objected  to  action  

initiated under Chapter XIVB of the Act on the ground that  

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in relation to the assessment year 1995-96, Advance Tax  

had  already  been  paid  in  three  installments  and,  

therefore, income for that period could not be deemed to  

be undisclosed.  

4. Rejecting the plea of the assessee, the Assessing Officer  

formed the opinion that the assessee had failed to file the  

return as on the date of search, and the seized documents  

did show income, which had not been or would not have  

been  declared.   Accordingly,  he  proceeded  to  compute  

total undisclosed income for the block period 1993-94 to  

1995-96 (upto the date  of search),  treating the income  

returned by the assessee for the period      1995-96 as NIL,  

as stipulated in Section 158BB (1)(c) of the Act.  

5. Against the said order, the assessee preferred an appeal  

before the Tribunal.  Accepting the stand of the assessee,  

the Tribunal allowed the appeal, and held that having paid  

the Advance Tax, the assessee had disclosed his income  

for the relevant assessment year. The Tribunal observed  

thus:

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“Now coming to the facts of the present case, as  stated supra, the assessee has not filed his return  in time, but even after that date the assessee has  filed his return voluntarily.  Moreover not only that  the assessee has also estimated his income for the  year  and  paid  advance  tax  thereon  as  detailed  below:

15.09.1994 Bank of Baroda,  T.Nagard.

Rs.1,60,000

12.12.1994  -do- Rs.1,60,000

16.03.1994  -do- Rs.1,60,000

Rs.4,80,000

This would indicate that  the assessee has made  known to the income tax department his income  for the year and also paid the income tax thereon  well before the due dates and of course well before  the date of search also.  Even this fact of income  was voluntarily disclosed by the assessee to the  ADI (inv.)…”

Consequently,  the  Tribunal  declared  the  said  assessment,  

made under Section 158BD of the Act, as null and void.

6. Being dissatisfied, the Revenue preferred an appeal before  

the High Court of Madras under Section 260A of the Act,  

questioning  the  validity  of  the  order  of  the  Tribunal.  

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Entertaining  the  appeal,  the  High  Court  formulated  the  

following substantial question of law for adjudication:

“Whether the Appellate Tribunal is right in law in  cancelling the assessment under Chapter XIV-B in  light of the specific provision contained in Section  158BB(1) (c) of the Income Tax Act?”

7. Before the High Court, the stand of the Revenue was that  

since  return  for  the  assessment  year  1995-96  had  not  

been filed by the due date, by filing the return after the  

search, the assessee could not escape the consequences  

as stipulated in Chapter XIVB of the Act.  It was contended  

that payment of Advance Tax by itself did not establish the  

intention  to  disclose  the  income.   In  support  of  the  

proposition,  reliance  was  placed  on  the  decision  of  the  

High Court of Madras in B. Noorsingh Vs. Union of India  

& Ors.1.           In that judgment, the High Court had  

observed:

“…Counsel submitted that in cases (sic) whereas  in the case of the present petitioner, the assessee  had paid advance tax, such payment would clearly  indicate his intention to disclose his income and it  could not be said that such person would not have  disclosed his income. The payment of advance tax  

1 (2001) 249 ITR 378

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by itself does not establish an intent to disclose the  income. The disclosure is to be made by filing the  return.  Even in  search cases where the time for  filing  the  return  under  section  139(1)  has  not  expired, income disclosed in the books of account  is  not  treated as  undisclosed income.  All  that  is  denied  to  the  assessee  in  search  cases  is  the  opportunity  to  file  a  return  after  the  period  specified in section 139(1) and to claim that the  income that he would have disclosed in a belated  return  is  not  to  be  regarded  as  undisclosed  income. The reason for denying such opportunity  in search cases is obvious. After having suffered a  search,  the  assessee  is  not  to  be  enabled  to  escape the consequences of his failure to disclose  all  his income by filing a return after the search  and after the expiry of the time prescribed under  section  139(1)  and  by disclosing  therein  income  which had remained undisclosed upto the date of  the search.”

8. Revenue’s plea did not find favour with the High Court.  

Inter-alia,  observing that  payment  of Advance Tax itself  

necessarily implies disclosure of the income on which the  

advance is paid, the High Court held as follows:  

“Under  clause  (d)  of  sub-section(1)  of  section  158BB while assessing the aggregate of the total  income,  the  income  recorded  in  the  books  of  account  and other  documents  maintained in  the  normal course on or before the date of the search  or requisition relating to such previous year shall  be  taken  into  consideration  where  the  previous  year has not ended or the date of filing the return  of the income under sub-section (1) of section 139  has not expired.  When the assessee is required to  

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file  the  self-assessment  for  payment  of  the  advance tax before the income-tax authorities the  return  of  assessment  would  fall  within  the  documents maintained in the normal course by the  assessee  and  as  such  the  income  disclosed  on  payment  of  the  advance  tax  would  fall  within  clause (d) of sub-section (1) of section 158BB.  In  any case although there is a difference between  the regular assessment and the block assessment,  as we have already noticed, unless the provisions  of  the  block  assessment  specifically  bar  the  assessing authority from taking into consideration  the income disclosed by the assessee on payment  of the advance tax to be taken into consideration,  the income disclosed by the assessee on payment  of advance tax would be an income disclosed to  the Revenue and cannot be treated as an income  undisclosed for the relevant assessment year.”

9. Aggrieved thereby, as aforesaid, the Revenue is before us  

in these appeals.

10. The  short  question  for  consideration  is  whether  

payment of Advance Tax by an assessee would by itself  

tantamount  to  disclosure  of  income  for  the  relevant  

assessment year and whether such income can be treated  

as undisclosed income for the purpose of application of  

Chapter XIVB of the Act?

Scope of Chapter XIV-B and its Provisions  

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11. Sections 132 and 132A of the Act incorporate provision  

of search, seizure and requisition which were resorted to  

for  the  conduct  of  search  at  the  premises  of  M/s  A.R.  

Mercantile  Pvt.  Ltd.  For  the  evaluation  of  the  material  

seized during the operation or proceedings under Sections  

132 or 132A of the Act, as the case may be, the provisions  

contained in Chapter XIV-B come into play. This chapter,  

consisting of sections 158B to 158BH was inserted by the  

Finance Act, 1995 with effect from 1.07.1995. The heading  

of Chapter XIV-B reads “Special Procedure for Assessment  

of Search Cases”. It was introduced for the assessment of  

undisclosed  income  determined  as  a  result  of  search  

carried out under Section 132 of the Act or requisitioning  

of documents or assets under Section 132A of the Act. The  

chapter is a self-contained code and gets attracted as a  

result of search proceedings initiated by the income tax  

authorities, under Section 132 of the Act, notwithstanding  

any  other  provisions  of  the  Act  except  to  the  extent  

provided for in the chapter.  

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12. In  the  facts  before  us,  resort  to  this  chapter  was  

required to be made since on conduct  of search at  the  

premises of M/s A.R. Mercantile Pvt. Ltd., documents of M/s  

A.R.  Enterprises,  i.e.  the  assessee were  recovered,  that  

indicated non-disclosure of income by the latter. In such a  

scenario,  Section 158BD gets  attracted,  which reads as  

follows:  

“Undisclosed income of any other person.

158BD. Where  the  Assessing  Officer  is  satisfied  that  any  undisclosed  income  belongs  to  any  person,  other  than  the  person  with  respect  to  whom  search  was  made  under  section  132 or  whose books of account or other documents or any  assets  were  requisitioned  under  section  132A,  then,  the  books of  account,  other  documents  or  assets seized or requisitioned shall be handed over  to  the  Assessing  Officer  having  jurisdiction  over  such other person and that Assessing Officer shall  proceed [under section 158BC] against such other  person  and  the  provisions  of  this  Chapter  shall  apply accordingly.”

13. A bare reading of the afore-extracted provision makes it  

clear that the  condition precedent for invoking a block  

assessment is a search conducted under Section 132, or  

documents  or assets  requisitioned under  Section 132-A.  

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Moreover,  Section 158BD permits  the application of the  

provisions of this chapter only on the satisfaction of the  

assessing  officer  that  the  seized  documents  show  

undisclosed income of a person other than the person with  

respect  to whom search was conducted or a requisition  

was made. It  is trite law that such satisfaction must be  

recorded  for  the  benefit  of  the  assessee.  In  Manish  

Maheshwari  Vs. Asstt. Commissioner of Income Tax  

&  Anr2.,  this  Court  summarized  the  prerequisites  of  

Section 158BD of the Act as follows:

“11.  …(i)  satisfaction  must  be  recorded  by  the  assessing  officer  that  any  undisclosed  income  belongs to any person, other than the person with  respect to whom search was made under Section  132 of the Act; (ii) the books of accounts or other  documents  or  assets  seized or  requisitioned had  been handed over to the assessing officer having  jurisdiction over  such  other  person;  and (iii)  the  assessing  officer  has  proceeded  under  Section  158-BC against such other person.”

14. In Assistant Commissioner of Income Tax Vs. Hotel  

Blue Moon3, one of us (H.L. Dattu, J.) while explaining the  

2 (2007) 3 SCC 794 3 (2010) 3 SCC 259 at page 264

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purport of Chapter XIVB of the Act, has observed that a  

search is the  sine qua non for the block assessment; the  

special  provisions are devised to operate in the distinct  

field of undisclosed income and are clearly in addition to  

the  regular  assessments  covering  the  previous  years  

falling in the block period, intended to provide a mode of  

assessment  of  undisclosed  income,  which  has  been  

detected  as  a  result  of  search.  Hence,  from  the  

aforementioned discussion it  is clear that a valid search  

under Section 132 of the Act is a sine qua non for invoking  

block  assessment  proceedings  under  Chapter  XIVB.  

Further  according  to  Section  158BD  of  the  Act  the  

assessing officer must record his or her satisfaction that  

any undisclosed income belongs to any person, other than  

the person with respect to whom search was made under  

Section 132 of the Act.  

15. It seems that these requisites were in fact not adhered  

to  in  the  present  case.  During  the  course  of  hearing,  

learned  counsel  for  the  assessee  did  contend  that  the  

Revenue did not have jurisdiction to invoke Chapter XIVB  

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of the Act, against the assessee. According to the learned  

counsel,  before  initiating  proceedings  under  Section  

158BD of the Act, the assessing officer had not recorded  

his satisfaction that any undisclosed income belonged to  

the  assessee  or  that  the  assessee  did  not  have  the  

intention  to  disclose  their  income.  Hence,  the  block  

assessment proceedings against the assessee should be  

quashed.   However,  we  are  unable  to  appreciate  the  

submission of the learned counsel at this stage, since the  

same  was  never  urged  before  the  High  Court  and  the  

Tribunal. Hence, we refrain from making any observations  

on a contention that had never been argued before the  

High Court and the Tribunal.  We shall restrict our opinion  

strictly to the issue before us, viz. whether the payment of  

Advance  Tax  for  the  relevant  assessment  year  is  

tantamount  to  disclosure  of  income  for  the  purpose  of  

application of Chapter XIVB of the Act.

16. The  relevant  provisions  for  assessment,  computation  

and  procedure  of  block  assessment,  which  would  come  

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rest of Chapter XIV-B, find application only in the event of  

discovery  of  “undisclosed  income”  of  an  assessee.  

Undisclosed income is  defined by Section 158B as  that  

income  “which  has  not  been  or  would  not  have  been  

disclosed for the purposes of this Act”. The legislature has  

chosen to define “undisclosed income” in terms of income  

not  disclosed,  without  providing  any  definition  of  

“disclosure” of income in the first  place.  We are of the  

view that the only way of disclosing income, on the part of  

an assessee, is through filing of a return, as stipulated in  

the Act, and therefore an “undisclosed income” signifies  

income not stated in the return filed. Keeping that in mind,  

it  seems that the legislature has clearly carved out two  

scenarios  for  income  to  be  deemed  as  undisclosed:  (i)  

where the income has clearly not been disclosed and (ii)  

where  the  income  would not  have  been  disclosed.  If  a  

situation is covered by any one of the two, income would  

be undisclosed in the eyes of the Act and hence subject to  

the  machinery  provisions  of  Chapter  XIVB.  The  second  

category, viz. where  income  would  not  have  been  

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disclosed, contemplates the likelihood of disclosure; it is a  

presumption  of  the  intention  of  the  assessee  since  in  

concluding  that  an  assessee  would  or  would  not  have  

disclosed income, one is  ipso facto making a statement  

with respect to whether or not the assessee possessed the  

intention to do the same. To gauge this, however, reliance  

must  be  placed  on  the  surrounding  facts  and  

circumstances of the case.  

19. One such fact, as the assessee claims, is the payment  

of Advance Tax. However, in our opinion, the degree of its  

material  significance depends on the time at  which the  

search is conducted in relation to the due date for filing  

return.  Depending  on  which  side  of  the  due  date  the  

search is conducted, material significance of payment of  

Advance Taxes vacillates in construing the intention of the  

assessee. If the search is conducted after the expiry of the  

due  date  for  filing  return,  payment  of  Advance  Tax  is  

irrelevant in construing the intention of the assessee to  

disclose income. Such a situation would find place within  

the first category carved out by Section 158B of the Act  

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i.e.  where  income  has  clearly  not  been  disclosed.  The  

possibility of the intention to disclose does not arise since,  

as held earlier, the opportunity of disclosure has lapsed i.e.  

through filing of return of income by the due date. If, on  

the other hand, search is conducted prior to the due date  

for filing return, the opportunity to disclose income or, in  

other  words,  to  file  return  and  disclose  income  still  

persists. In which case, payment of Advance Tax may be a  

material fact for construing whether an assessee intended  

to disclose. An assessee is entitled to make the legitimate  

claim  that  even  though  the  search  or  the  documents  

recovered, show an income earned by him, he has paid  

Advance Tax for the relevant assessment year and has an  

opportunity to declare the total income, in the return of  

income, which he would file by the due date. Hence, the  

fulcrum of  such  a  decision is  the  due  date  for  filing of  

return  of  income  vis-à-vis  date  of  search.  Payment  of  

Advance  Tax  may  be  a  relevant  factor  in  construing  

intention to disclose income or filing return as long as the  

assessee continues to have the opportunity to file return  

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and disclose his income and not past the due date of filing  

return. Therefore, there can be no generic rule as to the  

significance  of  payment  of  Advance  Tax  in  construing  

intention of disclosure of income. The same depends on  

the facts of the case, and hinges on the positioning of the  

search operations qua the due date for filing returns.  

20. Thus, at the very outset, in our view, the question that  

whether payment of Advance Tax by an assessee per se is  

tantamount to disclosure of total income, for the relevant  

assessment year, must be answered in the negative. On  

further scrutiny, we find yet another reason to opine so.  

Payment of Advance Tax and filing of return are functions  

of  completely  different  notions of income i.e.  estimated  

income  and  total  income  respectively.  The  payment  of  

Advance  Tax  is  based  on  an  estimation of  the  total  

income that  is  chargeable  to  tax and not  on the  total  

income itself.  

21. Section 2(45) of Act defines “total income” as-

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"total income" means the total amount of income  referred to in section 5, computed in the manner  laid down in this Act ;”

22. Section  5  of  the  Act  lays  down  the  “scope  of  total  income” as-

“5. (1)  Subject  to the provisions of this  Act,  the  total income of any previous year of a person who  is  a  resident  includes  all  income from whatever  source derived which—

(a)  is received or is deemed to be received in India  in such year by or on behalf of such person ; or (b)  accrues  or  arises or  is deemed  to  accrue  or  arise to him in India during such year ; or (c)  accrues or arises to him outside India during  such year :…”

23. Section  158BB(1)  of  the  Act  provides  the  method  of  

computation of undisclosed income for a block period. It is  

significant to note that the computation of the undisclosed  

income of the block period shall be the aggregate of the  

total income of the previous years falling within the block  

period, computed in accordance with the provisions of the  

Act. This amount is reduced by the aggregate of the total  

income,  or  as  increased  by  the  losses  returned  or  

determined earlier,  in respect of such previous years in  

accordance with the provisions of this section.  

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24. Section 158BB(1) reads as follows-

“158BB. (1) The undisclosed income of the block  period shall be the aggregate of the total income  of the previous years falling within the block period  computed,  in  accordance  with  the  provisions  of  this Act, on the basis of evidence found as a result  of  search  or  requisition  of  books  of  account  or  other  documents  and  such  other  materials  or  information  as  are  available  with  the  Assessing  Officer and relatable to such evidence, as reduced  by the aggregate  of the total  income,  or  as the  case may be, as increased by the aggregate of the  losses of such previous years, determined,— (a) XXX XXX XXX (b) XXX XXX XXX (c) where  the  due  date  for  filing  a  return  of   

income has expired but no return of income  has been filed, as nil

25. Further,  the  explanation  to  Section  158BB(1)  reads-

“Explanation: For the purposes of determination of  undisclosed income,—

(a) the total income or loss of each previous year  shall, for the purpose of aggregation, be taken as  the total income or loss computed in accordance  with  the  provisions  of  Chapter  IV  without  giving  effect  to set  off of brought forward losses under  Chapter VI or unabsorbed depreciation under sub- section (2) of section 32; (b)  of  a  firm,  or  its  partners,  the  method  of  computation  of  undisclosed  income  and  its  allocation to the partners shall  be in accordance  with the method adopted for determining the as-

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sessed income or returned income for each of the  previous years falling within the block period;...”

26. Hence, the computation of “undisclosed income” for the  

purposes of Chapter XIVB has to be construed in terms of  

the “total income” received, accrued, arisen; or which is  

deemed to have been received, accrued or arisen in the  

previous  year,  and  is  computed   according  to  the  

provisions of the Act. According to Section 139(1) of the  

Act, every person who is assessable under the Act, must  

file a return declaring his or her total income during the  

previous year on or before the due date, for assessment  

under  Section 143 of the  Act.  Hence,  the ‘disclosure of  

income’  is  the  disclosure of  the  total  income in  a  valid  

return  under  Section  139,  subject  to  assessment  and  

chargeable  to  tax under  the  provisions of  the  Act.  It  is  

important  to bear  in  mind that  total income is  distinct  

from  the  estimated income,  upon  the  basis  of  which,  

Advance Tax is paid by an assessee. Advance Tax is based  

on estimated income, and hence, it cannot result in the  

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disclosure of the total income assessable and chargeable  

to tax.

27. Before  we  proceed  further  to  elaborate  upon  this  

distinction,  it  would be useful  to  refer  to  the  provisions  

relating  to  payment  of  Advance  Tax  under  the  Act.  

Chapter XVII of the Act, which deals with “Collection and  

Recovery of Tax”, contains provisions for the payment of  

Advance Tax and tax deducted at source. Advance Tax is  

the  tax  payable  on  the  estimated  total  income  of  the  

relevant financial year which is chargeable to tax in the  

assessment year but is payable in that very financial year.  

28. Section  207  of  the  Act  lays  down  the  liability  for  

payment of Advance Tax as:-

“207.  Tax shall be payable in advance during  any  financial  year,  in  accordance  with  the  provisions  of  sections  208  to  219  (both  inclusive), in respect of the total income of the  assessee which would be chargeable to tax for  the  assessment  year  immediately  following  that  financial  year,  such  income  being  hereafter  in  this  Chapter  referred  to  as  “current income.”

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29. Section 208 specifies the conditions of liability to pay  

Advance Tax as:-

“208. Advance tax shall  be payable during a  financial year in every case where the amount  of  such  tax  payable  by  the  assessee  during  that year, as computed in accordance with the  provisions of this Chapter, is one thousand five  hundred rupees or more.”

30. Thus, in every case where the amount of tax payable on  

the total income earned during the financial year is one  

thousand five hundred rupees or more, then, an assessee  

would be liable to pay in the financial year itself, Advance  

Tax on such income, also known as “current income.” It is  

in this context the following questions arise:  (i) What is  

the  nature  of  the  “current  income”  upon  which  the  

Advance  Tax  is  paid  and  is  it  the  same  as  the  total  

income?  and  (ii)  Whether  the  payment  of  Advance  Tax  

results in the disclosure of the actual total income?

 31. Section  210(1)  of  the  Act  refers  to  the  payment  of  

Advance Tax by the assessee of his own accord:-

“210. (1)  Every  person  who  is  liable  to  pay  advance tax under section 208 (whether or not he  has been previously assessed by way of regular  

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assessment) shall,  of his own accord, pay, on or  before each of the due dates specified in section  211, the appropriate percentage, specified in that  section, of the advance tax on his current income,  calculated  in  the  manner  laid  down  in section  209.”

32. Section 209(1)(a) lays down the method of computation  

of Advance Tax to be paid by an assessee as follows:  

“209. [(1) The amount of advance tax payable by  an assessee in the financial year shall, subject to  the  provisions  of  sub-sections  (2)  and  (3),  be  computed as follows, namely :—

(a)  where the calculation is made by the assessee  for the purposes of payment of advance tax under  sub-section (1) or sub-section (2) or sub-section (5)  or  sub-section  (6)  of section  210,  he  shall  first  estimate  his  current  income  and  income-tax  thereon shall be calculated at the rates in force in  the financial year..”

33. According to Section 210(1)  of the  Act,  every person  

who  is  liable  to  pay  Advance  Tax  under Section  

208 (whether or not he has been previously assessed by  

way of regular assessment) shall, of his own accord, pay  

Advance Tax on his “current  income”, calculated in  the  

manner  laid  down  in section  209.  Further  according  to  

Section  209(1)(a),  the  assessee  shall  first  estimate  his  

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“current  income”  and  thereafter  pay  income  tax  

calculated on this estimated income on the rates in force  

in the relevant financial year. It is significant to note that  

this income is an estimation that is made by the assessee  

and may not be the exact income, which may ultimately  

be declared in the return under Section 139 and assessed  

under Section 143 of the Act.  Needless to emphasise that  

payment of Advance Tax does not absolve an assessee  

from an obligation to file return disclosing total income for  

the relevant assessment year. In short, the disclosure of  

total income by the filing of return under Section 139 of  

the Act is mandatory even after the payment of Advance  

Tax  by  an  assessee,  since  the  “current  income”  which  

forms the basis of the Advance Tax is a mere estimation  

and not the final total income for the relevant assessment  

year liable to be assessed.  

34. In Brij Lal & Ors. Vs. Commissioner of Income Tax,  

Jalandhar4,  while explaining the scope of the provisions  

on Advance Tax, this Court expressed the view that the  

4 (2011) 1 SCC 1

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“current income” in respect of which the assessee pays  

Advance Tax is  not  the  same as  understood in  Section  

2(45). In this regard, the Court held:  

“8. Liability  to  pay  advance  tax  arises  under  Section  207.  The  said  section  is  based  on  the  principle “pay as you earn”. It requires tax to be  paid  during  the  financial  year.  It  has  to  be  in  respect of the total income of the assessee which  would be chargeable to tax under the Act. The said  total income is not as understood in Section 2(45)  but  it  is  equated  to  “current  income”  for  the  purposes of Chapter XVII. After the amending Act  of 1987, advance tax is to be paid on the current  income which would be chargeable to tax for the  assessment  year  immediately  following  the  financial year. Section 210 casts the responsibility  of  payment  of  advance  tax  on  the  assessee  without  requiring  the  assessee  to  submit  his  estimate  of  advance  tax  payable.  Provision  for  payment  of  advance  tax  is  a  mode  of  quick  collection of tax.

9. Thus,  Section  207  defines  liability  to  pay  advance tax in respect of incomes referred to in  Section  208.  However,  advance  tax  paid  is  adjustable  towards  the  tax  due.  Advance  tax  is  collected even before the income tax becomes due  and payable.  By its  very nature,  advance tax  is  pre-assessment  collection  of  taxes  either  by  deduction  of  tax  at  source  or  by  payment  of  advance  tax  which  has  to  be  adjusted  towards  income tax levied on the total income. The above  two  methods  of  realisation  even  before  any  assessment  is  authorised  by  Section  4(2)  are  incorporated  in  Chapter  XVII  which  deals  with  “collection and recovery”.

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15. Now, Chapter XVII  deals with “collection and  recovery”. It  covers tax deduction at  source and  advance payment of taxes (see Section 190). Part  C  Chapter  XVII  deals  with  advance  payment  of  taxes. Section 207 refers to liability to pay advance  tax whereas Section 209 deals with computation of  advance tax. Section 215 refers to interest payable  by the assessee. Section 210(1) inter alia provides  that every person who is liable to pay interest (sic  advance tax) under Section 208, shall of his own  accord pay, on each of the due dates specified in  Section  211,  the  appropriate  percentage  of  advance tax on his current  income calculated in  the manner under Section 209.”  

35. A  catena  of  decisions  by  various  High  Courts  has  

reiterated that  the Advance Tax payable under Chapter  

XVII  is based on an estimate of the total income of the  

assessee for  the  relevant  financial  year,  and is  not  the  

final  “total  income”  which  must  be  disclosed  for  

assessment through the filing of a return under Section  

139  of  the  Act  in  the  following  assessment  year.  An  

estimate always has an element of guesswork. There could  

be  various  reasons  due  to  which  an  estimate  may  be  

faulty and inaccurate which is why, there is a provision for  

payment  of  interest  on  deficient  or  excess  payment  of  

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advance tax when there is variation between advance tax  

paid and actual liability to tax. [See:  Commissioner of  

Income Tax  Vs. Smt. Premlata Jalani5,  Bill & Peggy  

Marketing  India  Pvt.  Ltd.  Vs. Assistant  

Commissioner of Income Tax6, Prime Securities Ltd.  

Vs. Assistant  Commissioner  of  Income  Tax7,  

Commissioner of Income Tax  Vs. Nilgiri  Tea Estate  

Ltd.8,  Kwality  Biscuits  Ltd.  Vs. Commissioner  of  

Income  Tax9 which  was  subsequently  affirmed  in  

Commissioner  of  Income Tax  Vs. Kwality  Biscuits  

Ltd.10].

 36. The Punjab and Haryana High Court in Commissioner  

of Income Tax Vs. Upper India Steel Mfg. and Engg.  

Co. Ltd.11 made the following important observations:

“24. We fully concur with the view expressed in the  aforesaid judgments. The Madras High Court has  correctly  pointed  out  that  for  the  purpose  of  payment  of advance tax,  all  assessees including  companies, are required to make an estimate of  

5 [2003] 264 ITR 744 (Raj) 6 191 (2012) DLT 249 7 [2011] 333 ITR 464 (Bom) 8 [2009] 312 ITR 161 (Ker) 9 [2000) 243 ITR 519 (Kar) 10 [2006] 284 ITR 434 (SC) 11 [2005] 279 ITR 123 (P&H)

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their current income. Even before the introduction  of  the  provisions  of  Section  115J  of  the  Act,  companies had been estimating their total income  after  providing  deductions  admissible  under  the  Act. In fact, all  assessees who maintain books of  account  have to  undertake  this  exercise  for  the  purpose of payment of advance tax. If a profit and  loss account can be drawn up on estimate basis for  the purpose of Income-tax Act, it is not understood  as  to  why  a  similar  profit  and  loss  account  on  estimate basis under the Companies Act cannot be  drawn up. If the explanation of the companies that  the profits under Section 115J of the Act can only  be determined after the close of the year were to  be  accepted,  then  no  assessee  who  maintains  regular  books of account  would be liable  to  pay  advance tax as in  those cases also, income can  only be determined after the close of the books of  account at the end of the year.”

37. We are, therefore, of the view that since the Advance  

Tax payable by an assessee is an estimate of his “current  

income” for the relevant financial year, it is not the actual  

total income, to be disclosed in the return of income. To  

repeat,  the  vital  distinction  being  that  the  “current  

income” is an estimation or approximation, which may not  

be  accurate  or  final;  whereas the  “total  income” is  the  

exact income disclosed in a valid return, assessable by the  

Revenue.  The  fact  that  the  “current  income”  is  an  

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estimation  implies  that  it  is  not  final  and  is  subject  to  

further adjustments in the form of additions or reductions,  

as the case may be, and would have to be succeeded by  

the disclosure of final and total income in a valid return. It  

will  be  a  misconstruction  of  the  law  to  construe  the  

undisclosed income for purposes of Chapter  XIVB as an  

“estimate” of the total  income, which is assessable and  

chargeable to tax. Therefore, we are unable to accept that  

payment  of  Advance  Tax  based  on  “current  income”  

involves  the  disclosure  of  “total  income”,  as  defined  in  

Section 2(45)  of the Act,  which has to be stated in the  

return of income. The same is evidenced in the scheme of  

Chapter XIVB, in particular.  

 38. Section 158BB(3) of the Act states-  

(3) 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.

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39. Thus,  for  the purposes of computation of undisclosed  

income under Chapter  XIVB, an assessee can rebut the  

Assessing  Officer’s  finding  of  undisclosed  income  by  

showing that such income was disclosed in the return of  

income filed by him before the commencement of search  

or the requisition. In other words, when Section 158BB(3)  

is  read with Section 158B(b),  which defines  undisclosed  

income,  we reach  the  conclusion that  for  income to be  

considered  as  disclosed  income,  the  same  should  have  

been disclosed in the return filed by the assessee before  

the search or requisition. In our opinion, 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.

 40. If  we were to hold that  the payment of Advance Tax  

reflects  the  intention  of  the  assessee  to  disclose  its  

income, it could result in a situation where the mandatory  

obligation of filing a return for disclosure of income under  

the provisions of the Act, would not be necessary. It will be  

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open to an assessee to contend that payment of Advance  

Tax  is  tantamount  to  disclosure  of  income.  Such  a  

proposition would be contrary to the very purpose of filing  

of return,  which ultimately leads to assessment  of total  

income for the relevant assessment year. Any anomaly in  

the return entails  serious consequences, which may not  

otherwise  be  attracted  on estimation  of  income for  the  

purpose of payment of Advance Tax.  It  would thus, be  

difficult to accept the plea that payment of Advance Tax is  

tantamount to the disclosure of income or that it indicates  

the intention of the assessee to disclose income.

41. In the instant case, after the search was conducted on  

23rd February 2006, it was found that for the assessment  

year        1995-96, the respondent-assessee had not filed  

its return of income by the due date. It is only when block  

assessment proceedings were initiated by the assessing  

officer,  that  the  assessee  filed  its  return  for  the  said  

assessment year on 11th July, 1996 under Section 158BC of  

the  Act,  showing its  total  income as  Rs.7,02,768/-.  The  

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assessee claimed, that since Advance Tax had been paid  

in three installments, it could not have been said that the  

income  had  not  been  disclosed  or  that  there  was  no  

intention to disclose income. We have already held that  

the  payment  of  Advance  Tax,  which  is  based  upon  

estimated income, cannot tantamount to the disclosure of  

the total income, which must be declared in the return. In  

our opinion, the fact that the assessee had not filed its  

return of income by the due date, the Assessing Officer  

was correct in assuming that the assessee would not have  

disclosed  its  total  income.  For  all  these  reasons,  the  

decision of the High Court cannot be sustained.

42. Lastly,  since  C.A.  No.  2580/2010  refers  to  a  slightly  

different issue, we deem it fit to record our observations  

with  respect  to  the  same.  In  this  appeal,  the  issue  is  

whether  tax  deducted  at  source  (and  not  payment  of  

Advance Tax) amounts to the disclosure of income.  

43. Section 190 of the Act states-

190  (1)  Notwithstanding  that  the  regular  assessment in respect of any income is to be made  

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in a later assessment year, the tax on such income  shall  be payable by deduction 12[or  collection]  at  source or by advance payment  13[or by payment  under sub-section (1A) of section 192], as the case  may be, in accordance with the provisions of this  Chapter.

(2)  Nothing  in  this  section  shall  prejudice  the  charge of tax on such income under the provisions  of sub-section (1) of section 4.

44. Since the tax to be deducted at source is also computed  

on the estimated income of an assessee for the relevant  

financial  year,  such  deduction  cannot  result  in  the  

disclosure of the total income for the relevant assessment  

year. Subject to the monetary limit of the total income,  

every person is obligated to file his return of income even  

after  tax is  deducted at  source.  Hence,  for  the reasons  

stated in the preceding paragraphs, we are of the opinion  

that  mere  deduction  of  tax  at  source,  also,  does  not  

amount to disclosure of income, nor does it indicate the  

intention  to  disclose  income  most  definitely  when  the  

same is not disclosed in the returns filed for the concerned  

assessment year.

12 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-6-1988. 13 Inserted by the Finance Act, 2002, w.e.f. 1-6-2002.

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45. Consequently,  we  allow  the  appeals;  set  aside  the  

impugned judgments and answer the question formulated  

by the High Court, extracted in para 6 (supra), in favour of  

the  Revenue.  The  Revenue  shall  be  entitled  to  costs,  

quantified at Rs.50,000/- in each set of appeals.

……..…………………………………. (D.K. JAIN, J.)  

……..…………………………………. (H.L. DATTU, J.)

……..…………………………………. (JAGDISH SINGH KHEHAR, J.)

NEW DELHI, JANUARY 14, 2013.

ARS

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