I-T - Merely mentioning income in P&L a/c and in Balance sheet does not absolve assessee from disclosing such income in returns: HC
BY TIOL News Service
ERNAKULUM, MAR 22, 2018: THE issue before the Bench in this case is whether the Revenue can allege non-disclosure of full and material facts against an assessee, where the assessee does not inform the AO about any particular income which has been disclosed in the returns for the relevant AY. YES is the verdict. Concurrently, the Court also held that merely because any income had been mentioned in the Profit & Loss accounts or in the balance sheet, the same would not absolve an assessee from disclosing such income in the returns. The Court further held that in such cases, the limitation period of four years would also not apply.
Facts of the case
The assessee-company, engaged in manufacturing and selling fine-bone china crockery and tableware, filed returns for the relevant AY. Assessment for such AY was completed. After about four years, the AO reopened the assessment, on grounds of escapement of income. The AO alleged that the assessee had not disclosed full and true material facts withinsix years. Thus, the AO included an amount of interest income and carried out re-assessment. On appeal, the CIT(A) noted that the balance sheet for the relevant AY mentioned the interest amount as 'interest income net of income tax'. Thereupon, it was held that there could be no allegation of non-disclosure of full and material facts alleged against the assessee for the subject assessment year. Later the Tribunal too held that such balance sheet was already available with the AO during regular assessment. Thus, the Tribunal upheld the findings of the CIT(A). Hence the Revenue's appeal.
On hearing the matter, the High Court held that,
++ in the instant case however, at the risk of repetition, it has to be stated that the assessee had returned interest from deposits, as income in the return but had not disclosed the entire income so received. On the basis of the return it was contended that the interest income cannot be taken to determine the taxable income; which contention was specifically rejected by the Assessing Officer. As was noticed above the further income received as interest, available in the profit and loss account was not disclosed in the returns and by virtue of Explanation-1 this results in nondisclosure of material facts. There cannot be alleged any inference having not been made at the regular assessment, since even in the regular assessment the inference of the Assessing Officer was that the interest income has to be computed in the taxable income.
++ in the above circumstance, the assessee could not have claimed that the AO ought to have employed due diligence and found out the further interest income from Bank deposits, which were not returned, but available in the books of accounts. This disclosure, going by the Explanation-I to Section 147, has to be made by the assessee in the return. That details were available in the books of accounts or the balance sheet or profit and loss account cannot absolve the assessee from a true and correct disclosure of material facts necessary for assessment. Hence the first appellate authority and the Tribunal went wrong in finding that the facts of the case indicate full and true disclosure of facts which are necessary for assessment in the subject assessment year.
++ in the present case, true, after regular assessment and after notice for reassessment was issued, there was a Supreme Court judgment finding the interest income received even before the commencement of production would be income from other sources. But, that decision is not the cause for the aforesaid reopening. It is only in the assessment order as seen from Annexure-A that the AO relied on the decision of the Supreme Court, to further sustain the re-assessment of undisclosed income to tax. The AO, later to the regular assessment, saw from the P&L account that there was further income by way of interest from deposits, which had not been disclosed in the returns filed by the assessee. This was the reason for issuance of notice of reassessment, for bringing to tax income that escaped assessment within the six year period. The limitation of 4 years would not be applicable, since the specific allegation, which we have found to be correct, is of non-disclosure of full and true material facts necessary for assessment. Hence the issue stands settled in favor of the Revenue.
(See 2018-TIOL-501-HC-KERALA-IT)
