2011 (5) TMI 899 - HC - Income Tax

Deduction u/s 80IB - Whether income from other undisclosed sources to be considered as income from the business which is eligible for deduction? - assessee submitted that the undisclosed income was on account of surrender of additional stock found during the course of survey and, therefore, the same was to be considered for calculating deduction u/s 80-IB HELD THAT - Tribunal had specifically recorded that the assessee had failed to show that the amount which was invested in the excess stock and was surrendered at the time of survey was derived from industrial undertaking. In the absence of any such finding or nexus established by the assessee, the Tribunal had rightly declined the claim of deduction u/s 80-IB in respect of excess income surrendered during survey on account of excess stock which was not reflected in the regular books of accounts - Decision against Assessee

Summary

Issues:
1. Interpretation of provisions of s. 145 for charging income from undisclosed sources.
2. Sustainability of Tribunal's order for additions made to income as income from undisclosed sources eligible for deduction under s. 80-IB.

Analysis:
1. The appeal was filed against the Tribunal's order relating to the assessment year 2005-06 under the IT Act, 1961. The primary issues raised were the interpretation of s. 145 regarding charging income from undisclosed sources and the Departmental onus to prove the source of such income. Additionally, the sustainability of the Tribunal's order for additions made to the income of the assessee was questioned, specifically regarding eligibility for deduction under s. 80-IB of the Act.

2. The assessee, engaged in manufacturing and export of textiles goods, declared an income of &8377; 66,61,927 for the relevant year. A survey conducted on the premises revealed excess stock, leading to the surrender of additional income. The AO finalized the assessment at &8377; 88,31,400, which was upheld by the CIT(A) and the Tribunal. The assessee contended that the surrendered amount should be considered for deduction under s. 80-IB as business income, citing judgments from various High Courts.

3. The Tribunal, after careful consideration, rejected the assessee's argument, emphasizing that the surrendered income was solely due to excess stock found during the survey. The Tribunal highlighted that the surrendered income was not derived from the industrial undertaking, a crucial factor for claiming deduction under s. 80-IB. Referring to the decision in Liberty India case, the Tribunal concluded that income not directly linked to the industrial undertaking was not eligible for deduction under s. 80-IB.

4. The Tribunal's decision was based on the absence of evidence establishing a nexus between the excess income from surrendered stock and the industrial undertaking. The counsel for the assessee failed to demonstrate any legal flaws in the Tribunal's findings. The judgments cited by the counsel were distinguished as they involved different factual circumstances where unaccounted income was directly linked to business activities, unlike the present case. Consequently, the Court dismissed the appeal, finding no substantial question of law for consideration.

In conclusion, the judgment clarified the application of provisions under s. 145 for undisclosed income and the eligibility criteria for deduction under s. 80-IB, emphasizing the necessity of a direct nexus between income and the industrial undertaking for claiming deductions.