2013 (11) TMI 1582 - AT - Income Tax

Income from undisclosed source u/s 68 - Held that - The assessee has explained the source of obtaining the bogus loan being the amount received from the firm which has been offered by the firm to tax and subjected to the proceedings before the Settlement Commission. Therefore, we do agree with the finding of the CIT(A) that double addition cannot be made in respect of the amount which is already subjected to tax in the hand of the partnership firm and the assessee received the same as application of the income of the partnership firm. Accordingly, we do not find any error or illegality in the order of the CIT(A) qua this issue.

Summary

Issues:
1. Addition of income from undisclosed source under section 68 of the Act.
2. Treatment of bogus loans offered as unaccounted income.
3. Double taxation concern regarding the source of income and its application.

Analysis:
1. The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2007-08 regarding the addition of income from an undisclosed source under section 68 of the Act. The dispute arose from a search and seizure action where the assessee, a managing partner of a firm, explained that the alleged bogus loan of Rs. 4.8 crores was actually a withdrawal from the firm's income earned from sale of flats, already offered to tax by the firm. The Assessing Officer (A.O) made the addition, but the Commissioner (CIT(A)) held that if the Settlement Commission decides that the income offered by the firm was used for obtaining bogus loans by the assessee, the addition in the assessee's hands would be deleted. Otherwise, the addition would stand confirmed.

2. The Revenue contended that the CIT(A) erred in ignoring that the bogus loans were offered as unaccounted income by the assessee under section 132(4) of the Act, without documentary evidence linking them to the firm's income. However, the assessee argued that the firm had already declared the income from sale of flats, and the alleged bogus loan was merely the application of that income. The CIT(A) found that double addition cannot be made for the same income source and its application, especially when the firm's income was already being taxed and the matter was pending before the Settlement Commission.

3. The Tribunal noted that the assessee had declared only Rs. 58,52,443 as additional income under section 132(4), not the alleged Rs. 4.8 crores. The firm had offered Rs. 7.6 crores as income from sale of flats, subject to Settlement Commission's decision. The CIT(A) held that if the Settlement Commission determines that the firm's income was used for bogus loans by the assessee, the addition would be deleted; otherwise, it would be confirmed. The Tribunal agreed with the CIT(A) that no double taxation should occur for income already taxed at the firm level and applied by the assessee, upholding the decision and dismissing the Revenue's appeal.