2010 (4) TMI 1059 - AT - Income Tax

Summary

Issues Involved:
1. Segregation of surrendered income as deemed income.
2. Treatment of surrendered income as "deemed income" and its tax implications.
3. Creation of a new head of income "deemed income."
4. Classification of surrendered cash as business income or income from other sources.

Summary:

1. Segregation of Surrendered Income as Deemed Income:
The assessee contested the CIT(A)'s decision to uphold the Assessing Officer's (AO) segregation of surrendered income of Rs. 5 lakhs as deemed income, refusing set off u/s 70 and 71 of the I.T. Act. The AO assessed the surrendered income u/s 69A of the I.T. Act, treating it separately from business income and disallowing set off against business losses.

2. Treatment of Surrendered Income as "Deemed Income" and Its Tax Implications:
The assessee argued that the surrendered income should be treated as business income, referencing the statement made during the survey and entries in the cash book. The AO, however, relied on the judgment in Fakir Mohmed Haji Hasan Vs. CIT, which held that deemed income u/s 69, 69A, 69B, and 69C is not classified under any heads of income u/s 14 and thus not eligible for deductions. The Tribunal upheld this view, stating that the assessee failed to provide evidence of the source of the surrendered cash.

3. Creation of a New Head of Income "Deemed Income":
The assessee claimed that the lower authorities incorrectly created a new head of income "deemed income." The Tribunal, referencing the Gujrat High Court's decision in Fakir Mohmed Haji Hasan Vs. CIT, clarified that deemed income under sections 69, 69A, 69B, and 69C is treated separately and does not fall under any specific head of income, thus not qualifying for deductions.

4. Classification of Surrendered Cash as Business Income or Income from Other Sources:
The Tribunal noted that the assessee surrendered Rs. 5 lakhs as additional income during the survey, which was not recorded in the books. The General Manager admitted the cash as income from other sources. The Tribunal concluded that the surrendered income is deemed income u/s 69A and not business income, thereby disallowing the set off of business losses against it. The alternate plea to assess the income under "income from other sources" and allow set off u/s 71 was also rejected.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s order to treat the surrendered income as deemed income u/s 69A and disallowing the set off of business losses against it. The decision was pronounced in the open court on April 30, 2010.