2014 (2) TMI 1261 - AT - Income Tax

Additional income brought to tax - survey operation - Held that - The assessee has manipulated his claim of expenditure so as to offset the revenue effect of additional income of ₹ 15 lakhs offered by him in the course of survey. It is an undisputed fact that the amount of ₹ 15 lakhs was offered by the assessee as additional income over and above his regular income from the business. Therefore, it is not permissible for the assessee to dilute the said amount of additional income by overstating the expenditure. In the facts and circumstances of the case, we find that the Assessing Officer has rightly made an addition of ₹ 15 lakhs and the same has to be sustained. We set aside the order of Commissioner of Income Tax (Appeals) on the issue of deleting the addition of ₹ 15 lakhs. - Decided in favour of revenue

Summary

Issues:
Assessment of additional income offered during survey operation and subsequent treatment of related expenditure.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai involved the assessment of additional income offered by the assessee during a survey operation and the subsequent treatment of related expenditure for the assessment year 2008-09 under Section 143(3) of the Income-tax Act, 1961. The assessee initially offered an additional income of Rs. 15 lakhs during the survey operation but later filed a return with a total income of Rs. 12,22,413, explaining that the additional amount had already been accounted for in the capital account, affecting the computation of income. The Assessing Officer, after a thorough examination, added the Rs. 15 lakhs as a separate addition to the returned income, alleging that the assessee inflated expenditures to nullify the effect of the additional income.

The Commissioner of Income Tax (Appeals) overturned the addition of Rs. 15 lakhs, noting that the assessee had not maintained proper books of accounts and had voluntarily disclosed the additional income. The Commissioner held that due to the irregular maintenance of books, it was unfair to disallow specific expenditures separately. The Revenue, aggrieved by this decision, filed a second appeal before the Tribunal, challenging the deletion of the addition.

Upon review, the Tribunal found that the detailed findings of the Assessing Officer were not adequately considered by the Commissioner of Income Tax (Appeals). It was noted that the assessee had not maintained proper accounts, raising doubts about the legitimacy of claimed additional expenditures post-survey. The Tribunal highlighted that the source of the Rs. 15 lakhs additional income was the business activities of the assessee, and bringing it through the capital account raised questions about its treatment. The Tribunal emphasized the importance of scrutinizing expenditure genuineness, especially when attempts were made to offset additional income by inflating expenditures.

Ultimately, the Tribunal concluded that the assessee had manipulated expenditure claims to counterbalance the effect of the additional income, and upheld the addition of Rs. 15 lakhs made by the Assessing Officer. The Tribunal set aside the Commissioner's order deleting the addition and directed the Assessing Officer to revise the assessment accordingly. Consequently, the appeal filed by the Revenue was allowed, and the order was pronounced on February 12, 2014, in Chennai.