2013 (1) TMI 918 - AT - Income Tax

Addition u/s 68 - Held that - Since an addition under section 68 or for that purpose cannot be taken as income under any specific heads of income, it cannot also be treated as business income . In this view of the matter, we hold that the CIT(A) has erred in holding that the addition under section 68 of the Act in assessee s case is liable to be treated as assessee s business income . Therefore, we allow the instant appeal and restore the findings of the Assessing Officer. Revenue s appeal stands accepted.

Summary

Issues Involved:

1. Treatment of unexplained cash credits as 'business income.'
2. Eligibility for deduction under section 80-IB of the Income Tax Act, 1961.
3. Classification of cash credits under section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Treatment of Unexplained Cash Credits as 'Business Income':

The Revenue appealed against the CIT(A)'s decision to treat unexplained cash credits as 'business income' and allow deductions under section 80-IB. The Revenue argued that the CIT(A) erred in this treatment and cited various case laws to support their stance that unexplained cash credits should not be considered as business income. The Tribunal examined the facts and found that the assessee had not proved the identity, capacity, and creditworthiness of the creditors. The Tribunal concluded that the unexplained cash credits could not be treated as business income since the assessee had not shown these credits in its audited accounts as business income. Therefore, the Tribunal held that the CIT(A) was incorrect in treating the addition under section 68 as business income.

2. Eligibility for Deduction under Section 80-IB:

The assessee claimed a deduction under section 80-IB, which was initially allowed by the Assessing Officer. However, the dispute arose regarding the treatment of unexplained cash credits. The CIT(A) allowed the deduction under section 80-IB by treating the unexplained cash credits as business income. The Tribunal disagreed with this treatment, stating that unexplained cash credits do not qualify as income derived from the business and hence, are not eligible for deductions under section 80-IB.

3. Classification of Cash Credits under Section 68:

The Tribunal analyzed whether unexplained cash credits should be classified under any specific head of income. It referred to various case laws, including Fakir Mohmed Haji Hasan Vs. CIT and ITO Vs. Dulari Digital Photo Services (P) Ltd., which clarified that income deemed under sections 68, 69, 69A, etc., does not fall under any specific head of income such as 'Profits and gains of business or profession' or 'Income from other sources.' The Tribunal concluded that since the nature and source of the unexplained cash credits were not known, they could not be classified under any heads of income specified in section 14 of the Act. Consequently, the Tribunal restored the findings of the Assessing Officer, who had treated the unexplained cash credits under the head 'income from other sources.'

Conclusion:

The Tribunal allowed the Revenue's appeal, holding that the CIT(A) erred in treating the unexplained cash credits as 'business income' and allowing the deduction under section 80-IB. The unexplained cash credits were to be treated under the head 'income from other sources,' and therefore, the findings of the Assessing Officer were restored. The appeal was accepted, and the order was pronounced on January 29, 2013.