2009 (10) TMI 544 - HC - Income Tax

Deduction under Section 80 IB - Income surrendered by the assessee - derived from the business of the Industrial Undertaking - eligibility for deduction under Section 80 IB - Held that - Assessing Officer nor any other authority has come to the conclusion that the income was from any other source - the income of the assessee and had been assessed under the head of profits and gains of business - appeal is accordingly rejected

Summary

Issues:
1. Whether the surrendered income of Rs.2,50,000/- is eligible for deduction under Section 80-IB?
2. Whether the surrendered income should be taxed under Section 69(C) as 'Income from other sources' or as 'Income from Business' under Section 80-IB?

Analysis:
1. The case involved the assessment of income for the year 2001-2002 by the Assessing Officer under Section 80-IB of the Income Tax Act, 1961. The assessee, engaged in the manufacture of Tractor and automobile components, declared a net profit of Rs.33,21,659, claiming 100% deduction under Section 80-IB. During scrutiny, a partner of the assessee firm offered Rs.2,50,000/- for taxation to address discrepancies. The Assessing Officer added this amount to the income but denied deduction under Section 80-IB. Both the CIT and the Tribunal held that the offered amount was eligible for deduction under Section 80-IB as profits and gains of the business. The Revenue argued that the amount fell under Section 69(c) and was not derived from the business. However, the Court found that the amount was offered to cover discrepancies in business income, making it eligible for deduction under Section 80-IB. The Court emphasized that for Section 69(c) to apply, unexplained expenditure must be proven, which was not the case here. The judgment favored the assessee, rejecting the Revenue's contentions.

2. The Court analyzed the nature of the surrendered income of Rs.2,50,000/-, determining whether it should be taxed under Section 69(C) as 'Income from other sources' or as 'Income from Business' under Section 80-IB. The Revenue argued that the income did not qualify for Section 80-IB deduction as it was not derived from the business. However, the Court noted that the amount was offered to rectify discrepancies in business income and was assessed under the head of profits and gains of business. The Court clarified that since the entire profits of the business were entitled to 100% deduction, the addition of the surrendered income would enhance the business income eligible for deduction under Section 80-IB. The Court highlighted that no authority established that the income was from undisclosed sources, supporting the allowance of deduction under Section 80-IB. The judgment concluded that the surrendered income was derived from the business and should be considered for deduction under Section 80-IB, ruling in favor of the assessee and rejecting the Revenue's appeal.