2010 (8) TMI 237 - HC - Income Tax

Revision AO failing to tax cash seized and later on assessee surrendered the same Assessment order erroneous and prejudicial to interest of Revenue - it is well settled that an illegal payment made which may be an offence cannot be permissible expenditure under section 37 of the Act. In Haji Aziz and Abdul Shakoor Bros. v. CIT (1960 -TMI - 49525 - SUPREME Court), it was held by a Bench of three hon ble judges that if a sum was paid by the assessee that may render him liable to penal action, the same could not be allowed as deductible expense - revision by CIT upheld

Summary

Issues Involved:
1. Jurisdiction under section 263 of the Income Tax Act.
2. Deletion of addition of Rs. 48 lakhs by the Income-tax Appellate Tribunal.
3. Entitlement of the assessee to deduction of Rs. 48 lakhs as business loss.

Analysis:

(i) Jurisdiction under section 263 of the Income Tax Act:
The Commissioner of Income-tax invoked the provisions of section 263 of the Act correctly as the Assessing Officer failed to tax the additional income disclosed by the assessee. The Tribunal erred in presuming that the amount was not adjudicated for inclusion in taxable income, as the Commissioner clearly pointed out the failure of the Assessing Officer to consider the taxability of the amount. The Commissioner directed a fresh assessment, indicating compliance with the requirements of section 263.

(ii) Deletion of addition of Rs. 48 lakhs by the Tribunal:
The Tribunal unjustly deleted the addition of Rs. 48 lakhs based on the retraction of the assessee's statement. The confessional statement made by the assessee, corroborated by his son-in-law, was crucial evidence. The retraction lacked a plausible explanation and was considered an afterthought, rendering the deletion by the Tribunal unjustified. The sum of Rs. 48 lakhs represented undisclosed income of the assessee.

(iii) Entitlement of the assessee to deduction of Rs. 48 lakhs as business loss:
The assessee was not entitled to claim the amount of Rs. 48 lakhs as a business loss. The concurrent findings of the Assessing Officer and the Commissioner highlighted that the amount did not qualify as a business loss under any head of income. The legal precedent established that illegal payments cannot be considered permissible expenditure under the Income Tax Act. Therefore, the assessee's claim for deduction as a business loss was not valid.

In conclusion, the judgment favored the Revenue and rejected the assessee's contentions regarding the jurisdiction under section 263, the deletion of the addition of Rs. 48 lakhs, and the deduction of the same amount as a business loss. The legal reasoning and precedents cited supported the decision against the assessee's arguments.