2011 (4) TMI 282 - AT - Income Tax

Addition - Exemption u/s 10(23C)(vi) - Search and seizure u/s 132 - unexplained expenditure u/s 69C - An addition of sum of Rs. 9,50,652 for the assessment year 2004-05 and Rs. 10,37,069 for the assessment year 2005-06 was made on account of non-recording of cash payment of rent to the land lord - Held that - when the expenditure was not recorded in the books of account and the assessee failed to offer satisfactory explanation about the nature and source of such expenditure, it is the deemed income of the assessee, such deemed income did not fall under the head income, of profits and gains of business or profession - Hence, the CIT(A) was not justified in holding that the assessee is eligible exemption under section 10(23C)(iiiad) of the IT Act - Decided against of assessee. Application of provisions of section 14 on additions as deemed income - Held that - in these cases, the source not being known, such deemed income will not fall even under the head income from other sources . Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed income which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions.

Summary

Issues Involved:
1. Eligibility for exemption under section 10(23C)(vi) of the IT Act.
2. Treatment of cash payments of rent as unexplained expenditure under section 69C of the IT Act.
3. Applicability of section 10(23C)(iiiad) for deemed income under section 69C.

Detailed Analysis:

1. Eligibility for exemption under section 10(23C)(vi) of the IT Act:
The Revenue's primary grievance is that the CIT(A) erred in allowing the exemption under section 10(23C)(vi) of the IT Act. The assessee claimed eligibility for exemption under section 10(23C)(iiad) if its gross receipts were less than 1 crore. However, the Revenue argued that such a claim could only be bona fide if the institution's affairs were conducted fairly without resorting to dubious means to suppress real receipts.

2. Treatment of cash payments of rent as unexplained expenditure under section 69C of the IT Act:
A search and seizure operation under section 132 of the IT Act revealed that the assessee made substantial cash payments for rent, which were not recorded in the books of account. The Assessing Officer treated these cash payments as unexplained expenditure under section 69C, adding them to the total income for the assessment years 2004-05 and 2005-06. The CIT(A) observed that since the assessee filed returns in response to notice under section 153C with revised receipt and payment accounts certified by an audit report, the addition under section 69C was not justified.

3. Applicability of section 10(23C)(iiiad) for deemed income under section 69C:
The assessee argued that the expenditure treated as income under section 69C should be considered eligible for exemption under section 10(23C)(iiiad) because the total receipts were less than Rs. 1 crore. However, the Tribunal held that section 69C prohibits any deduction towards unexplained expenditure deemed as income. The deemed income under section 69C does not fall under any head of income under section 14, including 'income from other sources.' Consequently, the corresponding deductions applicable to incomes under various heads do not apply to deemed income under sections 69, 69A, 69B, and 69C.

Conclusion:
The Tribunal concluded that the assessee's failure to record cash payments of rent in the original return and the subsequent filing of revised returns after detection by the Revenue authorities indicated that the revised returns were not voluntary. The addition made by the Assessing Officer under section 69C was justified. Furthermore, the deemed income under section 69C is not eligible for exemption under section 10(23C)(iiiad). The Tribunal reversed the CIT(A)'s order and restored the Assessing Officer's decision, allowing the Revenue's appeals.