2013 (5) TMI 748 - AT - Income Tax

Jurisdiction power u/s 263 by CIT(A) - as per CIT AO should have excluded the income on account of unaccounted advances from the books profit for the purpose of computing allowable deduction u/s 40(b)(v) - Held that - It is an undisputed fact that during the course of assessment proceedings, on the basis of the documents seized during the course of survey, addition on account of unaccounted advances was made by the Assessing Officer. In his order the AO has also noted that the assessee had advanced loan out of his unaccounted income which were not reflected in his regular books and which were received by cash. Before us, the A.R. has not brought any material on record to prove that the Assessing officer has examined the issue as to taxing the same under business income or under any other head. The decision relied by the A.R. is distinguishable on facts and cannot be applied to the facts of the present case. Thus CIT while setting aside the assessment has distinguished the decisions relied by Assessee and has given reasons for considering the order of A.O. to be erroneous and prejudicial to the interest of Revenue. Thus no reason to interfere with the order of the CIT (A) and therefore, dismiss appeal of Assessee.

Summary

Issues:
Assessment of unaccounted advances as business income, validity of order passed under section 263 of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed against the order of Ld. CIT (Central)-II, Ahmedabad, under section 263 of the Income Tax Act, 1961, for the assessment year 2006-07. The assessee, a partnership firm engaged in financing business, had declared income including unaccounted advances and claimed salary expenses to partners. The Ld. CIT observed discrepancies in the assessment, leading to the issuance of notice under section 263.

2. The Ld. CIT(A) set aside the assessment, directing the Assessing Officer to re-examine the income after granting opportunities to the assessee for being heard. The assessee contended that the Assessing Officer had already considered the unaccounted advances as business income during the assessment proceedings. The Ld. D.R., however, argued that the unexplained investment should be treated as income under section 69, not as business income.

3. The Tribunal found that the Assessing Officer had made additions based on unaccounted advances without specifically examining whether it should be taxed as business income or under another head. The decision cited by the assessee was deemed inapplicable to the case. The Tribunal referenced previous judgments emphasizing the importance of disclosing the nature and source of income to determine the appropriate head for assessment.

4. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the order of the Assessing Officer was indeed erroneous and prejudicial to the interest of Revenue. The Tribunal found no grounds to interfere with the Ld. CIT(A)'s order, ultimately dismissing the appeal of the assessee.

In conclusion, the judgment addressed the assessment of unaccounted advances as business income and the validity of the order passed under section 263 of the Income Tax Act, 1961. The Tribunal affirmed the decision of the Ld. CIT(A) based on the failure of the Assessing Officer to properly examine the nature of income, leading to the dismissal of the appeal.