2014 (7) TMI 1288 - HC - Income Tax

Undisclosed expenditure - allowable business expenditure - tax the gross receipt including the undisclosed receipt at the net rate of 10% which was treated as receipts from undisclosed income under section 69A - Held that - From the bank account of the assessee maintained with HDFC Bank, it appears that the opening credit balance as on 1st April, 2005 was ₹ 60,854.88p. and the closing balance as on 30th March, 2006 was ₹ 491.97p. It is possible that during the financial year 2005-06 an aggregate sum was deposited, but it is also a fact that during the aforesaid financial year from time to time various payments were made. There is no finding recorded anywhere that this expenditures were not on account of business expenditure. The position which emerges is that the assessee has undisclosed income as well as undisclosed expenditure. Therefore, doing the best, which could be done in the facts and circumstances of the case, CIT (Appeal) held that 10% of the receipts are to be treated as the net profit of the assessee. The aforesaid view has been affirmed by the learned Tribunal. This was wholly an enquiry into the facts of the case. After going into the facts of the case, the aforesaid view was taken. Ms. Bhargava, appearing for the appellant has not drawn our attention to any infirmity in the view taken by them. We are, as such, of the opinion that this appeal is altogether unmeritorious.

Summary

Issues:
1. Interpretation of undisclosed income under section 69A
2. Justification of the Tribunal's decision based on evidence
3. Legality and correctness of the Tribunal's order

Analysis:
1. The primary issue in this case was the interpretation of undisclosed income under section 69A of the Income Tax Act. The Tribunal directed the Assessing Officer to tax the gross receipt, including the undisclosed receipt, at a net rate of 10%. The revenue contended that the entire undisclosed amount should be added back, while the CIT (Appeal) and the Tribunal held that only 10% of the undisclosed receipts should be treated as the net profit of the assessee. The Court examined the bank account maintained by the assessee with HDFC Bank, noting the opening and closing balances, along with various deposits and expenditures during the financial year. The CIT (Appeal) concluded that 10% of the receipts should be considered as the net profit, a decision upheld by the Tribunal.

2. The second issue revolved around the justification of the Tribunal's decision based on the evidence presented. The revenue argued that the Tribunal's finding was contrary to the evidence on record. However, the Court observed that there was no finding indicating that the expenditures were not business-related. Considering the undisclosed income and expenditure, the CIT (Appeal) deemed 10% of the receipts as the net profit. The Court affirmed that this decision was a result of a thorough factual inquiry and found no infirmity in the Tribunal's view.

3. Lastly, the legality and correctness of the Tribunal's order were questioned. The Court, after reviewing the facts and circumstances of the case, concluded that the appeal lacked merit. It was determined that no legal issues were involved in the appeal, leading to its dismissal without addressing the proposed questions by the revenue. The Court emphasized that the appeal was unmeritorious, thereby upholding the Tribunal's decision regarding the treatment of undisclosed income.