2019 (12) TMI 1078 - AT - Income Tax

Undisclosed business income - deference in income declared in ITR after survey and income surrendered during survey u/s.133A - unexplained expenditure and receipts - CIT(A) sustained the addition at ₹ 14.00 lakh thereby deleting the addition of remaining amount on account of undisclosed income - HELD THAT - In the instant case, we are confronted with the facts which are germane to the second situation, in which some undisclosed business income was admitted to have been earned and simultaneously some undisclosed expenditure was also incurred for the incurring of income. In such a scenario, it is only the excess of one over the other, which can be charged to tax. Adverting to the facts of the instant case, it is seen that there is net outflow of ₹ 1.00 lakh which calls for addition in as much as the assessee received business receipt of ₹ 25.00 lakh outside the books of account and also spent business expenses of ₹ 26.00 lakh outside of the books of account. The payment of commission to certain persons for fetching customers has direct relation with the running of Hotel business from which unaccounted receipts of ₹ 25.00 lakh were earned. Further, the payment of commission is a normal incidence of business and is not hit by Explanation 1 to section 37(1) of the Act. Once this is the position, we fail to appreciate as to how any addition other than ₹ 1.00 lakh on this score can be made, apart from addition of ₹ 10,71,000/- on account of investment in flat and ₹ 5,00,000/- towards additional income offered by the assessee on account of omissions and commissions. When these three amounts are added up, the total comes to ₹ 16,71,000/-. As against that, the assessee offered ₹ 17.00 lakh as additional income. In this view of the matter, there is no reason for making or sustaining any addition over and above this amount. We, therefore, order to delete the addition of ₹ 14.00 lakh sustained by the ld. CIT(A). - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition of ?14.00 lakh.

Analysis:
The appeal was against the order passed by the CIT(A)-6, Pune related to the assessment year 2007-08. The assessee was subjected to survey action under section 133A of the Income-tax Act, 1961. During the survey, the partner made declarations of income amounting to ?56.00 lakh, but the return was filed with an additional income of ?17.00 lakh. The Assessing Officer made an addition of ?39.00 lakh, which the CIT(A) reduced to ?14.00 lakh. The only issue raised in the appeal was against the confirmation of this addition.

The partner admitted to various undisclosed amounts during the survey, including unexplained business promotion expenses and unaccounted receipts. The assessee offered ?17.00 lakh as additional income in the return, which included various items such as unaccounted investment in a residential flat and business promotion expenses. The Tribunal noted that the assessee should have included the amount of ?10,71,000 related to the residential flat in the return. It was observed that the net outflow of ?1.00 lakh should be added to the income, considering the undisclosed receipts and expenses incurred outside the books of account.

The Tribunal differentiated between situations where undisclosed income is earned and unexplained expenditure is incurred. In this case, the undisclosed income was earned alongside undisclosed expenditure, resulting in a net amount that should be charged to tax. The Tribunal found that the payment of commission for securing customers was directly related to the hotel business's unaccounted receipts. The Tribunal concluded that only an addition of ?1.00 lakh, along with the previously mentioned amounts, should be made to the income. Therefore, the Tribunal ordered the deletion of the addition of ?14.00 lakh sustained by the CIT(A).

In conclusion, the appeal was allowed, and the addition of ?14.00 lakh was deleted. The Tribunal's decision was based on a detailed analysis of the undisclosed income and expenditure declared during the survey, ensuring that only the appropriate amount was added to the income for taxation purposes.