2016 (7) TMI 1100 - HC - Income Tax

Income surrendered during survey - whether is to be taxed u/s 69-A - whether set off losses u/s 70 and 71 is not permissible against such income? - Held that - This is not an admission on the appellant s part that the surrendered amount is from the assessees business income. This observation is in respect of the GP rate of 10.85%. The appellant by this observation accepted that the surrendered amount is from business income. The observation only proceeds on the basis of the assessee s assertion of the G.P. rate of 10.85% after including the surrendered amount. It is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount.

Issues:
1. Appeal against order of Income Tax Appellate Tribunal allowing respondent's assessee appeal.
2. Questions of law raised regarding quashing of order under section 263.
3. Examination of assessment order for assessment year 2010-11.
4. Tribunal's detailed consideration of Assessing Officer's enquiry and respondent's explanation.
5. Dismissal of appeal related to question No. (iii).
6. Analysis of respondent's return of income and addition of surrendered income.
7. Contention regarding profits and gains not being established as business income.
8. Lack of evidence regarding source of surrendered income.
9. Observations on GP rate and source of surrendered amount.
10. Determination of surrendered amount as business income.
11. Requirement for assessee to establish source of surrendered amount.

Analysis:

The High Court judgment involved an appeal against the Income Tax Appellate Tribunal's decision, focusing on the order under section 263 of the Income Tax Act, 1961. The appellant raised questions of law challenging the Tribunal's quashing of the order and ignoring previous court decisions. The Court examined the assessment order for the year 2010-11, emphasizing the Assessing Officer's failure to make necessary enquiries and the low G.P. rate accepted. The Tribunal, however, detailed the respondent's explanation and the thorough enquiry conducted by the Assessing Officer, concluding that the Tribunal's acceptance was reasonable based on the respondent's history and explanations.

Regarding the respondent's return of income and surrendered amount, the Court analyzed the set-off claimed towards unabsorbed loss and the total income declared. It was contended that the profits and gains were not established as business income, with the record lacking indication of the income source. The Court highlighted the absence of evidence regarding the source of surrendered income and emphasized the need for the assessee to establish the same.

The judgment addressed observations on the GP rate and source of surrendered amount, clarifying that the surrendered amount should be established as business income by the assessee. It was emphasized that the source of surrendered income must be proven, and there is no presumption that such amounts are automatically business income. Ultimately, the Court ruled in favor of the appellant on question No. (ii), dismissing the appeal related to question No. (i) and affirming the requirement for the assessee to establish the source of surrendered income.

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