2021 (4) TMI 905 - AT - Income Tax

Undisclosed income disclosed as per seized diary during survey action under section 133A - to be treated under the head business income or under the head other sources - main grievance of assessee is that the income tax officer in his assessment order, has stated that the income from undisclosed sources does not fall under any heads of income which is a wrong observation of the assessing officer and therefore the order passed by the assessing officer is not in accordance with law - HELD THAT - From the above decision of Hon ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan 2000 (8) TMI 44 - GUJARAT HIGH COURT it is abundantly clear that where an income which is not admitted, but is inferred by the assessing officer and if it could not be brought under any particular head of incomes, deduction may be lost. Where such receipt cannot be brought under any particular head of income, it will have to be assessed under the head other sources but deductions under section 57 of the Act may not be admissible as it will not be possible for the assessee to claim deduction as relating to such deemed income, since the assessee has denied that income, but if he is able to prove any expenditure in relation to such admitted income, there is no reason for denying the same. Therefore, the deemed income will be assessable under the head income from other sources , however, the deduction available under the head income from other sources will be lost. As undisclosed source income of ₹ 1,10,00,000/- of the assessee cannot be assessed under the head 'business or profession', as the nature of receipts is not known, that is, the assessee has failed to explain the nature of said undisclosed source income. In Sreelekha Banerjee v. Commissioner of Income-tax 1963 (3) TMI 47 - SUPREME COURT , the Hon ble Supreme Court observed The very words ' an undisclosed source' show that the disclosure must come from the assessee and not from the department. Therefore, in the absence of any plausible explanation form the ld Counsel, we are constrained to agree with the findings of the ld CIT(A). That being so, we decline to interfere in the order of ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the assessee is dismissed.

Summary

Issues Involved:
1. Classification of ?1,10,00,000/- disclosed during survey under section 133A of the Income Tax Act, 1961.
2. Allowance of set off of business loss of ?77,15,133/- against the disclosed income of ?1,10,00,000/-.

Issue-wise Detailed Analysis:

1. Classification of ?1,10,00,000/- Disclosed During Survey:
The primary issue is whether the ?1,10,00,000/- disclosed during the survey should be treated as 'business income' or 'income from other sources.' The assessee argued that the income disclosed should be classified as 'business income' based on the seized diary and statements recorded. However, the Assessing Officer (AO) treated the income as 'income from undisclosed sources' under section 69 of the Income Tax Act, citing the lack of satisfactory explanation regarding the source of the income.

The AO's stance was supported by the Gujarat High Court's judgment in Fakir Mohmed Haji Hasan v/s CIT, which clarified that income from unexplained sources, if not satisfactorily explained, cannot be classified under any specific head of income and is treated as deemed income. Consequently, the AO denied any intra-head or inter-head adjustments, including the set-off of business losses.

The CIT(A) upheld the AO's decision, emphasizing that the assessee failed to prove that the undisclosed income was derived from business activities. The Tribunal concurred with the findings of the AO and CIT(A), noting that the assessee did not provide a plausible explanation for the source of the ?1,10,00,000/-. The Tribunal also highlighted that the affidavit filed by the assessee four months after the survey was considered an afterthought to avoid tax liability.

2. Allowance of Set Off of Business Loss:
The second issue pertains to the assessee's claim for setting off the business loss of ?77,15,133/- against the disclosed income of ?1,10,00,000/-. The AO disallowed the set-off, reasoning that income from undisclosed sources does not qualify for such adjustments under the Income Tax Act.

The Tribunal referred to the Gujarat High Court's judgment, which stated that deemed income under sections 69, 69A, 69B, and 69C, where the source is not satisfactorily explained, cannot be classified under any head of income, including 'other sources.' As a result, deductions and set-offs typically applicable to specific heads of income are not permissible for such deemed incomes.

The Tribunal concluded that the AO correctly assessed the undisclosed income under the head 'income from other sources' and rightly disallowed the set-off of business losses. The Tribunal found no merit in the assessee's argument that the AO's order was not in accordance with the law, as the AO had indeed classified the income under 'other sources' but denied the set-off due to the unexplained nature of the income.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, affirming the decisions of the AO and CIT(A). The undisclosed income of ?1,10,00,000/- was rightly treated as 'income from other sources,' and the set-off of business loss of ?77,15,133/- was correctly disallowed due to the unexplained nature of the income. The judgment underscores the importance of providing satisfactory explanations for undisclosed incomes to qualify for specific classifications and deductions under the Income Tax Act.