2021 (5) TMI 482 - AT - Income Tax

Undisclosed income u/s 68 - computation of tax liability under the provisions of section 115 BBE - Addition based on notebooks found in search - assessee admitted that the said notebook contains entries relating to his business concern and declared the additional income during the survey action - case was selected for scrutiny and the AO passed assessment order u/s 143 (3) and accepted the return - HELD THAT - Section 68 of the Act applies where any sum is found credited in the books of account maintained by the assessee for any previous year and the assessee fails offer any explanation about the nature and source thereof or the explanation by the assessee is not satisfactory in the opinion of the AO the sum so credited may be treated as income of the assessee of that previous year. In the present case the assessee has explained the nature and source of the amount in question and to substantiate his contention submitted cash flow statement - AO has not given his findings on this point. We therefore find merit in the contention of the assessee that in the absence of any adverse findings by the AO on the source of earning of the assessee the authorities below have wrongly treated the amount in question as undisclosed income u/s 68 of the Act and computed the Tax liability under the provisions of section 115 BBE of the Act. We are of the considered view the sole ground raised by the assessee is covered in favour of the assessee by the decision of the coordinate Bench in the case of Shri Bhuwan Goyal 2020 (10) TMI 27 - ITAT CHANDIGARH . CIT(A) has erred in upholding the action of the AO in treating the amount in question as undisclosed income u/s 68 of the Act. Hence respectfully following the decision of the coordinate Bench in the case discussed above we allow the appeal of the assessee and set aside the impugned order passed by the Ld. CIT(A). Accordingly we direct the AO to compute the Tax on the said amount treating the same as business income of the assessee. Appeal of the assessee is allowed.

Summary

Issues:
Challenge to assessment order treating declared amount as undisclosed income under section 68 of the Income Tax Act, 1961.

Analysis:
The appellant challenged the assessment order passed by the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] against the order of the Learned Commissioner of Income Tax (Appeals) Ludhiana. The appellant contended that the declared amount of ?10,00,000 was wrongly treated as undisclosed income under section 68 of the Act by the Assessing Officer (AO). The appellant argued that the amount was actually business income. The appellant cited precedents from the ITAT Chandigarh Bench and the Delhi Bench to support their case.

The appellant's counsel highlighted that the impugned order suffered from legal infirmity as the AO incorrectly categorized the declared amount as undisclosed income. The counsel referenced a decision by the ITAT Chandigarh Bench in a similar case to argue in favor of the appellant. The Departmental Representative (DR) supported the AO's decision, stating that section 68 of the Act deems any sum credited in the books as undisclosed income if not satisfactorily explained. The DR argued that since the appellant's explanation was unsatisfactory, the AO's action was justified.

Upon review, the Tribunal acknowledged that the notebook entries found were related to the appellant's business concern. Citing a previous case, the Tribunal noted that surrendered income during survey actions cannot be automatically treated as undisclosed income under section 68. The Tribunal found that the AO did not justify treating the amount as undisclosed income, especially since the appellant provided explanations and submitted a cash flow statement. The Tribunal held that the Ld. CIT(A) erred in upholding the AO's decision and directed the AO to treat the amount as business income, not undisclosed income under section 68.

In conclusion, the Tribunal allowed the appeal, setting aside the Ld. CIT(A)'s order. The Tribunal directed the AO to compute the tax on the amount as business income of the appellant. The decision was based on the inconsistency between the Ld. CIT(A)'s findings and the precedent set by the coordinate Bench in a similar case. The appeal of the assessee was allowed, and the impugned order was overturned in favor of treating the amount as business income.