2021 (5) TMI 513 - AT - Income Tax

Treating additional income earned on sale of shops as income u/s.69A - whether undisclosed income is business income or income from other sources - proportionate expenses claimed in profit and loss account in relation to undisclosed income - unaccounted income from sale of shops as deemed income u/s 69A of the Act instead of Business Income and denied set off of unabsorbed business loss/depreciation of the earlier years - HELD THAT - Ld Counsel has submitted before us that assessee does not deal into any other business except of development of market to sell textile shops. We believe on the submission of ld Counsel, as assessee himself also during survey statement affirmed this fact, that said undisclosed income belongs to business. Therefore, we treat amount as undisclosed income of business. As partner has admitted to ₹ 7,20,00,000 as net income which is over and above regular business income of the firm FY 2009-10, relevant to assessment year 2010-11 . In view of the above admission, the amount of ₹ 7,20,00,000/- must have been offered separately in the computation of income under the head business income without claiming proportionate expenses. As per assessee the said undisclosed income of ₹ 7,25,03,689/-( ₹ 7,20,00,000 by sale of shops and ₹ 5,03,689 excess cash found during survey) is net of expenses, therefore the said income would be assessable under the head business income without deducting any expenses from it, however, as noted by us above, that assessee has claimed proportionate expenses, which is not acceptable. Therefore, we remit this issue back to the file of the assessing officer to exclude the proportionate expenses from the said undisclosed income and allow the assessee the benefit of set off of business loss/depreciation in accordance with law. The assessee is directed to file the detail of proportionate expenses claimed by him in profit and loss account in relation to undisclosed income. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Treatment of additional income earned on the sale of shops as income under Section 69A of the Income Tax Act.
2. Adjustment of unabsorbed business loss/depreciation of earlier years.

Issue-wise Detailed Analysis:

1. Treatment of Additional Income Earned on Sale of Shops as Income under Section 69A of the Income Tax Act:

The primary grievance raised by the assessee was that the learned Commissioner of Income Tax (Appeals) [CIT(A)] treated the amount of ?7,25,03,689/- (comprising ?7,20,00,000/- from unaccounted sales of shops and ?5,03,689/- excess cash found) as deemed income under Section 69A of the Income Tax Act instead of business income. The assessee argued that Section 69A pertains to money, bullion, jewellery, or other valuable articles not recorded in the books of accounts, and thus should not cover the income earned from the sale of shops. The assessee contended that since this income was related to business receipts, it should be assessed as business income, allowing for the set-off of business loss and depreciation.

During the survey under Section 133(A) of the Act, the assessee admitted to unaccounted income from the sale of shops amounting to ?7,20,00,000/- and excess cash of ?5,03,689/-. This was recorded in the statement of the partner of the firm, who disclosed the unaccounted income for taxation. The Assessing Officer (AO) added this amount under Section 69A, relying on the decision of the Hon’ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan V/s. CIT, and did not allow any set-off against business loss or depreciation.

The tribunal noted that the assessee included the undisclosed income in the profit and loss account and claimed expenses against it, which contradicted the statement made during the survey where the partner had admitted that the amount was net income with no expenses to be claimed. The tribunal found merit in the revenue's argument that the assessee had distorted the facts and presented a false profit and loss account by claiming proportionate expenses against the undisclosed income.

2. Adjustment of Unabsorbed Business Loss/Depreciation of Earlier Years:

The assessee argued that the CIT(A) should have allowed the adjustment of unabsorbed business loss/depreciation of earlier years against the undisclosed income. However, the tribunal observed that the assessee had claimed proportionate expenses against the undisclosed income in the profit and loss account, which was not consistent with the statement made during the survey. The tribunal held that the undisclosed income should be assessed as business income without deducting any expenses from it.

The tribunal remitted the issue back to the AO to exclude the proportionate expenses from the undisclosed income of ?7,25,03,689/- and to allow the assessee the benefit of set-off of business loss/depreciation in accordance with the law. The assessee was directed to provide details of the proportionate expenses claimed in relation to the undisclosed income.

Conclusion:

The appeal filed by the assessee was allowed for statistical purposes, with the tribunal directing the AO to reassess the undisclosed income as business income without deducting expenses and to allow the set-off of business loss/depreciation accordingly. The order was pronounced on 03/05/2021 by placing the result on the Notice Board.