2024 (7) TMI 283 - AT - Income Tax

Taxation of income as surrendered during the course of search proceedings - assessee surrendered the amount against bogus sundry creditors which was added to the total income of the assessee u/s 68 r.w.s. 115BBE - CIT(A) holding that undisclosed income of the assessee is income of the assessee u/s 41(1) of the Act and accordingly allowed set off of surrendered/undisclosed income with the business losses/unabsorbed depreciation claimed by the assessee - Department submitted that CIT(A) erred in changing the rate of interest from section 115BBE of the Act to the normal rate of tax as the income was surrendered during the course of search proceedings - HELD THAT - As assessee submitted that AO has made addition based on the statement given during the search proceedings u/s 132(4) of IT Act. Shri Sachin Arora in response to question no 21 of the said statement has stated that he offers an additional income under HPS Concerete Pvt. Ltd i.e assessee to meet out possible leakage of revenues and to cover up all the long pending liabilities and expenditure. AO could not bring any evidence on record from which it may be concluded that this income may be categorized as deemed income , as per the provisions of sections 68 to 69D of the IT Act since the essential conditions of these sections of these sections are not fulfilled in case of this disclosure of income which has been made on account of cession of liabilities of long standing Sundry Creditors. In view of the above material facts apparent on record the arguments on behalf of the department of revenue being devoid of merits are untenable. Hence the appeal of the Revenue deserves dismissal.

Summary

Issues:
1. Appeal against order allowing set off of surrendered income.
2. Interpretation of provisions of section 115BBE and 41(1) of the Income Tax Act.
3. Application of section 68 of the Income Tax Act.
4. Assessment based on statement during search proceedings.

Analysis:
1. The appeal was filed by the Department of Revenue against the order of the Learned Commissioner of Income Tax (Appeals) allowing the set off of surrendered income. The assessment order by the Learned Deputy Commissioner of Income Tax was set aside, leading to the present appeal.

2. The key issue revolved around the interpretation of provisions of section 115BBE and 41(1) of the Income Tax Act. The Department argued that the rate of interest should not have been changed, and the undisclosed income should not have been set off against business losses. The Department contended that the surrendered income was undisclosed and should not be allowed any deductions.

3. The application of section 68 of the Income Tax Act was crucial in determining the treatment of the surrendered income. The Department argued that the undisclosed income surrendered by the assessee should be treated as deemed income under section 68, disallowing any deductions or set-offs. However, the assessee contended that the provisions of section 68 were not fulfilled in this case.

4. The assessment was based on the statement given by an individual during search proceedings, where an additional income was offered to cover pending liabilities. The Department failed to provide evidence to categorize this income as deemed income under sections 68 to 69D of the IT Act. The Tribunal found the arguments of the Department devoid of merits and dismissed the appeal of the Revenue.

In conclusion, the Tribunal upheld the order allowing the set off of surrendered income, highlighting the importance of correctly interpreting and applying the provisions of the Income Tax Act in such cases.