Tribunal directs reassessment of undisclosed income as business income without expenses deduction

The tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to reassess the undisclosed income as business income without deducting expenses and to permit the set-off of business loss/depreciation accordingly. The decision was rendered on 03/05/2021.

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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 Rs. 7,25,03,689/- (comprising Rs. 7,20,00,000/- from unaccounted sales of shops and Rs. 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 Rs. 7,20,00,000/- and excess cash of Rs. 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 Rs. 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.

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