Assessee cannot withdraw surrendered income from survey by claiming it as professional income without evidence under Section 68

ITAT Indore upheld AO's addition u/s 68 r/w 115BBE where assessee surrendered undisclosed income during survey, declared it in return as medical profession income, but failed to provide supporting evidence. Court rejected assessee's strategy of surrendering income during survey then attempting withdrawal before appellate forums. CIT(A)'s deletion was reversed for failing to confront AO before overturning significant assessment. However, ITAT dismissed revenue's appeals regarding notional interest income addition and unexplained investment u/s 69B, agreeing with CIT(A) that AO cannot make additions based on presumption without corroborative evidence. Addition regarding unexplained jewellery was upheld as CIT(A) properly calculated quantum considering various acquisition sources.

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Issues Involved:

1. Exclusion of undisclosed income from total income.
2. Deletion of addition on account of notional interest income.
3. Deletion of addition on account of unexplained investment in jewelry.

Detailed Analysis:

Issue 1: Exclusion of Undisclosed Income

The primary issue in the appeals was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in excluding the undisclosed income from the total income of the assessees, which was initially admitted during the search proceedings under Section 132(4) of the Income Tax Act, 1961, and subsequently declared in the returns filed under Section 153A. The Assessing Officer (AO) had assessed this undisclosed income under Section 68 read with Section 115BBE, considering it as unexplained cash credits, as the assessees failed to substantiate their claim that the income was earned from the medical profession.

The CIT(A) allowed the exclusion of this income from the total income, accepting the assessees' plea that the surrender was made under undue stress and pressure, and the cash deposits were sourced from cash in hand available as per the books of accounts. The CIT(A) relied on various judicial pronouncements and CBDT Circular No. 14, which emphasizes that officers should not take advantage of the ignorance of taxpayers. However, the Tribunal found the CIT(A)'s decision flawed, emphasizing that the assessees themselves declared the income in their returns and did not retract or challenge the inclusion during the assessment proceedings. The Tribunal upheld the AO's assessment, reversing the CIT(A)'s order, citing the Supreme Court's decision in Banna Lal Jat Construction (P) Ltd. vs. DCIT, which held that a mere retraction without evidence is not permissible.

Issue 2: Deletion of Addition on Account of Notional Interest Income

The second issue involved the deletion of an addition of Rs. 10,00,000 made by the AO on account of notional interest income. The AO had added this amount as notional income, considering the assessees maintained a huge cash balance. The CIT(A) deleted this addition, stating that notional or hypothetical income, which was never earned by the assessee, cannot be brought to tax. The Tribunal agreed with the CIT(A)'s view, dismissing the revenue's grounds on this issue.

Issue 3: Deletion of Addition on Account of Unexplained Investment in Jewelry

The third issue pertained to the deletion of additions made by the AO under Section 69A for unexplained investment in jewelry. During the search, excess jewelry was found, and the AO made additions based on the statements recorded under Section 132(4), where the assessees admitted to undisclosed investments. However, the CIT(A) provided relief by considering the explanations and evidence submitted by the assessees, including valuation reports and purchase bills, which were not considered by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had correctly evaluated the evidence and provided a reasoned order.

Conclusion:

The Tribunal allowed the revenue's appeals concerning the exclusion of undisclosed income, reinstating the AO's assessment. However, it dismissed the revenue's appeals regarding the deletion of notional interest income and unexplained investment in jewelry, upholding the CIT(A)'s decisions on these issues. The Tribunal emphasized the need for substantial evidence to support retractions from admissions made during search proceedings and the importance of considering documentary evidence in assessing unexplained investments.

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