2005 (11) TMI 175 - AT - Income Tax

Tribunal Upholds Exemption for Chit Business, Corrects Income for Kusboo Enterprises, Partly Allowing Appeal.

The Tribunal ruled in favor of the appellant on both issues. For the chit business, it upheld the appellant's claim for exemption under the principle of ... Block Assessment - additions by way of income from chit business - whether the assessee can claim income of Rs. 4 lakhs as exempt on the principle of mutuality?- HELD THAT:- In the present case, it is seen that various persons contributing (to) the chits are availing the combined contributed sum for a lesser sum called chit and the surplus arising is distributed amongst the chit contributors. Thus, the contributors to the common fund and the participators in the surplus are same persons. Hence, the principles of mutuality are squarely applicable. Applying the ratio laid down by Hon'ble Supreme Court in the case of Bankipur Club Ltd. [1997 (5) TMI 392 - SUPREME COURT] as well as the Andhra Pradesh High Court in the case of Nataraj Finance[1987 (8) TMI 76 - ANDHRA PRADESH HIGH COURT], the income is not to be taxed but is to be exempted as the profit is made from oneself and not from others. AO as well as learned CIT(A) has taxed the sum of Rs. 4 lakhs merely because the assessee agreed for the same. It is settled law that there cannot be any concession against the provision of law. Even though the assessee admitted but is able to demonstrate that the income admitted is either not his income or that such amount is not chargeable to tax, the same cannot be brought to tax merely on admission. Thus, we hold that though the assessee admitted the income of Rs. 4 lakhs, yet it is clear that the income is not chargeable in view of the principle of mutuality and hence to be taken out of the purview of chargeable income under the Act. We accordingly delete the addition of Rs. 4 lakhs. Block Assessment - The income for the period 1990-91 to 1999-2000 as recorded in the books of account is Rs. 3,94,302. Similarly, the additional sales as per seized document and the profit from such additional sales is Rs. 1,09,110. The total of these two gives the figure of Rs. 5,03,412. The AO has not found such computation incorrect. It is settled law that undisclosed income can be computed only on the basis of material found as a result of search. We accordingly direct the AO to restrict the profit as proprietor of M/s Kusboo Enterprises to a sum of Rs. 5,03,412 instead of the sum of Rs. 6lakhs adopted. In the result, the appeal is partly allowed.   Issues:1. Addition of income from chit business2. Addition of income from proprietary concern M/s Kusboo EnterprisesAnalysis:Issue 1: Addition of income from chit businessThe appellant challenged two additions, including income from chit business amounting to Rs. 4 lakhs. The search revealed that the appellant conducted 22 chits, leading to the addition of Rs. 4 lakhs as income from commission. The appellant admitted to conducting chit business and declared the amount as undisclosed income. The appellant argued for exemption based on the principle of mutuality, citing relevant court decisions. The Departmental Representative contended that the income was business income and not exempt under mutuality. The Tribunal analyzed the facts and upheld the appellant's claim for exemption under the principle of mutuality, following the decisions of the Supreme Court and the Andhra Pradesh High Court. The Tribunal ruled that the income was not chargeable, and hence, deleted the addition of Rs. 4 lakhs.Issue 2: Addition of income from proprietary concern M/s Kusboo EnterprisesThe appellant admitted Rs. 6 lakhs as undisclosed income from M/s Kusboo Enterprises during the search. However, upon further examination, the correct income was determined to be Rs. 5,03,412. The appellant argued that the correct income should be considered, not the admitted amount. The Departmental Representative supported the original addition based on the admission. The Tribunal found that the correct income based on the books of account and seized documents was Rs. 5,03,412, not Rs. 6 lakhs. The Tribunal directed the Assessing Officer to adopt the correct income figure and restricted the profit from M/s Kusboo Enterprises to Rs. 5,03,412. As a result, the appeal was partly allowed.In conclusion, the Tribunal ruled in favor of the appellant on both issues, granting exemption under the principle of mutuality for the income from chit business and directing the correct income figure for M/s Kusboo Enterprises.