2002 (4) TMI 223 - AT - Income Tax

Tribunal denies Section 80-I deduction, defers electricity bill provision deduction

The Tribunal ruled in favor of the Revenue on both issues. The surrendered amount of Rs. 20 lacs was classified as 'income from other sources' instead of ... - Issues Involved:1. Classification of surrendered income as 'business income' versus 'income from other sources.'2. Allowability of provision for electricity bill raised by DESU.Detailed Analysis:Issue 1: Classification of Surrendered IncomeDuring a search of the assessee's business premises, the assessee declared and surrendered Rs. 20 lacs as unaccounted stock and jewelry. The assessee credited this amount to the Profit & Loss account and claimed deductions under Section 80-I of the Income Tax Act, asserting it as business income. The Assessing Officer (AO), however, classified it as 'income from other sources' and denied the Section 80-I deduction.The assessee argued that no penalty proceedings could be initiated under Explanation 5 to Section 271(1)(c) of the IT Act, which offers immunity if the income is declared during search proceedings. The AO agreed on the non-imposition of penalty but maintained the classification as 'income from other sources.'The CIT(A) disagreed with the AO, treating the surrendered amount as business income and directed the AO to allow the Section 80-I deduction. The Revenue appealed against this decision, arguing that the onus to prove the income as business income lies on the assessee, which was not substantiated by any evidence other than the assessee's statement.The Tribunal held that the immunity under Explanation 5 to Section 271(1)(c) is confined to penalty proceedings and does not restrict the Revenue from investigating the source or taxability under other provisions, such as Section 69. The Tribunal concluded that the surrendered amount was not disclosed in the books, and the seized jewelry was not part of the business assets. Hence, the AO was justified in treating the amount as 'income from other sources.'Issue 2: Provision for Electricity BillThe assessee made a provision of Rs. 1,60,965.23 for an electricity bill raised by DESU, which was disputed and stayed by the court. The AO disallowed this provision, stating it should be allowable in the year of actual payment. The CIT(A) overruled this, allowing the provision.The Revenue contended that since the bill was disputed and unpaid, the provision should not be allowed until the payment is made. The Tribunal agreed with the Revenue, noting that the liability was uncertain due to the ongoing dispute and court stay. Thus, the deduction should be claimed in the year of payment.Conclusion:The Tribunal ruled in favor of the Revenue on both issues. The surrendered amount was classified as 'income from other sources,' and the provision for the disputed electricity bill was disallowed for the relevant year, to be claimed in the year of actual payment.