The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench held that No claim of expenses can be made when amount represents net income of firm.
The assessee had constructed a commercial scheme consisting of shops in the name of ‘Trivia’. During the course of survey, statement was recorded of one of the partners, Snehal Patel in which he declared approximately 11 crores as undisclosed income of the assessee firm M/s Shreeji Enterprises for assessment year 2014-15.
After taking the submissions of the assessee on record, the AO concluded that the disclosure of net income of 11 crores was made during the course of search and thus represented the gross receipts of the assessee
The Department submitted that the Partner in their statement has categorically stated that Rupees 11 crores declared by him is unaccounted income in addition to regular income of the firm for assessment a 2014-15.
The Departmental Representative submitted that the CIT(Appeals) ignored the fact that the disclosure of the “net income” was made and not the “gross receipts” by the Partner of the assessee firm. Therefore, no deduction on account of expenses towards the “net income” disclosed during the survey is allowable.
The Counsel for the assessee stated that in the statement made by the Partner of the assessee firm, he nowhere stated that it is in net income of the assessee which is being disclosed and therefore the assessee is eligible to claim expenses against the same, which were not doubted by the AO during the course of detailed scrutiny assessment.
A Bench consisting of P.M. Jagtap, Vice President and Siddhartha Nautiyal, Judicial Member observed that “The CIT(Appeals) has correctly observed that from the statement recorded of the Partner of the firm, it cannot be inferred that the said amount of Rs 11 crores represents net incomeof the assessee firm, and therefore, the assessee is not eligible to claim any expenses against the same.”
The Tribunal also noted that once the position is admitted that the assessee has offered the undisclosed sum of Rupees 11 crores in the return of income, and during the course of detailed assessment, the assessing Officer has not doubted the genuineness of expenses claimed in the return of income, then such expenses should be allowed against the undisclosed income of Rupees 11 crores offered by the assessee in the return of income.
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