The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) held that the additional income cannot be treated as unexplained expenditure under Section 69C of the Income Tax Act, 1961 to attract income tax under Section 115BBE of the Income Tax Act.
The assessee Devender Rao Gourkanti is an individual and partner in M/s. Yashoda Heathcare Services Pvt.Ltd and derives partner’s remuneration and interest on capital. He filed his original return of income declaring total income of Rs.8, 56, 33,070. A search and seizure operation under Section 132 of the Income Tax Act was conducted in the case of Yashoda Group during which the case of the assessee was also covered.
During the search and seizure operation conducted in the case of Yashoda group certain loose sheets were found and seized, which represent the cash receipts/payments of Rs.5,08,98,100/- pertaining to various concerns related to the assessee.
The assessee admitted the cash receipts/payments of Rs.5 crores in the sworn statement under Section 132(4) of the Income Tax Act as additional undisclosed income and has declared an additional income of Rs.5,07,48,000 under the head “Business & Profession” in the Income Tax Return.
The Assessing Officer (AO) rejected the arguments of the assessee and held that the assessee could not substantiate his claim that the sources for the expenses is from real-estate business.
Further, the AO treated the amount of Rs.5,08,98,100 as unexplained expenditure under Section 69C of the Income Tax Act, and invoked the provisions of Section 115BBE of the Income Tax Act. Aggrieved by the order assessee filed an appeal before Commissioner of Income Tax (Appeals) [CIT (A)].
The CIT (A) held that if no discrepancy is pointed by the AO, the provisions of Sections 68, 69, 69A, 69B, 69C or 69D of the Income Tax Act are not attracted to levy income tax under Section 115BBE of of the Income Tax Act, hence the CIT (A) directed the AO to tax the amount of Rs.5, 08, 98,100 under normal provisions of the Income tax Act. Appeal was filed by revenue before ITAT.
The Departmental Representative strongly opposed the order of the CIT (A) and contended that the assessee in this case did not substantiate with evidence to the satisfaction of the AO, regarding the sources of expenses found in the seized material as from real-estate business. Hence submitted that the order of the CIT (A) be reversed and that of the order of the AO be restored.
The counsel for the assessee submitted that the provision of Section 115BBE of the Income Tax Act is applicable when the source of income is not disclosed or source of expenditure is not disclosed.
The ITAT Bench consisting of Shri Rama Kanta Panda, Accountant Member and Shri Laliet Kumar, Judicial Member, observed that once the assessee has proved the initial burden that he is engaged into real-estate business and has earned income from such real-estate, the AO should not have treated the amount of Rs. 5, 08, 98,100/- as unexplained expenditure without making any further enquiry to disprove the evidence.
Further, the bench observed that the provisions of Section 115BBE of the Income Tax Act is applicable when the source of income is not disclosed. Thus, if the real-estate business income does not fall in the ambit of Sections 68 to 69D of the Income Tax Act, the provisions of Section 115BBE of the Income Tax Act cannot be invoked.
ITAT confirmed the order directing the AO to tax the amount of Rs. 5, 08, 98,100/- under normal provisions of the Income Tax Act.
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