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Facts
The assessee, a partnership firm dealing in arecanuts, failed to account for a receipt of Rs. 3,12,264/- from M/s. Lakshminarayana Beetle Nut Co. The Assessing Officer (AO) added this amount under Section 69A of the Income Tax Act, treating it as unexplained income. The assessee claimed this amount as a bad debt, which was later disallowed.
Held
The Tribunal held that Section 69A of the Income Tax Act is not applicable because the receipt was from debtors and not in the nature of unexplained money, bullion, or jewelry. The Tribunal further held that the unaccounted receipt should be added as income under the head 'profits and gains of business or profession'.
Key Issues
Whether the unaccounted receipt from debtors, when claimed as bad debt, can be added as unexplained income under Section 69A of the Income Tax Act, or if it should be treated as business income.
Sections Cited
69A, 147, 148, 143(3), 250, 156, 234A, 234B, 234C, 271(1)(c), 132, 28, 44DB
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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of ld. CIT(A)/NFAC dated 23.07.2024 vide DIN & Order No. ITBA/APL/S/250/2024-25/1066917731(1) for the assessment year 2011-12 passed under section 250 of the Income Tax act, 1961.
The assessee has raised the following grounds of appeal:
3. The Assessee being a partnership firm is a commission agent dealing in arecanuts. For the assessment year 2011-12, the firm filed its return of Income on 28.2.2012 declaring total income of Rs.17,450/-. During the course of search action u/s 132 of the Act in the case of M/s. Shashi Prakash Arecanut Co. Shivamogga, it is noticed that assessee firm was in receipt of an amount of Rs.4,97,390/- from M/s. Lakshminarayana Beetle Nut Co., Shivamogga during the financial year 2010-11 relevant to assessment year 2011-12, however, the assessee has accounted for only Rs.1,85,126/- and thus the balance amount of Rs.3,12,264/- was not accounted by the assessee. Further, the assessee has also claimed bad debt of Rs.2,85,838/- in respect of debts due from M/s. Lakshminarayana Beetle Nut Co. Under these circumstances, assessment was reopened u/s 147 of the Act and accordingly notice u/s 148 was issued on 28.3.2018. In response to notice issued the assessee filed a return on 19.7.2018 declaring total income of Rs.2,92,345/- by suo motto disallowing bad debt of Rs.2,85,838/- as claimed in the original return. During the course of assessment proceeding the assessee firm contended that receipt from Debtors is not an income and therefore not taxable. On the other hand, AO held that when the assessee do not account the receipt of debt and do not reduce balance of debtors, the amount so received becomes unexplained and taxable u/s 69A of the Act. Therefore, AO was of the opinion that the unaccounted sum of Rs.3,12,264/- (Rs.4,97,390/- (-) Rs.1,85,126/-) is added to the income of the assessee. The AO made total addition of Rs.3,23,207/- (Rs.3,12,264/- on account of unaccounted receipts and Rs.10,943/- towards bad debts written off not declared in the return of income.) and accordingly determined the total tax and interest payable amounting to Rs.2,28,330/-.
Sri Veerabhadreshwara Arecanut Company, Shivamogga Page 4 of 7 3.1 Aggrieved by the assessment completed u/s 143(3) r.w.s. 147 of the Act dated 17.12.2018 the assessee preferred an appeal before the ld. CIT(A)/NFAC. The ld. ADDL/JCIT(A)-2 Mumbai dismissed the appeal of the assessee and confirmed the addition of Rs.3,23,207/- on the ground that the receipts of the debt amount was duly acknowledged by the partner of the assessee’s firm with the stamp of the firm amounting to Rs.4,97,390/- and the assessee has accounted only Rs.1,85,126/-. The ld. ADDL/JCIT(A)-2 Mumbai held that denial of receipt of debt is not acceptable. The ld. ADDL/JCIT(A)-2 Mumbai was also of the view that receipt of debt is not an income as long as the assessee accounts the same in its books of accounts and reduce the balance of debtors. When the assessee does not account the receipts of debts and do not reduce the balance of debtors, the amount so received becomes unexplained and accordingly rightly taxable u/s 69A of the Act. Further, ld. ADDL/JCIT(A)-2 Mumbai was also of the view that the assessee cannot claim that the assessee voluntarily disallowed bad debt of Rs.2,85,838/- against receipt of Rs.3,12,264/- and accordingly dismissed the appeal of the Assessee. 3.2. Aggrieved by the order Addl/JCIT(A)-2, Mumbai, the assessee has filed the present appeal before the Tribunal. The assessee has filed paper book comprising 65 pages enclosing therein various documents/records furnished before the authority below as well as case laws relied upon by the assessee.
Before us, the ld. A.R. of the assessee submitted that once the assessee himself voluntarily disallowed the bad debt of Rs.2,85,838/- and offered the same for taxation, then once again, the entire addition of Rs.3,23,207/- made by the AO u/s 69A of the Act amounts to double taxation. Further, AR of the assessee vehemently submitted that the authorities below have not disputed the fact that the assessee has not accounted for the receipts from debtors and therefore, addition should not be made u/s 69A of the Sri Veerabhadreshwara Arecanut Company, Shivamogga Page 5 of 7 Act as the nature and source of money being duly recorded with the department. Lastly, the AR of the assessee submitted that section 69A is applicable where assessee was found to be owner of any money, bullion, jewelry or other valuable article which is not so in the present case and therefore, the authorities below have erred in making addition u/s 69A of the Act.
The ld. D.R. on the other hand supported the orders of the authorities below and submitted that during the course of search action u/s 132 of the Act in the case of M/s. Shashi Prakash Arecanut Co., certain incriminating documents were found and seized where it is noticed that assessee has not accounted for receipts from debtors amounting to Rs.3,12,264/- in his books of accounts. Further, the assessee has claimed bad debts of Rs.2,85,838/- in respect of debts due from M/s. Lakshminarayana Beetle Nut Co. which is not correct.
We have heard the rival submissions and perused the materials available on record. The assessee in his original return has written off an amount of Rs.2,85,838/- as bad debts which was due from M/s. Lakshminarayana Beetle Nut Co., Shivamogga. Later on, in response to notice u/s 148 of the Act, the assessee filed a return electronically on 19.7.2018 declaring total income of Rs.2,92,345/-. Therefore, the assessee has voluntarily disallowed the bad debts written off amounting to Rs.2,85,838/-and claimed further deduction of remuneration to working partners amounting to Rs.10,943/- as increased admissible remuneration. It is not a disputed fact that during the course of search u/s 132 of the Act in the case of M/s. Shashi Prakash Arecanut Co., it is noticed that assessee was in receipt of Rs.4,97,390/-, whereas the assessee has accounted for only Rs.1,85,126/- in his books of A/c and the balance amount of Rs.3,12,264/- was not accounted by the assessee. Further, the AO has also admitted that assessee has shown bad debt of Rs.2,85,838/-, which is also not correct. Both Sri Veerabhadreshwara Arecanut Company, Shivamogga Page 6 of 7 the authorities below have not disputed the fact that the amount not accounted for is received from debtors. Therefore, we are of the opinion that income added by the AO on account of receipts from debtors not disclosed in the books of the assessee tantamount to business income. We are further of the opinion that the receipts from debtors added as income is not in the nature of unexplained income to be taxed u/s 69A of the Act as income is to be categorized under specific heads depending on their nature/source for computation purposes under chapter IV. Therefore, if the source/nature of the income is from business and profession, the income is to be subjected to tax is to be assessed as provided u/s 28 to 44DB of the Act. Section 69A if the Act exclusively deals with unexplained money. For making addition u/s 69A of the Act, we are of the view that the following conditions must be satisfied- i. The assessee is found to be the owner of any money, bullion, jewelry or other valuable article. ii. Such money, bullion, jewelry or valuable article is not recorded in the books of accounts. iii. The assessee offers no explanation about the nature and source of acquisition or the explanation offered by him is not in the opinion of the AO is satisfactory. 6.1 Thus, in the present case, to invoke deeming provisions u/s 69A of the Act, the assessee should be owner of any physical assets like money, bullion, jewelry or other valuable article, which is not so in the present case. Further, the receipt of money is also not in dispute. Therefore, we are of the opinion that the provisions of section 69A of the Act do not apply in the case of the assessee. 6.2 As the assessee has not accounted for the receipt from debtors amounting to Rs.3,12,264/-, and considering the fact that the assessee has already declared the net amount of Rs.2,74,895/- (Rs.2,85,838/- (-) Rs.10,943/-), the balance amount of Rs.37,369/-
In the result, appeal of the assessee is partly allowed.