INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Loan documents found during search not belonging to assessee -

During search in case of assessee engaged in the business as finance and property broker. Cash of Rs. 6 lakhs as well as other incriminating material were found. Assessee filed return of income and declared total income including surrendered income of Rs. 8,50,000 for the year under consideration. AO required assessee to explain seized documents. Assessee replied that these were photo copies left by some clients for refinancing purpose and, therefore, he was not aware about the contents and related parties. AO did not accept this and made addition of Rs. 20 lakhs in the hands of assessee on the ground that it would be a revenue loss if it was not taxed in assessee's hands. Held: There is no provision in the Act to deem such income which is otherwise not an income of assessee. Documents in question clearly manifest nature of the transaction and parties to the transaction. Particulars of one of the parties were already available in the seized material and revenue had already attempted to tax said income in the hands of that party but CIT(A) deleted addition on the ground that a loan could not be assessed to tax except it was unexplained credit under section 68 . Therefore, assessee being a broker could not be held to be liable to pay tax on income which did not arise or belonged to assessee. At most, income for providing service as a broker could be taxed in the hands of assessee for transaction of loan which assessee had already offered to tax as part of surrendered income. Accordingly, AO was not justified in making addition in assessee's hands.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

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