Income returned under other sources can not be recharacterised as income u/s 69A

Income returned under other sources can not be recharacterised as income u/s 69A and subjected to higher tax u/s 15BBE – ITAT

In a recent judgment, ITAT has held that Income returned by the assessee under the head income other sources can not be recharacterised as income u/s 69A and subjected to higher tax u/s 15BBE

ABCAUS Case Law Citation:
ABCAUS 3863 (2024) (02) ITAT

Important Case Laws relied upon by parties:
Abhisar Buildwell 459 ITR 212

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the assessment order wherein the Assessing Officer (AO) had made addition u/s 69A and 69C and subjected to higher rate of tax under section 115BBE of the Income Tax Act, 1961 (the Act).

During the search operation, statement u/s 132(4) of the Act was recorded in which the assessee surrendered lumpsum of Rs. 40 lakhs as additional income for alleged long term capital gains earned from sale of shares by him and his wife.

However, when the assessee filed revised return, out of said amount, he returned Rs. 20 lakhs approx. as income from other sources and claimed that no long term capital gain arose to his wife.

The Assessing Officer completed assessment by recharacterizing the income surrendered by the assessee as income u/s 69A of the Act and made addition in his hand and also addition u/s 69C of the Act being long term capital gain in the hands of the wife of the assessee.

The CIT(A) dismissed the appeal holding that the assessee has retracted from the statement given by him u/s 132(4) of the Act.

Before the Tribunal, the assessee contended that the Assessing Officer could not have recharacterised the income returned by the assessee under the heard ‘income from other sources’ and there was no such capital gain in the hands of wife and, therefore, the entire addition was uncalled for.

The assessee also placed reliance on the decision of the Hon’ble Supreme Court claiming that statement u/s 132(4) of the Act as not incriminating material.

The Tribunal noted that the assessee had admitted that he had earned long term capital gain of Rs. 40 lakhs alongwith his wife which has been claimed as exempt income and offered the same for taxation. However, the assessee realized that actual gain earned by him was Rs. 20 lakhs only and no such gain was earned by his wife. He immediately revised the return.

The Tribunal opined that since the assessee himself had declared income as income from other sources, there was no merit in recharacterising the same as income u/s 69A of the Act.

Further, on verification of the return of the wife of the assessee, the Tribunal found that she had not earned any long term capital gain and the entire addition had been made only on the basis of surrender made by the assessee at the time of search.

The Tribunal observed that on identical set of facts, the coordinate bench had an occasion to adjudicate similar issue where assessee had not offered the income under Section 69A of the Act and the AO merely re-characterized the nature of income offered by the assessee. The Bench held that provisions of sections 115BBE would not be applicable.

Accordingly, the Tribunal directed AO to deleted the addition.

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