Law:

Section:

Section 143, read with section 56, of the Income-tax Act, 1961 - Assessment - Additions to income - Assessee-firm entered into a settlement with Income-tax department offering for taxation a certain sum - According to that settlement, assessee was to be allowed to introduce in its account books 50 per cent of disclosed amount or an amount equivalent to tax and penalty liabilities arising as a result of that settlement, whichever was higher as earned income - Whether under that settlement assessee could only introduce tax and penalty liabilities which arose on basis of disclosure and settlement and not entire tax and penalty liabilities which accrued in relevant assessment years in normal course - Held, yes - Whether amount introduced by assessee in its books in excess of amount allowed to be introduced under settlement was liable to be added to assessee's income as income from other sources -Held, yes Facts The assessee-firm entered into a settlement with the Income-tax Department offering for taxation a certain sum which according to it represented genuine hundi loans but could not be supported by evidence. According to the settlement, that income was to be brought to tax as earned income and the assessee was to be allowed to introduce in its books of account 50 per cent of the disclosed amount (i.e., Rs. 57,500) or an amount equivalent to the tax and penalty liabilities arising as a result of that settlement, whichever was higher. Accordingly, the assessee in terms of the settlement introduced in its accounts a sum of Rs. 1,13,471, half of the said amount, namely, Rs. 56,735.50 being credited to each of the two partners. The ITO found that the extra tax and penalty liabilities which arose on the basis of disclosure by the assessee and the settlement was only of Rs. 56,972 which was less than Rs. 57,500 (half of the disclosed amount) and, accordingly, treated Rs. 55,971 being the difference between Rs. 1,13,471 and Rs. 57,500 which was introduced into the account as income from other sources and taxed the same. However, the AAC reversed the ITO's order but the Tribunal restored the order of the ITO and, thus, confirmed the addition made by the ITO. On…

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