2013 (1) TMI 495 - HC - Income Tax

Deemed income under ss.69/69A/69B/69C treated as unexplained source, ineligible for set-offs under ss.70-71 against business losses

M/s Kim Pharma (P) Ltd. Versus Commissioner of Income Tax. Panchkula and another

The HC held that surrendered sums assessed under ss.69/69A/69B/69C are deemed income distinct from income under s.14 heads (salary, house property, ... Segregation of the surrendered income from business income - treatment as a deemed income - survey u/s 133A - Whether taxing it after refusing set off u/s 70 and 71 is legally sustainable in the eyes of law? - Held that:- The judgement of Fakir Mohmed Haji Hasan v. CIT [2000 (8) TMI 44 - GUJARAT HIGH COURT] held that 'opening words of section 14 clearly leave scope for “deemed income” of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor as it income from “other sources” because the provisions of sections 69,69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and sources of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head “income from other sources”. Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69,69A, 69B and 69C of the Act in view of the scheme of those provisions' Thus surrendered income can be taxed as deemed income without setting off of the losses u/s 70 & 71 - Decided against assessee. Issues:1. Whether impugned orders passed by the authorities below are legally sustainableRs.2. Whether segregating surrendered income from business income and treating it as deemed income without allowing set off is legally sustainableRs.3. Whether not treating surrendered income as 'income from business' and not adjusting it against business losses is legally sustainableRs.Analysis:1. The appellant filed an appeal under Section 260A of the Income Tax Act against an order passed by the Income Tax Appellate Tribunal. The appellant surrendered additional income during a survey conducted under Section 133A of the Act. The Assessing Officer made additions, reducing the declared loss, and assessing the surrendered income under Section 69A of the Act. The CIT(A) and the Tribunal upheld this assessment. The appellant contended that the surrendered amount was business income, citing a Karnataka High Court decision. However, the authorities found no evidence supporting this claim, deeming the surrendered amount as deemed income under Section 69A.2. The Tribunal, relying on a Gujarat High Court decision, explained the scheme of Sections 69, 69A, 69B, and 69C of the Act. These sections deem unexplained investments or income as the assessee's income if not satisfactorily explained. The Tribunal held that since the appellant failed to prove the source of the surrendered cash found during the survey, it couldn't be classified as business income. The provisions of the Act did not allow deductions for such deemed income under any specific head, as the source was unknown.3. The Tribunal distinguished a Karnataka High Court case where additional income was considered business income, unlike the present case. The Tribunal concluded that no substantial question of law arose in the appeal, dismissing it accordingly. The decision highlighted the importance of proving the source of income to avoid it being deemed as income under specific provisions of the Act. The judgment emphasized the need for evidence and explanations to support income classification and eligibility for deductions under relevant heads of income.