2013 (1) TMI 510 - AT - Income Tax

Appeal partly allowed, deemed income upheld, losses disallowed, unabsorbed depreciation set off permitted.

Liberty Plywood (P.) Ltd. Versus Assistant Commissioner of Income-tax. Ambala

The Tribunal partly allowed the appeal, upholding the treatment of surrendered income as deemed income under sections 69, 69A, 69B, and 69C, thereby ... Survey u/s 133A - unaccounted income - whether the surrender income of Rs. 70.00 lakhs should be treated as business income so as to set off brought forward losses u/s 70 of the Act as well as the depreciation u/s 32(2) - Held that:- Once the item of receipt is held to be falling under a particular head then the same cannot be charged alternatively under another head particularly under the head 'income from other sources'. This observation cannot lead to the conclusion if income does not belong to a particular head same cannot be charged at all. See Kim Pharma (P.) Ltd. (2013 (1) TMI 495 - PUNJAB AND HARYANA HIGH COURT) wherein clearly held that surrendered income can be taxed as deemed income without setting off of the losses u/s 70 & 71. Thus hold that surrendered income has to be assessed separately as deemed income - against assessee. Setting off of depreciation u/s 32(2) - Held that:- The provision for carry forward and set-off of unabsorbed depreciation for any number of years against income under any head, was further diluted by way of clause (iii)(b) to section 32(2) restricting the right to set-off of unabsorbed depreciation for a period of not more than eight assessment years succeeding the assessment year in which the allowance was first computed - Thus it is clear that unabsorbed depreciation for the block of Assessment year 1997-98 to 2001-02 which could not have been set off earlier, cannot be allowed to be set off now. Therefore, set aside the order of the CIT(A) and remit the matter back to the file of AO with a direction to only allow set off of unabsorbed depreciation which is outside the block of Assessment year 1997-98 to 2001-02 - See CIT, Kanpur Versus Mother India Refrigeration Industries Private Limited [1985 (8) TMI 2 - SUPREME COURT] - partly in favour of assessee. Issues Involved:1. Taxability of income surrendered during survey under sections 69A, 69B, and 69C of the Income-tax Act, 1961.2. Set off of unabsorbed depreciation against surrendered income.Detailed Analysis:1. Taxability of Income Surrendered During Survey:The primary issue in the appeal was whether the income surrendered during the survey should be treated as deemed income under sections 69, 69A, 69B, and 69C of the Income-tax Act, 1961. The assessee had originally filed a return declaring an income of Rs. 17,26,270/-. However, during a survey conducted on 4.3.2005, an additional income of Rs. 70,00,000/- was surrendered. The bifurcation of the surrendered income was as follows:- Unaccounted cash found and surrendered u/s 69A: Rs. 50,00,000/-- Unaccounted investments surrendered u/s 69B: Rs. 75,000/-- Unaccounted expenditure surrendered u/s 69C: Rs. 12,50,000/-The Commissioner of Income Tax (CIT) opined that the surrendered income should be treated as deemed income under sections 69, 69A, 69B, and 69C and thus, not eligible for set off against carry forward business loss or depreciation. This view was supported by the decision of the Hon'ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290.The Tribunal, however, observed that the conclusion that surrendered income should be treated as deemed income can only be drawn after necessary enquiry. The matter was thus sent back to the Assessing Officer (AO) for further enquiry. The AO, after considering submissions, held that deemed income under sections 69, 69A, 69B, and 69C are to be treated separately and not assessable under any head of income. This was in line with the decision of the Hon'ble Gujarat High Court in Fakir Mohmed Haji Hasan's case.The CIT(A) upheld the AO's decision, stating that the surrendered income was assessed as deemed income and no set off was allowable against this income, referencing the judgment of the Hon'ble Gujarat High Court.2. Set Off of Unabsorbed Depreciation:The second issue was whether unabsorbed depreciation could be set off against the surrendered income. The assessee argued that as per Section 32(2), unabsorbed depreciation becomes current depreciation in the following year and can be set off against any head of income. This argument was supported by the decision of the Hon'ble Madras High Court in CIT v. Chensing Ventures [2007] 291 ITR 258 and the Ahmedabad Bench of the Tribunal in ITO v. Hytaisun Magnetics Ltd. [ITA Nos. 2897 & 2898/Ahd/2008].The AO, however, did not allow the set off, stating that the surrendered income was not recorded in the books of account and thus, no deduction or set off of loss or depreciation was permissible.The CIT(A) also denied the set off of unabsorbed depreciation against the deemed income, referencing the judgment of the Hon'ble Gujarat High Court in Fakir Mohmed Haji Hasan's case.The Tribunal, after considering rival submissions, noted that the decision of the Hon'ble Punjab & Haryana High Court in M/s Kim Pharma (P) Ltd. v. CIT [ITA No. 106 of 2011 (O&M)] held that surrendered income can be taxed as deemed income without setting off losses under sections 70 & 71. However, this decision did not address the issue of setting off depreciation under Section 32(2).The Tribunal referred to the Special Bench decision in Dy. CIT v. Times Guaranty Ltd. [2010] 40 SOT 14 (Mum.)(SB), which clarified that unabsorbed depreciation for the block of Assessment years 1997-98 to 2001-02 cannot be set off now. The Tribunal thus directed the AO to allow the set off of unabsorbed depreciation which is outside this block.Conclusion:The appeal was partly allowed. The Tribunal upheld the treatment of surrendered income as deemed income under sections 69, 69A, 69B, and 69C, disallowing the set off of losses. However, it allowed the set off of unabsorbed depreciation outside the block of Assessment years 1997-98 to 2001-02, directing the AO to re-examine this aspect.