2017 (8) TMI 171 - AT - Income Tax

Surrendered income assessed under business head with set-off for losses and depreciation

Prashanti Surya Construction Co. P. Ltd. Versus Deputy Commissioner of Income-Tax

The Tribunal held that the surrendered income of Rs. 1.75 crores is assessable under the head 'Income from business and profession.' The set-off of ... Addition on surrendered income - not satisfactorily explained the nature and source of the surrendered income - business income v/s deemed income - Held that:- As the present case are identical to that in Gaurish Steels Pvt. Ltd. (2015 (11) TMI 631 - ITAT CHANDIGARH) the surrender having been made by the assessee on account of investment made in the build-operate-transfer project which was the business of the assessee, the decision rendered by the Income-tax Appellate Tribunal in the said case will squarely apply in the present case, following which we hold that the income surrendered by the assessee of ₹ 1.75 crores is assessable under the head 'Income from business and profession. - Decided in favour of assessee Set off of brought forward losses and depreciation - Held that:- As find that the business losses and depreciation losses, which the assessee had sought to set off against its surrendered income have never been questioned by the Assessing Officer. We are in agreement with the learned counsel for the assessee that by raising this issue before us the learned Departmental representative is only attempting to enlarge the scope of assessment by raising an issue not dealt with by the Assessing Officer which is not permissible at the stage. Thus we reject the above contention of the learned Departmental representative. Thus we hold that the surrendered income of the assessee amounting to ₹ 1.75 crores is assessable under the head 'income from business and profession' and the set off of business losses and depreciation is accordingly allowed against the same. - Decided in favour of assessee Issues Involved:1. Classification of surrendered income.2. Set-off of business losses and depreciation against surrendered income.Detailed Analysis:1. Classification of Surrendered Income:The assessee-company surrendered Rs. 1.75 crores during a search operation, which was shown in the return of income for the assessment year 2011-12. The Assessing Officer (AO) observed that this additional income, surrendered under section 132(4) of the Income-tax Act, 1961, could not be classified under any heads of income as per section 14 of the Act due to the lack of a satisfactory explanation about its nature and source. Consequently, the AO disallowed the set-off against brought forward business losses as per section 72 of the Act and assessed the total income at Rs. 1.75 crores.The assessee contended before the Commissioner of Income-tax (Appeals) [CIT(A)] that the surrendered income was business income derived from collections from its build-operate-transfer project and thus should be set off against business losses. However, the CIT(A) held that the nature and source of the surrendered income were not satisfactorily explained, treating it as deemed income not assessable under any specified heads, and disallowed the set-off of losses, referencing the case of Kim Pharma (P.) Ltd. v. CIT.The Tribunal examined whether the surrendered income could be attributed to the business of the assessee and thus assessed under the head 'business income.' The assessee provided a letter during assessment proceedings explaining the source of the surrendered income as collections from the build-operate-transfer project. The Tribunal noted that the surrender was on account of investment in the business project of the assessee, and no other source of income was identified by the AO. Citing the case of Gaurish Steels P. Ltd. v. Asst. CIT, where similar circumstances led to the surrender being treated as business income, the Tribunal concluded that the income surrendered by the assessee should be assessed under the head 'Income from business and profession.'2. Set-off of Business Losses and Depreciation:Having classified the surrendered income as business income, the Tribunal addressed the issue of set-off of brought forward losses and depreciation. The assessee argued that set-off of losses on account of depreciation and business loss was allowable against the surrendered income. The Departmental Representative contended that the losses were arranged to reduce tax liability and questioned the nature of the losses.The Tribunal found that the AO had not disputed the business losses and depreciation losses during the assessment. The Tribunal agreed with the assessee that the Departmental Representative's contention was an attempt to enlarge the scope of assessment, which was not permissible at this stage. Consequently, the Tribunal held that the surrendered income was assessable under the head 'Income from business and profession,' and the set-off of business losses and depreciation was allowed as per sections 70 and 71 of the Act. The AO was directed to set off the business losses against the surrendered income.Conclusion:The Tribunal allowed the appeal partly, holding that the surrendered income of Rs. 1.75 crores is assessable under the head 'Income from business and profession,' and the set-off of business losses and depreciation is accordingly allowed against the same. The AO was directed to set off the business losses suffered by the assessee out of the surrendered income.