Appeal partially granted: Rs. 32 lakhs as business income, Rs. 8 lakhs as deemed income.

The Tribunal partially allowed the appeal, directing the Assessing Officer to treat the disclosed Rs. 32 lakhs as business income eligible for set off against business expenditure/losses. The remaining Rs. 8 lakhs was upheld as deemed income, to be assessed grossly without deductions. The decision was pronounced on 6th November 2019.

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Issues Involved:
1. Treatment of Rs. 40 lakhs disclosed during the survey as income from other sources.
2. Eligibility for set off on account of business expenditure/loss against the disclosed income.

Detailed Analysis:

Treatment of Rs. 40 Lakhs Disclosed During the Survey:
The primary issue for adjudication was whether the sum of Rs. 40 lakhs disclosed during the survey should be treated as income from other sources, against which no set off on account of business expenditure/loss is available to the assessee.

The facts of the case reveal that the assessee filed its return of income declaring Rs. 18,67,485/-. During a survey under section 133A, discrepancies were found, leading to a voluntary disclosure of Rs. 40 lakhs (Rs. 8 lakhs for excess cash and Rs. 32 lakhs for unexplained expenditure in the building account). The Assessing Officer (AO) treated this Rs. 40 lakhs as deemed income under sections 69, 69A, 69B, and 69C, and assessed it separately without allowing any set off of business expenditure or losses.

Eligibility for Set Off on Account of Business Expenditure/Loss:
The Tribunal examined whether the Rs. 40 lakhs should be assessed as deemed income against which no deduction/set off is available. The assessee argued that Rs. 8 lakhs should be treated as deemed income under sections 69, 69A, etc., and Rs. 32 lakhs as business income derived from business activity. The Tribunal referred to the case of Famina Knit Fab Vs. ACIT, which stated that the onus is on the assessee to establish the source of surrendered income. If the source is not established, it is deemed income under sections 69, 69A/B/C, and taxed on the gross amount without setting off any expenditure or allowance under section 115BBE.

Tribunal's Findings:
1. Rs. 32 Lakhs as Business Income:
- The Tribunal found merit in the assessee's contention that the Rs. 32 lakhs incurred for constructing a building should be treated as business income. It held that the expenditure for creating a business asset must have been generated through business activities. The Tribunal emphasized that expenditure laid out for business purposes should be allowed as a deduction or capitalized with depreciation benefits.
- The Tribunal directed the AO to treat the Rs. 32 lakhs as business income, allowing the assessee to set off brought forward losses or other expenditures against this amount.

2. Rs. 8 Lakhs as Deemed Income:
- For the Rs. 8 lakhs excess cash balance, the Tribunal noted that the assessee failed to explain the source of this income. Consequently, it upheld the AO's treatment of this amount as deemed income, to be assessed on a gross basis without any deductions.

Conclusion:
The appeal was partly allowed. The Tribunal directed the AO to treat Rs. 32 lakhs as business income, thereby permitting set off against business expenditure/losses, while the Rs. 8 lakhs was to be treated as deemed income, assessed on a gross basis without deductions.

Pronouncement:
The judgment was pronounced in the Open Court on 6th November 2019.

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