TaxTMI 
TaxTMI 
2018 (5) TMI 1872
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.... & 69C of the Income Tax Act, 1961." 4. The sum of the facts of the case and the arguments taken before the Ld. CIT(A) and the rationale rel ied upon by the Ld. CIT(A) while deleting the addi tion is as under : The issue relates to not allowing the business loss of Rs. 1,04,18,004/- to be set off against the surrendered income of Rs. 3,50,00,000/-. During the course of the assessment proceedings, the AO noticed that during the course of survey conducted u/s 133A of the IT Act on the business premises of the assessee, the assessee surrendered an amount of Rs. 3.50 crore over and above the normal business income. The additional income was surrendered on account of investment, money, expense which could not be explained or was not reflected in the books of accounts and also certain receivables were not shown in the books of accounts. The AO also relied upon the decision of Hon'ble Punjab & Haryana High court in the case of Kim Pharma Ltd. vs. CIT in ITA no. 106 of 2011. The assessee was asked as to why surrendered income should not be treated as deemed income. In response, the AR submitted that the assessee surrendered Rs. 2 crore due to higher inventory as on date of surv....
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....by the assessee is clearly on its Business Income. There is not even a single item surrendered by the assessee which suggests that any item surrendered does not relate to the normal business carried out by the assessee. It is pertinent to mention here that the assessee is a Private limited company engaged in the business of manufacturing electronics including computer hardware and all the objects of the company are to carry on the business activities as stated in the memorandum of association. The department during the course of survey was not able to find any source of Income except the business of manufacturing of electronics and hardware components. There has been no adverse findings or note given by the survey team. However during the assessment proceedings, the AO gave a show cause as to why the surrendered income of Rs. 3,50,00,000 should not be treated as Deemed Income to which the assessee filed a reply but the AO formed a view that once the assessee has surrendered the Income over and above the Normal business Income, the same is required to be taxed as "Income from other sources" under Section 69, 69A and 69B of the Income Tax Act, 1961 Further all the Purchases and Sa....
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....69A. The contention of the AO that the Income has not been reflected in the books of accounts is not correct as all the entries of the surrender amount have been recorded in the business heads of the assessee in its books of accounts. The copy of ledger account of the same are enclosed.(Pg 1- 12) All the income surrendered are reflected in the books of accounts It is further stated that once a specific surrender made by the assessee has been accepted by the Income Tax department and Tax on the same has been realized, the department cannot take a U turn while framing the assessment of the assessee by taxing the same under the head Income from other sources under Section 69, 69A and 69B. It has to be assessed under the Head Income from Business. Reference is invited to the judgment of ITAT Chandigarh in the case of Gaurish Steels Private Limited vs AC IT ITA 1080/Chd/2014 wherein ruling in the favor of the assesee the Tribunal held In the present case the Assessing Officer has no where disputed the business losses incurred by the assesee. The books of accounts have not been rejected.. It was stated at the Bar that even at the time of survey, in the trading account prepared by the sur....
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.... erroneous. For assuming jurisdiction under section 263 of the Act, twin conditions of the order being erroneous as well prejudicial to the interest of the Revenue are to be applied simultaneously. Since we have already recorded that there is no error in the order of the Assessing Officer, the Commissioner of Income Tax cannot assume jurisdiction under section 263 of the Act. Accordingly, we quash the order of the Commissioner of Income Tax passed under section 263 of the Act. (Copy of judgment enclosed 19-32) Similarly in the judgment of ITAT Ahmedabad in the case of DCIT vs Shah Khodidas & Co. ITA No.531/Ahd/2008. Where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable is not recorded in the books of account and its natu....
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.... of the assessee in its books of accounts. Once the surrender had been accepted by the department, the Assessing Officer cannot tax it as income u/s 69, 69A and 69B during the assessment proceedings. Reliance was placed on the decision in the case of Gaurish Steels Pvt. Ltd. vs. ACIT ITA no. 1080/CHD/2014, wherein it was held that the surrender on account of discrepancy in cost of construction of building, discrepancy in stock, discrepancy in advances and receivables could not be considered under any other head other than business income. Further, reliance was placed on the decision of Hon'ble ITAT, Chandigarh in the case of Kumar Enterprises vs. DCIT Chandigarh ITA no. 525/CHD/2014 wherein it was held that the only issue in the case of M/s Kim Pharma Pvt. Ltd. of the Hon'ble Punjab & Haryana High Court was relating to the cash surrendered as the other incomes were already treated by the Assessing Officer himself as business income. Reliance was also placed on the judgment of ITAT Ahmadabad in the case of DCIT vs. Shah Khodidas & Co. ITA no. 531/Ahd/2008 wherein it was held that it is only where no nexus is established with any head that it should be considered as deemed in....
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....money, bullion Jewellery or other valuable article was found and neither any evidence showing that the appellant was the owner of any bullion jewellery or other valuable article where it was found that amount invested in the same exceeded the amount recorded in the books of accounts. No evidence was found showing that the appellant had incurred any expenditure for which no explanation could be offered regarding the source of the said expenditure. Thus, the AR contended that sec68, 69, 69A, 69B and 69C are not applicable in its case. The appellant surrendered Rs. 1 crore as business income in the form of sundry debtors during the survey operations. The AR has contended that the surrender offered by appellant on account of undisclosed sundry debtors is purely related to the business carried out by the appellant. No undisclosed business activity has been found during the survey. The AR pointed out that as per the statement of Sh. Baljinder Singh s/o Sh. Charan Singh recorded during the survey operations, the amount of Rs. 1 crore was surrendered as income of the company over and above the normal business income. The AR has rightly pointed out that in the case of Kim Pharma Ltd. vs.....
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.... Developers India Ltd. and of D.P Sandhu & Bros.(SC), the issue was decided in favour of the assessee and the judgment in the case of Kim Pharma Ltd. (P&H) was considered and distinguished. The surrender made by the appellant was on account of advances and receivables which are considered under the head 'business income'. The Assessing Officer has not been able to establish in the assessment order with supporting evidence that the income surrendered was not out of the business of the appellant. Further, there is force in the appellant's contention that the Assessing Officer has nowhere objected to the heads under which the appellant has surrendered these amounts. In the case of M/s Kim Pharma P. Ltd. (P&H) supra reliance has been placed on the ratio laid down in Fakir Mohamad Haji Hasan vs. CIT 247ITR 290 (Guj) wherein it has been held that only where the nature and source of investment made or the nature and source of acquisition of money, bullion etc. owned by the assessee or the source of expenditure incurred by the assessee are not explained, then the value of such investments or money and the value of articles not recorded in the books or the unexplained expenditur....
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....e Assessing Officer and the survey team failed to find other source of income except for business income. Therefore, in the said case only the cash found was treated as income from other sources and it was held that all other income surrendered could be brought to tax under the head 'business income' and the business losses incurred by the assessee during the year were allowed to be set-off against the income surrendered during the survey except the amount of cash surrendered. The appellant's case is covered by the said decision of the Hon'ble Jurisdictional ITAT in the case of M/s Gaurish Steels Pvt. Ltd. (supra)." 8. During the hearing before us the Ld. DR Smt. Renu Amitabh vehemently argued that set off cannot be allowed against the income surrendered in the survey conducted under section 133A as the surrender amounts to undisclosed income assessable under section 69. She relied on the case of Kim Pharma Pvt. Ltd. (supra) and also Sant Steel & Alloys Pvt. Ltd. in ITA No. 2808 and 2809/Del/2013 dt. 02/06/2016 and also the case of Fakir Mohamman Hazi Hasan Vs. CIT 247 ITR 290. 9. We have gone through the entire facts of the cases relied upon by the Ld. DR in th....