TaxTMI 
TaxTMI 
2019 (8) TMI 438
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....6. ITA No.745/Chd/2016: A.Y 2012-13 2. The grounds of appeal raised by the Revenue read as under: 1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in reversing the action of assessing officer for treating the income surrendered as deemed income u/s 69 & 69B of the Act, and treating the same as Business income and allowing the same to be set off against business loss/depreciation loss or any other expenses? 2. That the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored. 3. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 3. As is evident from the above, the sole issue involved in the present appeal relates to treatment of income surrendered during the survey whether in the nature of Business Income or deemed income and whether eligible to set off of losses against the same. 4. Brief facts relating to the issue are that during the F.Y. 2011-12, a survey u/s 133A was conducted on the premise of the assessee on 13.10.2011. The assessee surrendered an amount of Rs. 1,00,00,000/- on account of some paper slips found during the cour....
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....ara 2.4 of the order are as under: "2.4 I have carefully considered the facts of the case, the basis of the addition made and the argument of the AR. During the course of the survey operations conducted at its business premises, the appellant surrendered an amount of Rs. 1 crore. The said income has been shown in the P&L account by the appellant. The Assessing Officer assessed the surrendered income as deemed income u/s 69 and 69B by relying on the judgment of M/s Kim Pharma Pvt. Ltd. ITA no. 106 of 2011 (P&H) & Fakir Mohamad Haji Hasan in ITA no. 165 CTR 1011 (Guj). Thus, the business losses were not allowed to be set off against the surrendered income. The AR contended that the appellant is maintaining all the statutory records required under the provisions of the Central Excise Act, VAT Act and Companies Act and that there is no finding during the course of the survey operations or the assessment proceedings to the effect that the appellant is engaged in any activity outside the books of accounts. The AR further contended that all the books of accounts upto the date of the survey along with the relevant purchase bills, sales bills, expenditure vouchers, capital expendit....
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....t whereas in the appellant's case mode and manner has been applied to the surrendered income as applied to the income earned during the regular course of the business. No evidence has been found during the survey operations and the discrepancies found were related to the assessee's business and not to any other source of income. The said submissions of the AR were not controverted in the remand report. Reliance has been placed by the AR on the decision of Sh. Kuldeep Kumar vs. CIT, Hon'ble ITAT Chandigarh bench in ITA 1015/CHD/2009 for A.Y. 2006-07 wherein it has been held, after considering the case of the Hon'ble Gujarat High Court in the case of Fakir Mohamad Haji Hasan, that income cannot fall beyond the five heads made under the act. Further, reliance has been placed on the decision of the Hon'ble Apex court reported in CIT vs. D.P. Sandhu & Bros. 273 ITR 1 wherein it has been held that section 56 provides for chargeability of income of every kind which has not been excluded from the total income under the act only if it is not chargeable to income tax under any heads specified in sec 14 and if the income is included under any one of the heads it cannot be ....
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....d of income. However, in the appellant's case, the Assessing Officer could not established that payments received as per the slips were from sources other than the business of the appellant. Therefore, apart from the cash, all other income surrendered is to be brought to tax under the head business income while the cash is to be taxed under the head deemed income u/s 69A of the Act. Moreover, the Assessing Officer has not disputed the business losses of the appellant. The Assessing Officer has not found any disallowable expenditure to show that the appellant has manipulated its books of accounts to bring down its total income. No such evidence has been brought on record to show that the assessee has booked any bogus expenditure and there is therefore no reason to doubt the veracity of the books of accounts and the expenditure therein. The heads under which the surrender has been made has not been challenged by the survey team or the Assessing Officer. In the case of Kim Pharma Vs. CIT in ITA no. 106 of 2011(P&H) supra the Hon'ble High Court has upheld the treatment of additional income on account of sundry credits, repairs to building, and advances to staff to be t....
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....l High Court in the case of Pr.CIT Vs. Khushi Ram & Sons Foods (P) Ltd. in ITA No.126 of 2015 dated 29.7.2016 for the proposition that the onus to establish the source of the surrendered income lay entirely on the assessee. The Ld. DR further relied upon the decision of the Hon'ble Jurisdictional High Court in the case of M/s Kim Pharma (P) Ltd. Vs. CIT in ITA No.106 of 2011 (O&M) dated 27.4.2011 for the proposition that the surrendered income is not necessarily to be treated as in the nature of business income and could be on account of any other transaction legal or otherwise. That merely because the assessee is carrying on certain business, it does not necessarily follow that the amounts surrendered are on account of the business transaction and that it is for the assessee to establish the source of such surrendered income. 7. The assessee, on the other hand, relied upon the order of the Ld.CIT(A) and further pointed out that the ITAT Chandigarh Bench in a recent decision in the case of Famina Knit Fabs Vs. ACIT, reported in 104 Taxmann.com 306 had analyzed the issue of treatment of surrendered income and had held that the income surrendered on account of debtors not disc....
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...., 69C & 69D of the Act. The I.T.A.T., we find, also dealt with and took note of the decision of the Hon'ble Jurisdictional High Court in the case of M/s Khushi Ram & Sons Foods (P) Ltd. (supra) while adjudicating the issue. The relevant findings of the I.T.A.T. at para No.12 to 27 of the order are as under: "12. The issues to be addressed in the present case can be summarized as relating to the categorization/characterization of income surrendered by the assessee during survey proceedings, whether from disclosed or undisclosed sources, and the allowability of claim of set off of osses, both current and brought forward, against the same. 13. The controversy arises on account of the scheme of the Act which mandates incomes to be categorized under specific heads depending on their nature/source, for computation purposes under chapter IV and thereafter provides for setting off of losses in a specific manner under chapter VI of the Act. If it is from any of the sources as specified in the heads for taxation under Chapter-IV of the Act, the income therefrom it is to be computed as per the provisions provided thereunder. Therefore, if the source/nature of the income ....
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....d to be the income of the assessee of such financial year.] SECTION 69B [2019][Amount of investments, etc., not fully disclosed in books of account. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery, or other valuable article, and the [2020][Assessing Officer] finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the [2021][Assessing Officer], satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.] SECTION 69C [2022][Unexplained expenditure, etc. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the [2023][Assessing Officer], satisfactory, ....
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....ion (1).] [3052] Omitted the words, figures and letters "for the previous year relevant to the assessment year beginning on the 1st day of April, 2012 or beginning on the 1st day of April, 2013 or beginning on the 1st day of April, 2014" by Finance (No. 2) Act, 2014 (w.e.f. 1-4-2015). Ins. by Finance Act, 2016 (w.e.f. 1-04-2017). [3052a] Ins. by Finance Act, 2018 (w.e.f. 1-042017). 15. As is evident from a bare reading of the above sections any investments, moneys and expenditure which are not disclosed in the books of the assessee, if any, maintained by it and the source of which has also been not explained satisfactorily by the assessee are treated as deemed incomes of the assessees. Thus, the amounts to be treated as deemed incomes are investments, moneys, or expenditure fulfilling the twin criteria of: a) not being recorded in the books if any maintained and, b) the source of which the assessee is unable to explain satisfactorily. 16. In other words, to put it simply, the unrecorded investments/assets/expenditures made out of unexplained sources are treated as deemed incomes of the assessee. The onus is on the....
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....s seen that when survey proceedings were conducted at the business premises of the appellant company, a pocket diary was found from the accounts section which contained entries of receivables amounting to Rs. 1.25 crores on page nos. 27, 28, 31 and 33, which were not recorded in the regular books of accounts. When these entries were confronted to the appellant company while recording the statement on 15/09/2012, it was stated: "that these entries are sundry receivables which has not been accounted for in the books of accounts and in order to buy peace of mind, the same is surrendered as income under the head business for F.Y.2012-13 relevant to asstt. Year 2013-14 subject to no penalty and prosecution under the I.T. Act, 1961. Since the company is incurring losses in current F.Y.2012-13, the surrendered income will be adjusted against these losses." [Extracted from the impugned assessment order; pages 5 &6]." 20. Clearly, it is evident from the above that the surrender was on account of debtors/receivables relating to the business of the assessee only. The Revenue has accepted the surrender as such, as being on account of receivables. It follows that the debtors were gener....
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.... the same disclosed. Therefore, the same is to be assessed as deemed income u/s 69 of the Act. The same applies to the surrender of Rs. 10 lacs made to cover the miscellaneous discrepancies in loose paper of Rs. 10 lacs. Neither the nature of the discrepancies, nor any source relating to the same has been disclosed and, therefore, the same is also to be assessed as deemed income u/ss 69, 69A, 69B and 69C of the Act. 25. As far as the surrender of Rs. 132 lacs made on account of sundry creditors and advances received from customers and Rs. 198 lacs on account of gross profit on sale out of the books, both of them clearly are in relation to the business carried on by the assessee and are thus in the nature of business income. Therefore, the set off of business losses, both current and brought forward are to be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act. 26. Now the next question whether the set off of losses is to be allowed against the same, which the Revenue has vehemently....
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....ess income and allowed the same to be set off against business loss/depreciation loss or any other expenses? 12. It was common ground between the parties that the above ground is identical to ground No.1 raised by the Revenue in ITA No.745/Chd/2016 and the facts also are identical .Our decision rendered therein at para Nos.8 to 10 of our order above will apply mutatis mutandis to this ground also. Following the same we dismiss the ground no.1 raised by the Revenue 13. Ground No.2 raised by the Revenue reads as under: 2. Whether upon facts and circumstances of the case, the Ld. CIT(A) justified in deleting the disallowance made u/s 36(l)(iii) of the Income-tax Act, 1961, on investment made in the sister concern? 14. The facts relevant to the issue are that during the course of assessment proceedings, the A.O. noticed that the assessee had made investment to the tune of Rs. 10 lacs in the sister concern, M/s Noble Steel Pvt. Ltd. The assessee was asked to show cause as to why not proportionate interest be disallowed u/s 36(1)(iii) of the Act on the investments made in the sister concern in assessment year under consideration. The Ld.Counsel for the asssessee also submi....