TaxTMI 
TaxTMI 
2023 (11) TMI 386
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.... based on discrepancy noticed by the survey team made a surrendered of sum of Rs. 1.61 crores as additional business income for financial year 2016-17 relevant to the Assessment Year under consideration (APB pg. 71). During scrutiny proceedings, the AO accepted the fact that the appellant surrendered a total sum of Rs. 1.61 crores which was utilized in the excess stock of Rs. 69,25,000/-, excess cash at Rs. 9,80,0000/- and in expenditure of building at Rs. 81,95,0000/-. The Assessing Officer (In short "the AO") has accepted the fact that the additional income derived by the appellant was out of the business carried out, however, while passing the order u/s 153(3) dated 20.09.2021, he has disputed the surrendered income amounting to Rs. 81,95,000/- as being utilized for construction of building and so taxed u/s 69 r.w.s 115BBE of the Income Tax Act, 1961. 3. In appeal, the ld. CIT(A) had confirmed the addition made by the AO by bifurcating total surrender made by the appellant amounting to Rs. 1.61 crore vide letter dated 15-07-16 into two parts(APB, Pg. 71). The CIT(A) in para 5.2.4 of order passed under section 250(6) observed that a sum of Rs. 8195000/- representing income from ....
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....income." 4. The Ld. Counsel submitted that Ld. CIT(A) has confirmed the addition ignoring the fact that the appellant has earned the undisclosed income from sale/ purchase of goods and material outside books of accounts. That the CIT(A) while confirming action of AO has not been able to discharge the onus that the assessee was involved in activity other than the business activity. The counsel argued that the Ld. CIT(A) has erred in not appreciating the merits that the expenditure incurred for creating a business asset ought to have been generated through the business carried out by the assessee outside the books of accounts in the absence of anything contrary to the same. The CIT(A) has failed to consider the statement recorded during survey in which it has been clearly stated by the assessee before the authorized officer that the expenditure incurred on factory was born out of undisclosed business income. 4.1 The Ld. AR filed a synopsis dated 29.08.2023. The relevant part of synopsis is reproduced as under: 19. 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 ....
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....from the routine business, and such addition of Rs. 32 lakhs ought to be treated as business income. We find force in this contention of the Id. counsel for the assessee, because the expenditure incurred for creating a business asset and it must have been generated through the business carried out by the assessee. It is pertinent to bear in mind that expenditure laid out for the purpose of business is to be allowed deduction either as expenditure or to be capitalized on which depreciation will be allowed. The assessee might have earned income from the business which has not been accounted and used for constructing the business asset, though specific details have not been discussed either in the impugned order about the nature of evidence found during the course of survey. We also need not to ponder on this aspect because the assessee has admitted this unexplained expenditure on construction of building. This admission has to be accepted as given by the assessee, wherein it was alleged that it is for the purpose of the business. Therefore, to the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned ....
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....her, even the survey team has not found anv source of income except the business income. Now, following the judgment of jurisdictional High Court, in the background of the facts of the present case, we can safely infer that apart from cash all other income surrendered may be brought to tax under the head "business income" while the cash has to be taxed under the head deemed income under section 69A of the Act. Now, as regards the business losses incurred by the assessee during the year, these can be set off against the income surrendered during the course of survey except for the amount of cash surrendered, as per the mandate of section 71 of the Act. No loss can be set off against the cash surrendered as the same has already been held to be taxed under a different head. The Assessing Officer is hereby directed to set off business losses suffered by the assessee out of the surrendered income except the element of cash surrendered. - Decided partly in favour of assessee. No.-1. T. A. No. 1080 /Chd/ 2014 (assessment year 2011-12). 5. Per Contra, the learned DR stands by the impugned order. 6. Heard both the sides, perused the material on record, impugned order and case law cite....