TaxTMI 
TaxTMI 
2019 (5) TMI 2050
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..... CIT (A) be set aside and that of the Assessing Officer be restored. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 3. Facts taken from the record of the CIT(A) are as under: A survey u/s 133A of the IT Act was conducted on 07/09/2011 on the premises of the assessee. The assessee surrendered an amount of Rs. 3 crore on account of the following discrepancies:- (a) Unaccounted investment in building Rs. 60 lacs (b) Discrepancy on account of excess cash Rs. 50 lacs (c) Unaccounted investment in machinery Rs. 50 lacs (d) Sundry creditors written off Rs. 1.40crores The assessee was asked to show cause as to why not the income surrendered during the survey be not considered as part of business and taxed u/s 69, 69A, 69B and 69C as applicable and as per judgement of jurisdictional High Court in the case of M/s Kim Pharma. In response, the AR submitted the detailed reply with which the AO was not satisfied as the AO held that the assessee had surrendered an amount of Rs. 3 crore Rs.1.40 out of the surrendered amount was covered u/s 41(1) of the IT Act being unexplaine....
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....onstruction investment, till date is Rs. 58.75 lacs approximately. Since this investment has not been accounted for in the books of company. I Sanjay Gupta, being Director of the company M/s. C. L. Engineering Ltd. surrender an amount of Rs.60 lac on a/c of unaccounted investment in building. This surrender of Rs.60 lacs will be over and above the normal business income of the company during the current financial year. Regarding Cash Q-2 During the course of survey, inventory of cash lying at your business premises has found as per this inventory, cash amounting to Rs.5277948/- was found from your business premises which has been returned to you. However as per cash in hand as on 07.09.2011, cash in hand as per cash book is Rs. 371693/- only (as per books of M/s. C. L. Engg. Ltd.). There is discrepancy of Rs.4906255/- being excess cash found from premises of M/s. C. L. Engineering Ltd. Please explain this discrepancy and to state to whom this cash belongs. Ans. This cash of Rs. 50 lacs approximately belong to company and have come as a result of a property deal in the name of company. However I am not in position to explain this discrepancy and I....
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.... 5 lacs as deemed income u/s 69A of the Act and Rs.10 lacs on account of sundry creditor/repair to building as being business income. Regarding surrender of Rs. 50 lacs on account of cash we have specifically stated in our statement that the same is against dealing in property therefore business in nature. Survey party has not controverter this statement hence undoubtedly it becomes in the nature of business activity therefore adjustable against regular business loss. We have kept reliance in following judgments for establishing that surrender income is a kind of business income therefore adjustable against losses from other business activity; Gaurish Steels Private Limited vs. ACIT (127 DTR (Chd) (Trib) 266)- In this case it has been held that surrender income apart from cash is to be taxed under the head Business Income therefore assessee is entitled to get this income adjusted against business loss. The Hon'ble Bench of Chandigarh Tribunal in the case of Kumar Enterprises ITA No. 525/CHD/2014, has held that the surrender income is a part of business income and also it has been stated that the judgment of Hon'ble jurisdictional High Cou....
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....f KR Automobiles vs. ACIT (2014) 161 TTJ (Ahd)(UO) 39 wherein it has been held that business loss can be set-off against addition u/s 68. It was also pointed out by the AR that in the surrender letter the head-wise breakup was given and that nothing was recorded during the survey which could established that the company is doing any other activity except for its business activity. The AR contended that the appellant company is maintaining all the statutory records under Excise Act, VAT Act and Companies Act. All the books of accounts upto the date of survey along with relevant bills and vouchers were verified during the survey and stock was also verified but no discrepancy was found. Reliance has been placed by the AR on the case of Gaurish Steels Pvt. Ltd. vs. ACIT 127 DTR (Chd) (Trib) 266 wherein it has been held that surrendered income apart from cash is to be taxed under the head business income and is to be allowed to be adjusted against business loss. Further, the Hon'ble ITAT Chandigarh Bench in the case of Kumar Enterprises ITA no. 525/Chd/2014 has held that surrendered income is part of the business income and also held that the judgement of Hon'ble Jurisdictional ....
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....recorded in the books of accounts. Further, no document, information, records showing ownership of any 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 sec 68, 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 abo....
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.... pa Dyeing and Printing Mills 39 taxmann 3 wherein, after considering its earlier judgment of Radhe 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 247 ITR 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 inv....
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....lding, in stock and in advances and receivables was to be treated as 'business income' as the 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 IT AT in the case of M/s Gaurish Steels Pvt. Ltd. (supra) Respectfully following the above decision of the Hon'ble IT AT, Jurisdictional Bench it is held that the income surrendered under the head 'Debtors' is to be brought to tax under the head 'business income' and benefit of set-off of business loss is to be given against the same. These grounds of appeals are allowed." Considering the facts and circumstances of the case, the judicial precedents on the issue and following t....
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....ts and circumstances of the case, the order of Hon'ble ITAT is perverse In law in quashing the order under section 263 ignoring that assessment order is erroneous in so far is prejudicial to the interest of the revenue as the Assessing Officer has not followed the decision of Hon'ble Court of Punjab and Haryana in the case of M/s Kim Pharma (P) Ltd. v. CIT Panchkula, ITA No. 106 of 2011 (O&M) dated 27.04.2011 that income surrendered during survey is to be taxed u/s 69-A and set off losses u/s 70 and 71 is not permissible against such income." The facts of this case (Para 6 of the order) is that surrendered income of Rs. 80 Lac (bifurcated as- Rs. 50 lacs on account of building renovation Rs. 15 lacs on account of office equipment and Rs. 15 lacs on account of sundry receivable ) were set off against unabsorbed loss u/s 70 & 71. The Hon'ble High Court following its earlier decision in Kim Pharma Pvt Ltd vs CIT ITA No. 106 of 2011 dated 27/04/2011 held that: "13. It is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain busines....
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....he surrendered income of Rs. 5 lac was income from job work (Para 4 Page 2 of ITAT order) but could not produce any evidence to substantiate its claim (Para 7 and Para 9 of ITAT order). Hence this surrender was adjudicated as deemed income u/s 69 A for A Y . 2006-07 by Hon'ble High Court and Hon'ble ITAT. iii. In the case of Mrs. Promila Jain Vs DCIT ITA No. 1449/Chd/2010, dated 25/09/2017 the Hon'ble ITAT, Chandigarh following the decision of Hon'ble High Court in Kim Pharma held that surrendered amount of Rs. 4 Lakhs on account of cash and excess stock is assessable u/s69 & 69 A and consequently the set off against business loss was disallowed. It was held by Hon'ble ITAT that the assessee could not explain the source of investment in excess stock during the course of survey, or before AO or before CIT(A). The assessee did not give any evidence to prove that the investment in excess stock was made out of his business income earned outside the books of account (para 7/4.3 of the order). Thus the appeal of assessee was dismissed. iv However, in the case of M/s Gaurish Steel Pvt. Ltd. Vs. ACIT, ITA No. 1080/Chd/2014 dated 17/09/2015, the Hon'....
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....n than the same has to be treated as deemed income of u/s 69, 69 A and consequently set off again loss of u/s 70& 71 is not permissible. v. Further reliance is place on the decision of Hon'ble ITAT Delhi in the case of ACIT vs M/s Sant Steel & Alloys Pvt. Ltd in ITA No. 2808 & 2809/Del/2013 dated 02/06/2016. Hon'ble ITAT Delhi in Para 9.2 held that deemed income of chapter VI (containing charging provision section 68 to 69 D) is distinct and has to be aggregated with the income computed under chapter IV (containing section 14) and Chapter V (containing clubbing provision). Consequently setoff of loss against deemed income is not permissible. Further Hon'ble ITAT Delhi distinguished the facts of following cases as being income arising from known source of income viza-viz deemed income source of which is unexplained / unknown. (i) Hon'ble SC decision in the case of CIT vs DP Sander Bros. Chambur (P) Ltd 273 ITR 1. In this case the amount of Rs. 35 lacs received by the assessee on account of premature termination of lease agreement was treated by the AO as income from other sources u/s 10(3) r.w.s. 56 as casual and on-recurring receipts. Hon&....
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....rally understood. Jaipuria definitely says so as pointed out earlier. Again, as pointed out earlier, if it is treated as a genus totally different from a "loss", there is no statutory provision that will permit its adjustment against other business income-implicit in S. 32(2) itself- and against all other income of the assessee as held by the above decisions. We therefore do not see why "loss" and "unabsorbed depreciation" should be treated as antithetical to, or mutually exclusive of, each other. ii) Nor are we persuaded that any mix-up or anomaly will result as, suggested by counsel if we treat the expressions as synonymous except to the extent specifically treated differently by the statute. In our view, there is nothing anomalous or absurd in the statute providing for a dissection of the amount of loss for purposes of carry forward and providing for a special or different treatment to unabsorbed depreciation in this regard although it is a component element of the genus described as "loss" To illustrate, suppose an assessee, has a "profit" of Rs. 5,000 in one business before deduction of depreciation of, say Rs. 10,000 and a loss of Rs. 15,000 in another business, it w....
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....pa Dyeing and Printing Mills 39 Taxmann 3 reveals that the surrender income if not explained about the sources cannot be allowed to be set off against business loss, depreciation loss. In the instant case during the statement recorded the assessee has explained that the sundry creditors are long outstanding and the amount on account on the long standing sundry creditors has been surrendered which is a part of business income. Further, in the same statement the assessee has explained that the surrender of Rs. 3 Crores is over and above the normal business profits of the company for the Financial Year which the Revenue has duly accepted. The Ld. CIT(A) has diligently examined the issue on account of unaccounted investment in building as well as in machinery and treated them as income from business and accordingly the set off of losses was allowed. At the same time, the surrender on account of cash of Rs. 50 lacs was not treated as business income. This amount of cash has been rightly held to be deemed income under section 69 and benefit of set off of business loss and depreciation was not allowed against this surrender of Rs. 50 lacs rightly following the spirit of the case laws quot....