Income Tax Appellate Tribunal - Jodhpur
Sushil Kumar Jalani vs Assistant Commissioner Of Income Tax on 21 July, 2006
Equivalent citations: [2007]108ITD613(JODH), [2008]303ITR317(JODH), (2007)108TTJ(JODH)724
ORDER
R.S. Syal, A.M.
1. This appeal by the assessee is directed against the order passed by the CIT(A) on 13th Dec, 2004 in relation to the asst. yr. 2001-02.
2. No ground, other than ground Nos. 2, 3 and 4, were pressed. These, therefore, stand dismissed.
3. Second ground is against the sustenance of addition of 1/6 out of expenses claimed under petrol expenses, telephone expenses and depredation on car.
4. The AO made this disallowance on account of personal use of vehicles and telephone by the proprietor of the concern. The learned CIT(A) upheld the assessment order disallowing 1/6 of these expenses including depreciation. It was contended by the learned Authorised Representative primarily, that the disallowance was on higher side and secondly, no disallowance was warranted on account of depreciation as relatable to the personal use of vehicle by the proprietor because even the partial use of assets is sufficient for full depreciation. The learned Departmental Representative relied on the impugned order.
5. Having regard to the facts of the case, and the submissions made before us, it is found that the AO has disallowed 1/6 of these expenses resulting into an addition of Rs. 14,434. The contention of the learned Authorised Representative. for not considering depreciation for making disallowance is sans merits because of the specific language of Section 38(2) which provides as under:
Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under Sub-clause (ii) of Clause (a) and Clause (c) of Section 30, Clauses (i) and (ii) of Section 31 and Clause (ii) of Sub-section (1) of Section 32 shall be restricted to a fair proportionate part thereof which the AO may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession.
A bare perusal of this sub-section leaves nothing to doubt that if an asset is not exclusively used for the business purpose, the deductions, including depreciation under Section 32, have to be restricted to fair proportionate part. The contention of the learned Authorised Representative for excluding the depreciation, for purposes of making disallowance, is hence rejected. However, we find that in the facts and circumstances of this case, the sustenance of addition at 1/6 is on higher side. In our considered opinion, it would be just and fair if the disallowance is reduced to 1/8. We order accordingly.
6. The main ground of this appeal is against the non-granting of deduction under Section 80-IA in respect of income surrendered by the assessee during the course of survey at his business premises.
7. Facts apropos of this ground are that the assessee is engaged in the manufacturing of jaljeera and ayurvedic medicines and he qualifies for deduction under Section 80-IA. Survey action was taken upon the assessee on 23rd March, 2001 in which cash amounting to Rs. 15 lakhs was found behind the table of the assessee in a wooden showcase and the excess cash was worked out at Rs. 15,01,567. This amount was surrendered and offered for taxation by the assessee as undisclosed income and further deduction under Section 80-IA was claimed on the total income inclusive of such surrendered income of Rs. 15.01 lakhs. On being called upon to explain as to why this surrendered income of Rs. 15.01 lakhs be not excluded for working out the deduction under Section 80-IA, it was stated on behalf of the assessee that his only source of income was from the proprietorship concern, M/s Jalani Enterprises and bank interest; excess cash was found in the business premises; the entire amount pertains to assessee's business only and hence the same is eligible for deduction under Section 80-IA. The AO held this surrendered amount to be taxable under the head 'Income from other sources' and accordingly jettisoned the claim for deduction under Section 80-IA on this amount. The first appeal did not change the fortune of the assessee on this aspect.
8. Before us, it was contended by the learned Authorised Representative that the only source of assessee's income was from his proprietorship concern, which was eligible for deduction under Section 80-IA. The excess cash found at the time of survey was found at the business premises of the assessee where all the business documents and cash were being kept. Since the whole of the cash related to the assessee's business, therefore, the amount surrendered was undisclosed business income only and the claim for deduction under Section 80-IA on such surrendered amount was legally correct. He relied on certain decisions including
1. Kashmir Steel Rolling Mills v. Dy. CIT (1991) 39 TTJ (Asr) 126;
2. Dy. CIT v. Chaman Lal & Sons (2005) 93 TTJ (Asr) 132;
3. Raj Sons Jewellers v. ITO (2004) 86 TTJ (Del) 1106;
4. Parkar Cycle Industries v. HO (2004) 91 TTJ (Chd) 436.
to contend that the amount surrendered by the assessee was eligible for deduction under Section 80-IA. He further relied on the decision of the Mumbai Bench of the Tribunal in Minestones v. Asstt. CIT (2004) 37 BCAJ, copy placed at p. 20 of the paper book in support of his claim. It was still further argued that the judgment of the Hon'ble Calcutta High Court in the case of Debi Burman v. CIT (1994) Tax LR 452 (Cal) was relevant and the claim of the assessee for deduction could not be denied. In the light of these decisions, it was strongly urged that the first appellate authority was not justified in refusing the claim of deduction under Section 80-IA on the amount surrendered by the assessee. Per contra, the learned Departmental Representative relied on the impugned order. His further submissions were the reiteration of the reasoning recorded by the authorities below for not accepting the assessee's claim in this regard.
9. We have heard both the sides at length and perused the relevant material on record in the light of precedents cited before us. The short controversy raised before us is confined to the decision as to whether or not the income surrendered by the assessee during the course of survey qualifies for the deduction under Section 80-IA ? Here, it would be relevant to consider the relevant provision at the relevant time, which is as under:
80-IA(l) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or an enterprise referred to in Sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to hundred per cent of profits and gains derived from such business for the first five assessment years commencing at any time during the periods as specified in Sub-section (2) and thereafter, twenty-five per cent of the profits and gains for further five assessment years.
A bare perusal of this sub-section reveals that in order to be eligible for deduction under this section, it is sine qua non that the profits and gains should be derived from any business of an industrial undertaking or an enterprise referred to in Sub-section (4). If the profit is not derived from the eligible business the same would become ineligible for deduction under this section. The onus to prove the direct nexus of the income with the eligible business is upon the assessee. If the viewpoint of the learned Authorised Representative is accepted and the burden is shifted upon the AO to prove the negative test for the eligibility of deduction, it would be like putting a cart in front of the horse. We, therefore, hold that the assessee cannot be relieved from establishing the direct and live link of the income with the eligible business of the qualifying industrial undertaking or the enterprise.
10. Before evaluating the assessee's claim, it is relevant to examine the facts leading to the surrender of the amount. The statement of the assessee was recorded at the time of survey, copy of which has been placed at pp. 3 to 9 of the paper book. In response to question No. 10, it was stated by the assessee that the cash belonging to his business was available in the drawer of the table. It was further stated that as per cash book the opening cash balance as on 23rd March, 2001 being, the date of survey, was at Rs. 44,948. Thereafter, it was noted by the survey team that the cash in hand found in the drawer was at Rs. 46,605 and a further sum of Rs. 15 lakhs was found behind the table of the assessee in a wooden showcase. On being called upon to give explanation about the cash of Rs. 15 lakhs found separately placed, the assessee stated in response to question No. 22 that he had no explanation with regard to such cash. Then, in reply to question No. 23, the assessee admitted the excess cash of Rs. 15.01 lakhs as his undisclosed income and surrendered the same. Here, it is pertinent to note question No. 17, which was aimed at ascertaining if the assessee was engaged in any other business as well. In reply, it was stated that he was engaged in the sale and purchase of shares in addition to his regular business. He further submitted that his wife and daughter were also doing the business of purchase and sale of shares. There is still another dimension of the case, which cannot be lost sight of is to the effect that during the survey, physical stock was found at Rs. 18,64,825 as against Rs. 18,79,471 available as per books of account, leading to short stock of Rs. 14,446.
11. At this juncture, we would like to determine the head under which the income surrendered by the assessee is taxable viz., 'Business income' or 'Income from other sources'. Section 28 enumerates the incomes, which are chargeable under the head 'Profits and gains of profession'. As per Clause (i) the profits and gains of any business or profession, which was carried on by the assessee at any time during the previous year is chargeable to tax under this head. Thus, in order to bring an income within the purview of this section, it is necessary to establish the link of income with the carrying on of the business of the assessee. If however the assessee has earned an income which is not to be excluded from the total income and that does not fall under any of the specified heads, the same is brought within the ambit of the residual head, namely, 'Income from other sources. Section 56 provides that:
Income of every kind which is not to be excluded from the total income under this Act shall he chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified ins. 14, items A to E. In the light of the clear line of demarcation between 'Business income' and 'Income from other sources', we would like to examine that under which head does the surrendered income of the assessee fall. Here we would like to highlight that there is no straightjacket test or formula to determine the head under which the surrendered income is categorized. It is a factual matter, which has to be decided in the backdrop of facts and circumstances of each case. The main contention put forth by the learned Authorised Representative is that the cash was found in the business premises and in the absence of having any other source of income except business, such surrendered amount would fall under the head 'Business income". We are not inclined to accept the same. What is relevant to consider is the nature of income and not the place where it is retained after realizing. If the profit is realized on the sale of a capital asset and the same is kept in the business premises, would that assume the character of business income ? The answer has to be in the negative. We are dealing with a case in which cash of Rs. 15 lakhs was found behind the table of the assessee in a wooden showcase and the business cash of Rs. 46,600 was kept separately in a drawer of the table. Further, this excess cash of Rs. 15 lakhs was not found entered in the books of account of the assessee. Even during the course of survey when the assessee was called upon to explain about this cash, he did not offer any explanation, much less the relation of this cash with the business of ayurvedic medicine. The other important aspect, being the negligible difference of Rs. 14,446 in the stock, at the time of survey, clearly proves that the surrendered cash could not be attributed to the stock sold outside the books of account. Thus, it becomes crystal clear that the excess cash was not relatable to the assessee's business of ayurvedic medicines. The argument of the learned Authorised Representative that the only source of assessee's income was from the business of manufacturing of ayurvedic medicine is not acceptable in view of the assessee's categorical admission during the course of survey that he was engaged in the business of purchase and sale of shares as well. Under these circumstances, we are of the considered opinion that the surrendered income cannot be brought within the ambit of Section 28. At any rate, it is not derived from the business of the eligible undertaking as there is absolutely no evidence worth the name to suggest, even remotely, that surrendered cash of Rs. 15 lakhs was derived from the eligible business. Hence, the claim for deduction stands negatived.
12. The decisions relied upon by the learned Authorised Representative are not germane to the issue in question. In the case of Kashmir Rolling Mills (supra) that assessee voluntarily disclosed income under the Amnesty Scheme and claimed deduction under Sections 80HH and 80-1. The ITO did not allow deductions but claim of the assessee was accepted by the Tribunal on the ground that the declaration made by the assessee was to be accepted on its face value in view of circular of CBDT and further, the clarification issued by the Chief CIT on the question whether the firm or company was entitled to benefits under Sections 80HH and 80-1 on the disclosed income, the answer to which was given as under:
"Yes" such assessees making declarations are entitled to get benefits under this exemption provisions provided under the law.
In view of these reasons, the deduction was allowed on the income declared under Amnesty Scheme in accordance with the clarification of the Department entitling the assessee to deduction. The facts of the instant case are nowhere near to that considered by the Amritsar Bench in the aforenoted order because neither it is a case of voluntary disclosure of income under a scheme formulated by the Government, nor any clarification regarding the eligibility of deduction under Section 80-IA exists.
13. As regards the case of Chaman Lal & Sons (supra), we find that the question in that case was eligibility of deduction under Section 80-IA on the income earned by business of a qualifying industrial undertaking. There is no reference to the amount surrendered in that case vis-a-vis the deduction which is incidentally authored by the undersigned (AM). What has been held in that case is that the deduction under Section 80-IA is allowable in respect of profit and gains derived from the business of an industrial undertaking, whether manufacturing, processing or otherwise and the transactions of purchase and sale of rice being part and parcel of the business of industrial undertaking of the assessee, the profit in respect of such trading operations qualified for deduction under Section 80-IA.
14. However, we find another order passed by the Amritsar Bench of the Tribunal in the case of Sadhu Singh Gurdip Singh v. Asstt. CIT (2005) 97 TTJ (Asi) 1 in which the assessee introduced a sum of Rs. 18.04 lakhs in his books of account with a view to explain the investment in plot of land after relevant documents were found by the IT authorities during the course of search. The deduction claimed under Section 80-IA on the said amount was held to be not available because the assessee had failed to establish the direct nexus between the income disclosed by it as unexplained investment in property and the industrial undertakings, which were eligible for relief under Section 80-IA.
15. Insofar as the reliance on the case of Raj Sons Jewellers (supra) is concerned, the same is again misconceived in view of the fact that in that case it was held that deduction under Section 80HHC was allowable on the basis of the profits or gains of business as finally assessed after taking into consideration the additions, if any. Here we would like to mention that the said decision has been rendered in the context of Section 80HHC, the language of which is quite different from that of Section 80-IA. Section 80HHC(l) provides that the assessee shall be entitled to deduction of the profits derived by it from the export of goods or merchandise to which the section applies. Sub-section (3) Clause (a) stipulates that the profit derived from export shall be the amount, which bears to the 'profits of the business' the same proportion as to the export turnover bears to the total turnover. Explanation (baa) below Sub-section (4B) defines 'profits of the business to mean the 'profits and gains of business or profession' subject to certain adjustments. On the contrary, Section 80-IA does not give any artificial meaning to the expression 'profits and gains derived from any business of any industrial undertaking'. This expression has to be understood generally in the light of the language of the section and judicial pronouncements. The facts of this case are found to have been placed in a different compartment having no similarity with those of the assessee under consideration. The cases decided under Section 80HHC stand on a different footing from those decided under Section 80-IA and the finding under the former section cannot be straightly imported into the later section.
16. Similar is the position with regard to the order of the Chandigarh Bench of the Tribunal in the case of Parker Cycle Industries (supra) in which it was held that deduction under Section 80HHC was to be allowed on the sale of scrap outside the books of account. Since in that case the assessee agreed to addition on account of sale of scrap outside the books of account, which is incidental to the business, the same was held to be eligible for deduction under Section 80HHC as falling under the head 'Business income'. No such sale of scrap has been done in the instant case, which came to be surrendered. Further, as regards the decision of the Mumbai Bench of the Tribunal in the case of Minestone (supra) we find that excess stock of rough and polished diamonds of Rs. 24.25 lakhs was found and the partners in their statements under Section 132(4) agreed to disclose the same as unaccounted income. This amount was held to be eligible for deduction under Section 80HHC on the ground that the only source of the income of the assessee was business of export of diamonds and the income was relatable to excess business stock. Adverting to the facts of our case, we find that both these things are found to be non-existent, which make it distinguishable. Similar is the position about the judgment of the Hon'ble Calcutta High Court in the case of Debi Burman (supra) where the extra sale consideration from the buyer was held as business income against sale of flats. In the instant case, we are not concerned with any extra sale consideration, which was found to have been realized.
17. In the case of Dy. CIT v. Gold Tax Furnishing Industries (2001) 73 TTJ (Del) 223 certain valuables, such as jewellery, investments and cash were seized from residential premises of the partners of the firm, the business of which was manufacturing of furnishing items. These items were not entered in the books of account of the assessee and hence were surrendered. It was only at the end of the accounting period that the same was entered in the books of account. The claim of the assessee for deduction under Section 80-IA on such surrendered amount was not allowed by the AO who held it to be income from other sources. The Tribunal held that income was rightly treated as income from other sources and deduction under Section 80-IA was, therefore, not allowable.
18. In the light of the facts and the legal position discussed in the foregoing paras, it is discernible that the cash surrendered by the assessee did not have any connection, direct or indirect, with the business as the same was neither recorded in the books of account nor any nexus of this cash was established, with the business of manufacturing ayurvedic medicine which is eligible for deduction under Section 80-IA. In our considered opinion, such income was rightly taxable under the head 'Income from other sources' and the learned CIT(A) was fully justified in holding that no deduction could be allowed under Section 80-IA. We, therefore, uphold the impugned order on this score.
19. Last effective ground regarding charging of interest under Section 234B, being consequential, is disposed of accordingly.
20. In the result, the appeal of the assessee is partly allowed.