Income Tax Appellate Tribunal - Chandigarh
Parshanti Surya Construction Co. Pvt. ... vs Dcit, Chandigarh on 23 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.315/Chd/2014
(Assessment Year : 2011-12)
M/s Prashanti Surya Construction Vs. The D.C.I.T.,
Co. Pvt. Ltd., VPO Gurkari, Central Circle-II,
Tehsil & District Kangra (H.P.). Chandigarh.
PAN: ADNPS8077K
(Appellant) (Respondent)
Appellant by : Shri Sudhir Sehgal
Respondent by : Shri Manjit Singh, DR
Date of hearing : 14.03.2017
Date of Pronouncement : 23.03.2017
O R D E R
PER ANNAPURNA GUPTA, A.M. :
The appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)(Central), Gurgaon dated 20.1.2014 relating to assessment year 2011-12.
2. Brief facts relating to the case are that during the course of search operation of one Shri Vijay Kumar Sood, a surrender of Rs.2 crores was made by him in his own hands, his family members and business concerns. In respect of the assessee company, Rs.1.75 crores were surrendered, which were shown in the computation in the return of income for assessment year 2011-12. On further 2 perusal of return of income it was seen that the assessee company had set off the additional income of Rs.1.75 crores against the brought forward and current losses of Rs.1,53,96,722/- and Rs.21,03,278/- respectively. The Assessing Officer observed that since the additional income surrendered u/s 132(4) of the Income Tax Act, 1961 (in short 'the Act') was in addition to the assessee's regular income and no satisfactory explanation about the nature and source was given by the assessee ,it could not be classified under any heads of income u/s 14 of the Act,and consequently the same was not allowed to be set off against the brought forward business losses as per the provisions of section 72 of the Act. Thus, the total income of the year was taken and assessed at Rs.1.75 crores.
3. Aggrieved by the same, the assessee carried the matter in appeal before the Ld. CIT (Appeals) contending that it had fully explained the nature and source of the surrendered income as being collections from his BOT project and thus was nothing but its business income and the decision of the Hon'ble Punjab & Haryana High Court in the case of M/s Kim Pharma (P) Ltd. Vs. CIT, ITA No.106 of 2011 supported its stand. It was further contended that the surrendered income being in the nature of business, the set off of business losses and business depreciation was allowable against the same. The learned Commissioner of Income Tax, after considering the assessees submissions, held that the 3 assessee had not satisfactorily explained the nature and source of the surrendered income and, therefore, it could not be regarded as its business income but was to be treated as its deemed income, which could not be considered even under the head 'income from other sources' and as a consequence thereof set off of losses was also not available to the assessee, as held by the Hon'ble Jurisdictional High Court in the case of M/s Kim Pharma (P) Ltd. (supra). The relevant findings of the Ld. CIT (Appeals) at pages 6 and 7 of its order are as follow:
"I find that the AO has categorically noted that the nature and source of the surrendered income was not satisfactorily explained by the assessee. Needless to add, as such claim would dilute the surrender, it was imperative upon the assessee to substantiate with evidence that the surrendered income pertained solely to his business. The assessee has vehemently tried to distinguish the cases relied upon by the AO, including the jurisdictional High Court decision in the case of M/s Kim Pharma (P) Ltd (supra}. However, I find that the case of the assessee is squarely covered by the decision of M/s Kim Pharma (P) Ltd (supra}.
In the case at hand, Shri Vijay Kumar Sood after the search on 8.10.2010, submitted a surrender letter to the }DIT (Inv) dated 9.10.2010 wherein he had voluntarily offered a sum of Rs.2 crores as additional income for the FY 2010-11 in addition to the regular income in his hand and his business concerns. Rs.1,75,00,000/- was surrendered in the hands of the assessee company. At the time of recording of the statement u/s 132(4) subsequently on 28.10.2010, he was asked what he had to say in this regard (the surrender). In response, he reiterated what he had submitted to the JDIT (Inv.), that the surrender was in addition to the regular income, subject to no penalty or prosecution, However no detailed break-up of the surrendered amount was furnished. Thus, the assessee had a chance to establish the nature and source of the surrendered income during the recording of the statement, or even subsequently. This was not done. It is undisputable that the amount surrendered was not reflected in the books of account and neither the nature nor its source was declared by the assessee. The surrender was admittedly over and above the assessee's regular income. Hence, such income surrendered from unknown sources 4 could not be regarded as business income; and so the same is to be treated as deemed income and such deemed income cannot be considered even under the head "income from other sources".
Therefore as elucidated in Kim Pharma (supra), the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions....
Thus, the action of the AO in disallowing the set-off of brought forward business losses as well as the current business loss against the surrendered Income of Rs.1,75,00,000/- is confirmed. Assessee fails on this ground."
4. Aggrieved by the same, the assessee has now come up in appeal before us, raising following grounds:
"1. The Ld. CIT(A) has erred by upholding the Ld. DCIT's order which is contrary to law and the facts of the case.
2. The Ld. CIT(A) has erred by upholding the order wrongly passed U/s 153A(1)(b), since the search was conducted on 8.10.2010 i.e. relevant assessment year 2011-12 and the period does not fall in the block period.
3. The Ld. CIT(A) has erred by not allowing set off of admitted business loss Rs.1,53,96,722/- and carried forward loss Rs.21,03,278/- incurred by the company wrongly treating the total amount Rs.1,75,00,000/- as carried forward loss against the amount of business income surrendered."
5. Ground No.1 raised by the assessee is general in nature and needs no adjudication.
Ground No.2 was not pressed before us and, is, therefore treated as dismissed.
6. Ground No.3 raised by the assessee is against the action of the Ld. CIT (Appeals) in treating the surrendered income as not assessable under any of the 5 specified heads of income and further not allowing set off of business loss and depreciation against the same.
7. Before us, the arguments of the Ld. counsel for the assessee were two fold;
i) that the surrendered income was business income and hence assessable as such;
ii) that against its surrendered income set off of losses on account of depreciation and business loss was allowable.
8. The Ld. DR, on the other hand, vehemently argued that the assessee's contention of the surrendered income being assessable under the head 'business income' was not sustainable since neither the nature, nor the source of income was satisfactorily explained by the assessee.
9. We have heard both the parties. The fact that the amount of Rs.1.75 crores was surrendered by the assessee and disclosed in its return of income is not disputed. Moreover, there is no dispute regarding the proposition laid down by M/s Kim Pharma (P) Ltd. (supra) that in cases where the nature and source of surrendered income is not disclosed, the same is not to be assessed under any of the specified heads of income and the allowances available under the specified heads as also the 6 set off of business losses u/ss 70 and 71 of the Act are not allowable against such incomes.
10. Having said so, we find that first question to be addressed in the present case before us is whether this surrendered income of Rs.1.75 crores could be attributed to the business of the assessee and thus assessed under the head 'business income'.
11. The Ld. counsel for the assessee in support of its above contentions drew our attention to the letter addressed to the ACIT, Central Circle-II, Chandigarh dated 20.7.2012 during the course of assessment proceedings placed at Paper Book page No.18 and disclosing the source of the surrendered income as being from the normal business collections from the BOT project undertaken by it of the construction of Kangra Bus Stand and Mcleodganj Bus Stand. The relevant submissions made by the assessee vide its letter are as under:
"A sum of Rs. 1.75 crore was surrendered as income from normal business as collections from the BOT project utilized in construction through the promoter Sh. Vijay Kumar Sood and duly declared in the computation sheet during the year."
12. To this, the Ld. DR countered stating that while recording the statement of Shri Vijay Sood u/s 132(4) of the Act, he had given a general explanation regarding the surrendered income reproduced in the assessment order as follows:
7
" There may be certain discrepancies in the books of accounts of my concerns mainly pertaining to M/s Prashanti Surya Construction Co. Pvt. Ltd. which is special purpose vehicle for executing the BOT project at Kangra and Mcleodganj. On account of this, l have already surrendered additional income of Rs. 2 crores for F.Y. 2010-2011 in addition to my regular income subject to no penalty or prosecutuion under IT and other laws. I promise to pay tax on this additional income as per provisions of IT Act, 1961. The detailed break-up of the surrender amount shall be submitted within a couple of days."
13. Further the Ld. DR also pointed to the observations of the Ld. CIT (Appeals) stating so and reproduced in the earlier part of our order. The Ld. DR contended that it is evident that no nature and source of the surrendered income was explained by the assessee or even substantiated. Further the Ld. DR pointed out that the Director's report of the assessee company appended to the audited accounts for the impugned year placed at Paper Book page No.37 showed that the surrender was on account of investment in the BOT project by the promoters. The Ld. DR contended that in the first place despite ample opportunities given to the assessee no source or nature of the surrendered income was explained by it and by making the surrender it had stopped the Revenue from making further enquiries in this regard. The Ld. DR contended that nothing was brought on record by the assessee to explain the nature and source of the income. The Ld. DR also contended that the contention now raised by the Ld. counsel for the assessee was 8 contrary to what was stated by its Directors in their report attached to the Balance Sheet.
14. At this juncture, the Ld. counsel for the assessee countered by stating that there was no contradiction in its explanation, as the explanation clearly stated that the collections from the Bus Stand were invested in the BOT project which was what was stated by the Directors also in their report and thus there was no contradiction between the explanation given by the assessee to the Assessing Officer and that stated by the Directors in their report. The Ld. counsel for the assessee contended that no other source of income of the assessee had been pointed out by the Assessing Officer and further stated that the assessee had discharged its onus of proving the nature and source of income and surrendered income and the onus now rested on the Department to prove that the surrendered income related to some other source of income.
15. Having heard both the parties, we find that one fact which emerges undoubtedly from the above arguments made before us is that the surrender is on account of excess/undisclosed amount invested in the BOT project undertaken by the assessee. The Ld. DR drew our attention to the Directors' report annexed to the audited Balance Sheet for the impugned year in this regard stating so at point No.1 of their report and the assessee has pointed out its submissions made before the Assessing 9 Officer vide their letter dated 20.7.2012 in this regard. Therefore, undoubtedly we find that the surrender is on account of investment in the business project of the assessee. The assessee, we find, has explained the source of the same as being on account of collections from the BOT project.
16. In the case of Gaurish Steels Pvt. Ltd. Vs. ACIT, 43 ITR (Trib.) CHD-Trib., referred to by both the parties in support of its contentions that whether the surrendered income should be assessed under the specified heads or otherwise, we find that one of the disclosures in that case pertained to and was on account of cost of construction of building. The I.T.A.T. in that case held that the surrender was nothing but business income of the assessee since the Assessing Officer had not objected to the head under which it was surrendered and further no other source of income had been found by the Assessing Officer except business income. Further I.T.A.T. distinguished the case of M/s Kim Pharma (P) Ltd. (supra) of the Jurisdictional High Court on this issue stating that in that case while the surrender made on account of debtors, stock and construction in building was accepted as relating to business and assessable under the head 'income from business and profession', it was the surrender made on account of excess cash found which was in dispute and which the Hon'ble High Court had held was not assessable under any of the specified heads since no satisfactory 10 explanation of the nature or source was given by the assessee. The I.T.A.T. held that since the said decision related only to the surrender made on account of excess cash, it was distinguishable from the facts of the case in hand and thereby went to hold that the surrender made by the assessee on account of investment in construction of building was to be assessed under the head 'business income'. The relevant findings of the I.T.A.T. in the said case are as under:
"13. I n t h e p r e s e n t c a s e , we s e e t h a t t h e Assessing Off icer has n o wh e r e disputed the business losses incurred by the assessee. The books have not been rejected. I t wa s s t a t e d a t t h e B a r t h a t e v e n a t t h e t i me o f s u r v e y , i n t h e trading account prepared by the survey team, t h e r e we r e l o s s e s i n c u r r e d b y t h e a s s e s s e e . All these f acts have not been disputed by the Assessing Off icer. Further, the surrender made b y t h e a s s e s s e e wa s o n a c c o u n t o f c a s h f o u n d during the course of survey, discrepancy in the cost of construction of building, discrepancy in stock and discrepancy in advances and receivables. By no stretch of imagination, any of these incomes apart from cash can be c o n s i d e r e d a s i n c o me u n d e r a n y h e a d o t h e r t h a t t h e ' b u s i n e s s i n c o me ' .
14. N o wh e r e in his order the Assessing Off icer has been able to bring on record the f act t h a t t h e i n c o me s u r r e n d e r e d d u r i n g t h e c o u r s e o f survey wa s not out of the business of the assessee. A l s o n o wh e r e h e h a s o b j e c t e d t o t h e h e a d s u n d e r wh i c h t h e a s s e s s e e h a d s u r r e n d e r e d 11 these a mo u n t s , i.e. cash, construction of building, discrepancy in stock and discrepancy in advances and receivable. Further, even the s u r v e y t e a m h a s n o t f o u n d a n y s o u r c e o f i n c o me e x c e p t t h e b u s i n e s s i n c o me . N o w, f o l l o wi n g t h e j u d g me n t of Jurisdictional High Court, in the b a c k g r o u n d o f t h e f a c t s o f t h e p r e s e n t c a s e , we c a n s af e l y i n f e r t h a t a p a r t f r o m c a s h all other i n c o me s u r r e n d e r e d m a y b e b r o u g h t t o t a x u n d e r t h e h e a d ' b u s i n e s s i n c o me ' wh i l e t h e c a s h h a s t o b e t a x e d u n d e r t h e h e a d d e e m e d i n c o me u n d e r section 69A of the Act."
17. Since the facts in the present case are identical to that in Gaurish Steels Pvt. Ltd. (supra), the surrender having been made by the assessee on account of investment made in the BOT project which was the business of the assessee, the decision rendered by the I.T.A.T. in the said case will squarely apply in the present case, following which we hold that the income surrendered by the assessee of Rs.1.75 crores is assessable under the head 'income from business and profession'.
18. Having held so, we now come up to the second limb of the ground of appeal raised before us regarding the set off of brought forward losses and depreciation to the tune of Rs.1,53,96,722/-.
19. Since we have held the surrendered income to be assessed under the head 'income from business and profession' it goes without saying that set off of unabsorbed and current business losses and depreciation 12 is allowable against the same as per the provisions of sections 70 and 71 of the Act. The Ld. DR raised contention before us to the effect that the depreciation loss was not in the nature of depreciation and that the assessee had shown business losses by debiting interest which was not allowable to it. The Ld. DR contended that business losses and depreciation losses were all arranged by the assessee in a manner so as to claim set off of the same against its surrendered income and thus reduce its income tax liability. The Ld. counsel for the assessee at this juncture countered by stating that the losses incurred by the assessee were accepted by the Assessing Officer and were never in dispute and by raising this issue the Ld. DR is only attempting to improve the case of the Assessing Officer, which cannot be allowed at the stage. The Ld. counsel for the assessee contended that the issue raised by the Ld. DR is not emanating from the order of the Assessing Officer.
20. We have gone through the order of the Assessing Officer and find that the business losses and depreciation losses, which the assessee had sought to set off against its surrendered income have never been questioned by the Assessing Officer. We are in agreement with the Ld. counsel for the assessee that by raising this issue before us the Ld. DR is only attempting to enlarge the scope of assessment by raising an issue not dealt with by the 13 Assessing Officer which is not permissible at the stage. Thus we reject the above contention of the Ld. DR.
21. In effect, we hold that the surrendered income of the assessee amounting to Rs.1.75 crores is assessable under the head 'income from business and profession' and the set off of business losses and depreciation is accordingly allowed against the same. The Assessing Officer is directed to set off the business losses suffered by the assessee out of the surrendered income. The ground No.3 raised by the assessee is allowed.
22. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court.
Sd/- Sd/-
(BHAVNESH SAINI) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 23 r d March, 2017
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh