Income Tax Appellate Tribunal - Chandigarh
M/S Famina Knit Fabs, Ludhiana vs Acit, C-3, Ludhiana on 8 March, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए ", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'A' , CHANDIGARH
ी संजय गग , याय क सद य एवं ीमती अ नपण
ू ा ग%ु ता, लेखा सद य
BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER
AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.1494/Chd/2017
नधा रण वष / Assessment Year : 2014-15
M/s Famina Knit Fabs, बनाम The A.C.I.T.,
Near Kissan Cold Store, Circle-3,
Bindra Colony, G.T. Road, Ludhiana.
Ludhiana.
थायी लेखा सं./PAN NO.AAAFF2968E
अपीलाथ /Appellant यथ /Respondent
&
आयकर अपील सं./ ITA No.408/Chd/2018
नधा रण वष / Assessment Year : 2013-14
The D.C.I.T., बनाम M/s Mehta Engineers
Circle-1, Limited,C-75, Phase-V,
Ludhiana. Focal Point, Ludhiana.
थायी लेखा सं./PAN NO.AABCM5352M
अपीलाथ /Appellant
यथ /Respondent
नधा रती क ओर से/Assessee by : Shri Hari Om Arora, Adv.
राज व क ओर से/ Revenue by : Shri Ashish Gupta, CIT DR
& Shri Ankur Alya, Sr.DR
सन
ु वाई क तार$ख/Date of Hearing : 13.11.2018
उदघोषणा क तार$ख/Date of Pronouncement: 08.02.2019
आदे श/ORDER
Per Anna pur na Gupta, Account ant Member:
Both the present appeal s fi l ed by the assessee an d the Revenue respecti vel y, are di rected agai nst separate orders of the Commi ssi oner of I ncome Ta x ( Appeal s) -1, Ludhi ana ( i n short 'CI T( A) ' dated 24.8.2017 and 4.1.2018 respect i vel y, 2 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 passed i n the case of di fferent assessees, u/s 250( 6) of the I ncome Ta x At, 1961 ( herei nafter referred to as 'Act') .
2. I t was c o m m o n g r o u n d t h a t t h e i s s u e i n v o l v e d i n both the appeals was identical, being related to the characterization of income surrendered during survey proceedings, whether in the nature of income from undisclosed sources u/s 68, 69, 69A, 69B and 69C of the Act, or in the nature of business income and further whether the set off of losses against the same was allowable or not. It was pointed out that while in one case the issue had been decided against the assessee, the other had been decided in favour of the assessee and hence, the above appeals by the assessee and the Revenue respectively. Both the appeals were therefore taken up together for hearing.
3. Taking us through the facts of the case in ITA No.408/Chd/2018 it was pointed out that the assessee in this case was deriving income from manufacturing and sale of different types and sizes of auto parts. That during the impugned assessment year the assessee's premises was surveyed under the provisions of section 133A of the Act on 14.9.2012, whereupon it was noticed that there were unaccounted receivables of Rs.1.25 crores. The same was surrendered by the assessee. However, at the time of finalization of the 3 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 accounts, as at the close of the year, though the additional income surrendered during survey proceedings was credited as income, the same was offset by debit entries resulting in net profit of Rs.49,12,262/-. This amount was entirely set off with the brought forward business losses amounting to Rs.52,66,385/- from the preceding assessment year i.e. A.Y 2012-13, resulting in the return of nil income for the impugned assessment year, and claim of carry forward of losses of the balance i.e. Rs.3,54,123/-. In the assessment proceedings the Assessing Officer(in short referred to as "A.O.") treated the additional income surrendered as deemed income under the provisions of section 69A and 69B of the Act separately without allowing set off of the same with the business losses of the assessee (both assessed and brought forward), following the decision of the Hon'ble Jurisdictional High Court in the case of M/s Kim Pharma Pvt. Ltd. Vs. CIT, Panchkula & Others and the decision of the Hon'ble ITAT Chandigarh Bench in the case of M/s Liberty Plywood Pvt. Ltd., Ambala in ITA No.727/Chd/2012.
4. Aggrieved by the same, the matter was carried in appeal before the Ld.CIT(A). The Ld.CIT(A) found that the assessee's case was identical with the case of M/s Sanjay Bairathi Gems Ltd. decided by Jaipur Bench of the I.T.A.T. in ITA No.157/JP/2017, dated 08.08.2017 4 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 and following the same held that the income surrendered, pertaining to unrecorded receivables, squarely fell within the provisions of section 69A/ 69B of the Act, since they were hitherto undeclared income of the assessee but being part and parcel of the business undertaken by the assessee, the Ld.CIT(A) held that it was to be classified under the head 'profits and gains of business and profession'. Thereafter he stated that since the impugned business income was assesssed u/s 69A and 69B of the Act, the provisions of section 115BBE of the Act, would come into operation, which prescribed the levy of a special rate of tax on such deemed incomes and as per the prevailing provisions of the said section, the set off of losses against the deemed income was allowable. Ld.CIT(A) held that the amendment made to the section, ruling out set off of losses against such deemed incomes, brought about by the Finance Act, 2016 w.e.f. 1.4.2017, was prospective in nature. Following the decision of the I.T.A.T. in the case of Sanjay Bairathi Gems Ltd. (supra), accordingly, he held that since the assessment year involved in the impugned case was 2013-14 the assessee could not be denied the benefit of set off of current year business losses including depreciation as also brought forward 5 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 business losses of earlier assessment year from the surrendered income assessed under the provisions of sections 69A and 69B of the Act and accordingly, allowed the assessee's appeal.
5. In the case of appeal filed in ITA No.1494/Chd/2017, it was pointed out that the assessee had surrendered the additional income of Rs.4 crores during survey operations carried out on the assessee u/s 133A of the Act on 02-01-14 on account of the following:
i) investment of Rs.60 lacs in Kothi at Sukhmani Enclave in the name of Smt.Rekha Miglani;
ii) Sundry creditors and advances received from customers amounting to Rs.132 lacs;
iii) Gross profit on sale out of books amounting to Rs.198 lacs and;
iv) Surrender to cover miscellaneous discrepancies in loose papers etc. amounting to Rs.10 lacs.
6. In this case also, the assessee had set off debit entries against the aforesaid surrender showing net profit of Rs.96,31,647/- and also set off business loss of Rs.3,39,85,902/-. The A.O. in this case also had assessed the entire surrendered income to tax and denied the set off of losses. The Ld.CIT(A) treated the entire surrendered income as deemed income as per the provisions of sections 69, 69A, 69B and 69C 6 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 of the Act and further held that the same was to be taxed as per the applicable provisions of section 115BBE of the Act. The Ld.CIT(A) thereafter held that the amendment to section 115BBE of the Act, denying the set off of losses against the aforesaid deemed incomes was clarificatory in nature having retrospective application. Accordingly, he upheld the order of the A.O. denying set off of losses against the surrendered income of the assessee.
7. Accordingly, aggrieved by the aforesaid orders, the Revenue has come up in appeal in ITA No.408/Chd/2018, while the assessee has come up in appeal in ITA No.1494/Chd/2017 challenging the action of the Ld.CIT(A) and the grounds raised in both the appeals are as under:
ITA No.1494/Chd/2017(Assessee's Appeal):
1. That the Ld. CIT (A) is not justified in dismissing appellant's appeal and confirming the action of the Assessing Officer.
2. That the Ld. CIT (A) is not justified in holding that disclosure of Rs.4Crore at the time of survey undoubtedly represented unexplained income and there cannot be any treatment of this amount other than deemed income under the Provisions of Section 69, 69A, 69B & 69C of the Act, even if, the same accrued to the appellant from the business undertaking them.
3. That under the facts and circumstances of the case and decisions of Hon'ble ITAT, Chandigarh, the Ld. CIT (A) ought to have treated the Surrendered Income as Business Income and allowed the set off of current years losses and unabsorbed depreciation from the surrendered income.7 ITA No.1494/Chd/2014
A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14
4. That provisions of section 68, 69, 69A, 69B and 69C, 72 and 115BBE of the IT. Act, 1961 have been misconstrued and misapplied in the Appellant's case
5. The Appellant craves leave to add, amend, modify and/or add new Grounds of Appeal before the Appeal is heard and disposed off.
ITA No.408/Chd/2018(Revenue's Appeal):
1. Whether upon facts and circumstances of the case, the Ld. ;CIT(A) was justified in law and on facts in allowing setting off of the losses against the income assessed u/s. 69A and 69B of the Income Tax Act, 1961 in view of amendment in section 115 BBE (2) by the Finance Act, 2016 w.e.f. 01.04.2017, whereas the "Explanatory Notes to the Provisions of the Finance Act, 2016 [Circular No. 03/2017, F. NO. 370142/20/2016- TPL, CBDT]" dated 20.01.2017 makes it clear that the said amendment in section 115 BBE has been made only to convey the desired intention of the legislature and to avoid unnecessary litigation?
2. Whether the Ld.CIT(A) was justified in relying upon the decision of Hon'ble Tribunal, Jaipur Bench, in the case of Sainjay Bairathi [ITA No. 157/JP/17, dated 08.08.2017], whereas, the decision of the jurisdictional High Court in the case of Kim Pharma Ltd., Vs. CIT, in ITA No. 106 of 2011, has held that the "deemed income covered under the scheme of section 69, 69-B and 69 -C of the Act is to be treated separately and it is not income from salary, house property, profit and gains from business or capital gain, nor it is income from other sources. No setoff is allowable against this income?
3. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored.
4. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off."
8. T h e a r g u m e n t s a n d c o n t e n ti o n s m a d e b y b o t h t h e p a r ti e s i n b o th t h e a p p ea l s w e r e i d en ti ca l .
9. B ri ef l y s ta t e d, t h e co n t en ti o n s o f t h e L d. co un s el f o r a s se s s ee w er e th a t t h e i n co m e s u r re n d e re d w a s i n 8 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 t h e n a t u re o f b u si n e ss i n c o m e o f th e a s s es s e e r el a ti n g to t h e b usi n es s o f t h e a s s es s ee a n d se t o f f o f l o s s e s, t h e r ef o r e, w a s to b e Al l o w e d a ga i n s t th e s a m e a s p e r the p ro vi si o n s of l a w. R el i a n c e was pl a c e d on the d e ci si o n o f t h e I T A T C h a n di g a r h B e n ch i n t h e c a s e o f G a uri s h S t e el s P vt . Ltd. V s. AC I T. It was a l so a l t e rn a ti vel y c o n te n d e d t h a t e ve n i f th e i n co m e w a s to b e a s s es s e d u / s 6 9, 6 9 A, 6 9B a n d 6 9 C o f th e Ac t a n d ta x e s charged as a co n se q u en c e t h e r e to u n d er th e p ro vi si o n s o f s ec ti o n 1 1 5B B E o f t h e A ct , t h e s e t o f f o f l o s se s wa s t o b e gi v en si n ce t h e d en i a l o f se t o f f a s p ro vi d e d i n t h e se c ti o n w. e. f . 1. 4. 2 0 1 7 wa s p ro s p ec ti v e in n a t u re. R e l i a n ce wa s pl a c e d on th e f o l l o wi n g d e ci si o n s o f t h e I . T. A. T. :
1) M / s R en n y S tri p s P v t. L t d. V s. A C I T I T A N o . 1 0 1 8 / C h d / 2 0 1 4 d a t e d 2 8. 1 2 . 2 0 1 5.
2) D C I T Vs . M / s M a r s h a l M a c h i n e s P v t. L t d.
I T A N o . 5 7 / C h d / 2 0 1 7 d a t e d 2 2 . 5. 2 0 1 8 .
3) AC I T V s. S a n j a y B a i t a th i s G e m s L t d.
I T A N o . 1 5 7 / J p / 2 0 1 7 d a t e d 8. 8. 2 0 1 7
4) Pi ta m b e r C o m m o di t y F ut u r e s ( P) L t d.
V s. A C I T, I T A N o . 8 6 3 / J p / 2 0 1 7 d a te d 2 1 . 3. 2 0 1 8.
5) M / s G a u ri sh S t eel s P v t. L t d. V s. AC I T I T A N o . 1 0 8 0 / C h d / 2 0 1 4 d a t e d 1 7. 9. 2 0 1 5 . 1 0. T h e co n t e n ti o n o f th e R e v e n ue, o n th e o th e r h a n d, w a s t h a t th e c h a ra c t e r o f t h e i n co m e s ur r en d e re d w a s i n th e n a t u r e o f de e m e d i n co m e a s pr o vi d e d u / s 6 9, 6 9 A, 69B and 69C of the A c t, h a vi n g not been di scl o s e d for ta x ea rl i e r and a cc o r di n gl y, the said 9 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 i n c o me s we r e to be ch a r g e d to ta x as per the p ro vi si o n s of se c ti o n 115BBE of th e Ac t and the b en ef i t o f se t o f f l o s s es w a s n o t a va i l a bl e si n ce t h e a me n d m e n t m a d e to se c ti o n d en yi n g t h e b e n ef i t o f s et off of losses w. e. f . 1. 4. 2 0 1 7 was r et ro s p ec ti v e in n a t u re b ei n g c u ra ti ve i n c h a r a c t e r. Al t e rn a ti vel y i t w a s co n te n d e d t h a t th e i s s u e w a s co v e r e d b y t h e d e ci si o n o f t h e J uri s di c ti o n a l Hi g h C o u rt i n t h e c a s e o f Ki m P h a r m a L t d. v s C I T i n I T A N o . 1 0 6 o f 2 0 1 1, a s p e r w h i c h t h e se i n co m e s co ul d n o t be a s s es s e d un d e r a n y h e a d s a s pr o vi d e d u n d er t h e A c t a n d th e re f o r e w e r e n o t el i gi bl e to s e t o f f a n y l o ss e s a g a i n s t t h e s a me . 1 1. W e h a v e h e a r d t h e ri va l co n t en ti o n s, p er u s e d t h e o r d e rs of the a u th o ri ti e s b el o w and have a l so co n si d e r e d v a ri o u s c a se l a w s re f e r r e d to b y bo t h t h e p a r ti e s b ef o re u s.
1 2. T h e i ss u e s to b e a d d re s s e d i n t h e p re s en t ca s e ca n be s u m m a ri z e d as r el a ti n g to the ca t e go ri z a ti o n / ch a ra c t eri z a ti o n o f i n co m e s u rr e n d er e d b y t h e a s se s s e e d u ri n g s u rv e y p ro c ee di n g s, w h e th e r f ro m di s cl o s e d or u n di s cl o s e d s o ur c es , and th e a l l o wa bi l i t y o f cl a i m o f se t o f f o f l o ss e s , bo t h c u rr e n t a n d b ro u g h t f o r w a r d , a g a i n s t t h e s a m e. 1 3. T h e co n t ro ve r s y a ri s es o n a c co u n t o f th e s ch e m e of the Act wh i ch m a n da t e s i n c o m es to b e c a t e g o ri z e d un d e r s pe ci f i c h ea d s d e p en di n g on t h ei r 10 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 n a t u re / so u r ce, for co m p u t a ti o n p u r po s e s un d e r ch a p t er I V a n d th e re a f t er p r o vi d es f o r s e t t i n g o f f o f l o s se s i n a s p eci f i c m a n n er un d e r ch a p t er VI o f th e A c t. I f i t i s f ro m a n y o f t h e s o u r ce s a s s p eci f i e d i n t h e h e a d s f o r t a x a ti o n u n d er C h a p te r- I V o f t h e Ac t, th e i n c o me t h er ef r o m it is to be c o m p u te d as pe r th e p ro vi si o n s pr o vi de d t h e r e un d e r. T h er ef o r e , if th e so u rc e / n a t u re of the income is f ro m business and p ro f e ssi o n , th e i n co m e to b e s u bj e c t e d t o t a x i s to b e a s s e ss e d a s p ro vi de d u/ s 2 8 to 4 4 D B o f th e A c t a n d t h e s e t o f f o f c u rr e n t/ b ro u g h t f o r w a r d l o s s e s i s to b e a l l o we d a s p e r th e p ro vi si o n s o f se c ti o n s 7 0 to 8 0 o f t h e Ac t, w h i c h a l l o ws se t o f f o f b usi n es s l o s s es a ga i n s t c ur r en t y ea r b u si n e ss l o s s es s u bj e c t to f ul f i l l m en t o f ce r t a i n c o n di ti o n s. T h e r e i s n o di s p u te a b o u t t h e a b o v e po si ti o n o f l a w.
1 4. F u r th e r t h e Ac t a l s o p ro vi d es f o r tr e a ti n g c e r ta i n cr e di t s, i n ve s t m en t s, expenses f ro m u n di s cl o s e d so u rc e s, a s d e e m e d i n co m e s u / s 6 8, 6 9 , 6 9 A/ B / C o f t h e A c t, w h i ch i s a l so d e a l t wi t h i n ch a p t er VI o f t h e A c t. S u c h d e e m e d i n c o m es a r e s u b j ec t e d to t a x a t a s pe ci a l ra t e wi t h o u t a l l o wi n g s e t o f f o f ex pe n s es o r l o s s es a ga i n s t t h e s a m e, a s p ro vi d e d u n de r se c ti o n 1 1 5B B E o f t h e Ac t , i n t ro d u ce d vi d e F i n a n c e A c t 2 0 1 2, w . e . f . 0 1- 0 4 - 2 0 1 3. S i n c e bo t h th e a p p ea l s b ef o r e u s r el a t e t o A. Y . 2013-14 & 2 0 1 4- 1 5 , the p ro vi si o n s of se c ti o n 1 1 5 B B E a r e a p pl i ca bl e t o b o t h o f t h e m a n d to th i s 11 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 ef f e ct there is no di s p ut e a l so b ef o re us. The p ro vi si o n s o f s ec ti o n s 6 9 to 6 9 C o f t h e A c t & s e c ti o n 115BBE of the Act are re p ro d u ce d h er e u n de r for cl a ri t y :
SECTION 69 Unexplained investments.
Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the [2016][Assessing Officer], satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
SECTION 69A [2017][Unexplained money, etc. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the [2018][Assessing Officer], satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed 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 12 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 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, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year:] [2024][Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.] SECTION 115BBE [3052][Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D.
[3052]["(1) Where the total income of an assessee,--
(a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or
(b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a) [3052a][and clause (b)], the income-tax payable shall be the aggregate of--
(i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent.; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i)." [3052] Subs. by The Taxation Laws (Second Amendment) Act, 2016. The Clause before subs. read as under. (w.e.f. 1-04- 2017) 13 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 (1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of--
(a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent.; and
(b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance [3052a]["or set off of any loss"]shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (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. 1-04-2017). 1 5. A s i s evi d e n t f ro m a ba r e r ea di n g o f t h e a bo ve se c ti o n s any i n v e s t m en t s, m o n e ys and ex p en di t u r e which are n o t di scl o s e d i n th e bo o k s o f th e a s s e ss e e, i f a n y, m a i n t a i n e d b y i t a n d t h e so u r ce o f which has a l so b e e n n o t ex pl a i n e d sa ti s f a c t o ri l y b y t h e a s s es s e e a r e tr e a te d a s d e e m e d i n co m e s o f th e a s s es s ee s. T h u s, the a m o un t s to be t re a te d as de e m e d incomes a re i n v e s t m en t s, m o n e ys , o r ex p e n di t ur e f ul f i l l i n g th e t wi n cri t e ri a o f :
a) not b ei n g r ec o r d e d in the bo o k s if any maintained and,
b) th e so u r ce o f wh i ch t h e a ss e s se e i s un a bl e to ex pl a i n sa ti sf a c to ri l y.14 ITA No.1494/Chd/2014
A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 1 6. I n o th e r wo r d s, t o p u t i t si m p l y, t h e u n re co r d e d i n v e s t m en t s /a s se t s / ex p en di t u re s made out of un e x pl a i n e d so u rc e s a re t re a t e d a s d e e m e d i n c o m es o f t h e a s s e ss e e. T h e o n u s i s o n t h e a s s e ss e e t o es t a bl i s h t h e s o ur c e o f t h e s u r r en d e re d i n co m e f a i l i n g wh i ch i t is to be c a t e g o ri z e d as deemed income u/s 6 9 / 6 9 A /B / C o f t h e Ac t. An d e s ta bl i sh i n g t h e so u r ce o f i n c o me i s a f a c t ua l m a tt e r. Th e L d. D R , h a d d ra w n o u r a t t e n ti o n to t h e d e ci si o n o f t h e Ho n ' bl e j u ri s di c ti o n a l Hi g h C o ur t i n th e ca s e o f P r. C I T vs K h u s h i Ra m & S o n s F o o d s ( P) L t d i n I T A N o . 1 2 6 o f 2 0 1 5 d a t e d 2 9- 0 7- 1 6, w h er ei n t h e a s s es s e e h a d se t o f f u n a bs o r b e d l o ss e s u /s 7 0 & 7 1 a g a i n s t i n c o m e s u rr e n de r e d o n a c co u n t o f b ui l di n g r en o v a ti o n , office eq ui p m e n t and su n d r y re c ei va bl e, to w h i c h , t h e H o n ' bl e Hi gh C o u r t h a d h el d t h a t i t i s f o r th e a s s es s e e to e s ta bl i sh t h a t t h e so u r c e o f t h e su r r en d e re d i n co m e w a s f ro m b u si n e s s to cl a i m it as such and set off b u si n e s s l o s s es against the sa m e. O u r vi e w t h e ref o r e i s f o r ti f i e d b y th e a f o r e sa i d j u d g e m en t o f th e H o n ' bl e Hi g h C o ur t . 1 7. Further the l e gi sl a t ur e r eq ui r e s s uc h type of d e e m e d i n co m e s to b e ta x e d o n t h e g ro s s a mo u n t so d e te r mi n e d w i th o u t s e t ti n g off any e x pe n di t ur e or a l l o wa n ce s a ga i n s t t h e s a m e, u / s 1 1 5B B E o f t h e A c t. S u b s e q u e n tl y t h e s e c ti o n w a s a me n d e d w. e. f 1. 4. 2 0 1 7 b y th e F i n a n c e Ac t, 2 0 1 6, p ro h i bi ti n g s e t o f f o f l o ss e s a l so a g a i n s t t h e sa i d d e e m e d i n c o m e. 15 ITA No.1494/Chd/2014
A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 1 8. H a vi n g e x pl a i n e d t h e p ro vi si o n s o f l a w a s a bo v e, we n o w pr o c e e d to a p pl y th e sa m e to t h e f a c t s o f bo t h t h e c a s e s b ef o r e us .
1 9. I n t h e f a c ts o f t h e c a s e i n I T A N o . 4 0 8 / C h d / 2 0 1 8, the i n co m e s ur r en d e r e d was on a c co u n t of un a c co un t e d re c ei va bl e s of th e b usi n es s of the a s s e ss e e a m o u n ti n g to R s. 1. 2 5 cr o r e s. T h e L d. C I T( A) i n p a r a 9 o f t h e o r d e r h a s o u tl i n e d th e f a c t s r el a ti n g to the s u r re n d e r ma d e by th e a s s e ss e e s t a ti n g that d u ri n g s u rv e y a po c k et di a r y wa s f o u n d f ro m t h e a c co u n t s e c ti o n of th e a s s es s e e c o m pa n y which co n ta i n e d en t r y o f r ec ei va bl e s a mo u n ti n g t o R s. 1. 2 5 cr o r e s o n pa g e s 2 7, 2 8, 3 1 a n d 3 3, w h i ch we r e n o t re co r d e d i n t h e re g ul a r bo o ks o f t h e a s s e ss e e a n d w er e s u bs e q ue n tl y s u rr e n de r e d s ta ti n g th a t th e s e en t ri es w e re u n a c co un t e d s un d r y r e c ei v a bl e s bei n g s ur r en d e r e d a s i n co m e u n d er t h e h e a d b u s i n e s s, to b u y pi ec e o f mi n d a n d s u bj ec t e d to n o p e n a l t y a n d f u r th e r th a t t h e l o ss e s i n c ur r e d b y th e a s s es se e i n t h e impugned y ea r wi l l be a dj u s t e d against th i s s ur r en d e r e d i n co m e. Th e r el e va n t f a c ts a s s ta t e d b y t h e C I T( A) i n p a r a 9 o f h i s o r d e r a n d w h i c h a r e n o t di s p u te d , a r e r e p ro d uc e d h e re un d e r:
" 9. Adverting now to the facts of the instant case, it is 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 16 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 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]."
2 0. C l e a rl y , it is evi d e n t f ro m the a b o ve th a t th e s ur r en d e r was on a cc o u n t of d e b to rs / r ec ei va bl e s rel a ti n g to the b u si n e s s of the a s se s s ee o n l y. The R e v en u e h a s a c ce p t e d th e s u rr en d e r a s su c h , a s b ei n g o n a c co u n t o f re c ei va bl e s. I t f o l l o ws th a t th e d e b to r s w e re g e n er a t e d f ro m t h e sa l e s m a de b y th e a s s e ss e e d u ri n g th e co u rs e o f ca r r yi n g o n t h e b u si n e ss o f t h e a s s e ss e e, w h i c h w a s n o t r e co r d e d i n t h e bo o k s o f t h e a s s e ss e e. Th o u g h t h e s a i d i n c o m e w a s n o t r e co r d e d i n t h e b o o k s o f t h e a ss e s se e b u t th e so u rc e o f th e sa m e s to o d dul y e x pl a i n e d b y t h e a s se s s ee a s b ei n g f ro m th e b u si n e ss o f th e a s se s s ee . E v en o th e r wi s e no other so u rc e o f i n co m e o f t h e a ss es s e e i s t h e r e o n r e co r d ei th e r di s cl o s e d b y t h e a s s e s se e o r un e a r t h e d b y th e R e v en u e. T h e p re p o n d e ra n c e o f p ro b a bi l i t y t h er ef o r e i s t h a t t h e d e b to r s w e r e so u rc e d f ro m th e bu si n es s o f th e a s s e ss e e. T h e r e f o r e, t h e r e i s n o q ue s ti o n o f t re a ti n g i t a s de e m e d i n c o m e f r o m u n di scl o s e d s o u r c e s u / s 6 9, 6 9 A, 6 9 B a n d 6 9 C o f t h e Ac t a n d t h e sa m e i s h el d to b e i n th e n a t u re o f B u si n e ss I n co m e o f t h e a ss e s se e . 17 ITA No.1494/Chd/2014
A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 H a vi n g h el d so , t h e sa m e w a s a s se s sa bl e u n de r t h e h e a d ' b u si n e s s a n d pr o f es si o n ' a n d a s s t a t e d a bo ve , the b en ef i t of set off of l o ss e s b o th cu r re n t and b ro u g h t f o r wa r d was a l l o w a bl e to the a s se s s ee in a c co r d a n c e wi t h l a w.
2 1. T h e co n t en ti o n o f t h e R e v en u e t h e ref o r e t h a t th e i n c o me b e tr e a t e d a s de e m e d i n c o me u / s 6 9, 6 9 A /B / C o f t h e A ct i s a c co r di n gl y r ej e c t e d a n d a s a co n s e q ue n ce t h e r e to t h e pl e a th a t n o s e t o f f o f l o s s es b e a l l o w e d a ga i n s t th e s a me u /s 115BBE of the Act also is rej e c t e d.
2 2. T h e r ef o r e, as per th e facts of th e case in ITA N o . 4 0 8 / C h d / 2 0 1 8 a n d a s p er th e p r o vi si o n s o f l a w rel a ti n g to t h e i ss u e, th e s u rr en d e r e d i n c o m e , we h o l d, w a s a s se s sa bl e a s b usi n es s i n co m e o f th e a ss es s e e a n d se t o f f o f l o s s e s wa s t o be a l l o w e d a g a i n s t t h e sa m e a s ri gh tl y cl a i m e d b y t h e a s se s s ee .
The a p p ea l of th e R e ve n ue , th e re f o re, in ITA N o . 4 0 8 / C h d / 2 0 1 8 i s di s mi ss e d.
2 3. Now co mi n g to the facts of the c a se in I TA N o / 1 4 9 4 /C h d / 2 0 1 7, th e i n co m e s u rr e n d er e d w a s o n a c co u n t o f th e f o l l o wi n g a s n a r ra t e d a bo v e i n ea rl i er p a r t o f o u r o r d er :
18 ITA No.1494/Chd/2014
A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14
i) investment of Rs.60 lacs in Kothi at Sukhmani Enclave in the name of Smt.Rekha Miglani;
ii) Sundry creditors and advances received from customers amounting to Rs.132 lacs;
iii) Gross profit on sale out of books amounting to Rs.198 lacs and;
iv) surrender to cover miscellaneous discrepancies in loose papers etc. amounting to Rs.10 lacs.
2 4. As far as the s ur r en d e r m a de on a c co u n t of i n v e s t m en t i n K o th i o f R s. 6 0 l a c s, n ei t h e r i s t h e sa m e di scl o s e d i n th e bo o k s o f th e a s s e ss e e n o r so u rc e o f the sa m e di s cl o se d . T h er ef o r e, th e same is to be a s s e ss e d a s d ee m e d i n c o m e u /s 6 9 o f t h e A c t. Th e sa m e a p pl i es t o t h e su r r en d e r o f R s . 1 0 l a c s m a d e to co v er th e mi sc el l a n e o us di sc r e pa n ci e s i n l o o s e pa p e r o f R s. 1 0 l a c s. N ei t h er th e n a t u re o f th e di s c re p a n ci e s, n o r a n y s o ur c e rel a ti n g to t h e sa m e h a s b e en di scl o s e d a n d, th e r ef o r e, th e s a m e i s a l so to b e a s s es s e d a s d e e m e d i n co m e u / ss 6 9 , 6 9 A, 6 9 B a n d 6 9 C o f t h e A c t. 2 5. A s f a r a s t h e s ur r en d e r o f R s. 1 3 2 l a c s ma d e o n a c co u n t of s u n dr y cr e di to r s and a d va n c e s r ec ei v e d f ro m c u s to m e r s a n d R s. 1 9 8 l a c s o n a c co u n t o f g ro s s p ro f i t o n sa l e o u t o f t h e b o o k s, b o th o f th e m cl e a rl y are in r el a ti o n to th e b u si n e s s ca r ri e d on by th e a s s e ss e e and are th u s in the n a t u re of b usi n es s 19 ITA No.1494/Chd/2014 A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 i n c o me . T h er ef o r e, t h e s e t o f f o f b usi n es s l o ss e s, bo t h c ur r en t a n d b r o u g h t f o r w a r d a r e t o b e a l l o w e d a s p e r t h e pr o vi si o n s o f l a w. As f a r a s t h e i n co m e s u rr e n de r e d a n d to be a s s e ss e d u /s 6 9, 6 9 A, 6 9B a n d 6 9 C o f t h e A c t, as h el d a bo ve b ef o r e u s, the s a me is to be s u bj e c t e d to tax as per the p ro vi si o n s of s e cti o n 1 1 5 B B E o f t h e A c t.
2 6. Now the n ex t q u es ti o n wh e t h e r the set off of l o s se s i s to b e a l l o w e d a ga i n s t t h e sa m e, w h i c h t h e R e v en u e has ve h e m en tl y co n te s t e d s a yi n g th a t th e a me n d m e n t d e n yi n g th e s e t o f f o f l o s se s w h i c h wa s m a d e b y th e F i n a n ce A c t, 2 0 1 6 w. e. f . 1. 4. 2 0 1 7 w a s cl a ri f i ca to r y in n a t ur e and was re t ro s p e c t i ve , thus en ti tl i n g t h e a s se s s ee t o cl a i m se t o f f o f l o s s e s a g a i n s t t h e i n co m e so s ur r en d e r e d. T h e a ss e s se e, o n t h e o th e r h a n d, h a s d ra w n o u r a t t en ti o n t o s ev e ra l d eci si o n s o f t h e I . T . A . T. , w h i c h h a v e h el d t h e a m en d m en t to b e p ro s p ec ti v e i n n a t u re . N o co n t ra r y d e ci si o n ei th e r o f t h e I . T . A. T. o r o f a n y h i g h e r j u di ci a l a u t h o ri t y h as b e en b ro u gh t to our n o ti c e by the R e v en u e. Th e d e ci si o n s r en d er e d by the I . T. A. T. wi l l , t h e r ef o r e, a p pl y, f o l l o wi n g w h i c h , w e h o l d th a t i n th e i m p u g n e d y ea r t h e a s se s s ee wa s e n ti tl e d to cl a i m se t o f f o f l o ss e s a ga i n s t th e i n c o m e a s se s s e d a s de e m e d i n c o m e u / s s 6 8, 6 9, 6 9 A, 69B and 6 9C of the Act as pe r th e p ro vi si o n s o f s ec ti o n 1 1 5 B B E o f th e A c t a s i t s to o d p ri o r to a m en d m e n t b y F i n a n c e Ac t , 2 0 1 6. 20 ITA No.1494/Chd/2014
A.Y.2014-15 & ITA No.408/Chd/2018 A.Y.2013-14 2 7. T h us, w e h o l d t h a t th e i n co m e su r r en d e re d b y th e a s s e ss e e i s p a r tl y a s s e ss a bl e a s bu si n e s s i n co m e a n d p a r tl y a s se s sa b l e a s d ee m e d i n c o m e a n d a g a i n s t bo th o f t h e m, t h e a ss e s se e w a s en ti tl e d t o cl a i m se t o f f o f b u si n e ss l o s se s , bo t h t h e cu r r en t a n d br o u g h t f o r wa r d. W e, t h er ef o r e, se t a si d e th e o r d er o f th e L d. C I T( A) a n d a l l o w th e a p p ea l o f th e a s s e ss e e.
2 8. In t he r e s u l t, the appeal of the a s s e s s ee in I TA N o . 1 4 9 4 / Ch d / 2 01 7 is a l l o we d and th e ap pe a l of the R e v e n u e i n I TA No . 4 0 8 / C h d/ 2 0 1 8 i s d i s mi s s e d .
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
संजय गग अ नपूणा ग%ु ता
(SANJAY GARG ) (ANNAPURNA GUPTA)
याय क सद य/ Judicial Member लेखा सद य/ Accountant Member
)दनांक /Dated: 8th February, 2019
*रती*
आदे श क त*ल+प अ,े+षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु-त/ CIT
4. आयकर आयु-त (अपील)/ The CIT(A)
5. +वभागीय त न0ध, आयकर अपील$य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File
आदे शानस
ु ार/ By order,
सहायक पंजीकार/ Assistant Registrar