Income Tax Appellate Tribunal - Chandigarh
M/S Arora Alloys Ltd., Ludhiana vs Dcit, C-1, Ludhiana on 6 November, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए" , च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH
BENCH "A", CHANDIGARH
ी एन.के.सैनी, उपा य एवं ी राजपाल यादव, या#यक सद$य
BEFORE: SHRI N.K.SAINI, VP & SHRI RAJPAL YADAV, JM
आयकर अपील सं./ ITA NO. 1481/CHD/2017
#नधा%रण वष% / Assessment Year : 2012-13
M/s.Arora Alloys Ltd बनाम DCIT, Cir.1
Nr.Phase-VII,Dhandari Vs. Ludhiana.
Khurd, Focal Point
Ludhiana.
PAN : AABCA 5309 C
(अपीलाथ*/Appellant) (+,यथ*/Respondent)
#नधा%-रती क/ ओर से/Assessee by : Shri Sudhir Sehgal, Adv.
राज$व क/ ओर से/ Revenue by : : Shri M.P. Diwedi, Sr.DR
सुनवाई क/ तार ख/Date of Hearing : 04/11/2019
उदघोषणा क/ तार ख/Date of Pronouncement : 06 /11/2019
आदे श/ORDER
PER RAJPAL YADAV, JUDICIAL MEMBER : Assessee is in appeal
before the Tribunal against order of the ld.CIT(A)-1, Ludhiana passed for the Asstt.Year 2012-13.
2. Though the assessee has taken five grounds of appeal, but at the time of hearing, the ld.counsel for the assessee confined his submissions to the issue, whether a sum of Rs.40 lakhs disclosed during the course of survey deserves to be treated as income from other sources, against ITA No No.1481/Chd/2017 which no set off on account of business expenditure/loss deserves to be granted to the assessee.
3. Brief facts of the case are that the assessee has filed its return of income on 27.9.2012 declaring total income at Rs.18,67,485/-. A survey under section 133A was carried out at the business premises of the assessee. Return of income was revised on 1. 8.2013 at Rs.21,34,700/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. According to the Assessing Officer, during the course of survey proceedings, certain discrepancies were found. To cover-up these discrepancies, the assessee voluntarily disclosed additional income of Rs.40.00 lakhs (Rs.8.00 lakhs on account of excess cash and Rs.32 lakhs on account of unexplained expenditure in building account) for the financial year 2011-12 relating to the Asstt.Year 2012-13. In the revised return, the assessee has shown income at Rs.21,34,700/- including surrendered income at Rs.40.00 lakhs. The ld.AO has passed assessment order on 19.2.2015. He made addition of Rs.40 lakhs after giving credit of brought forward loss. He determined income of the assessee as under:
Returned income Rs.21,34,700
Less: Income disclosed during Rs.40,00,000
survey to be assessed
separately as per
parano.4.0
Add: Addition as per para no.5.0 Rs.368
Balance loss allowed to be (-)Rs.18,64,932/-
c/f
2
ITA No No.1481/Chd/2017
Deemed income Rs.40,00,000/-
u/s.69,69A,69B &69C as
discussed above
Total taxable income Rs.40,00,000/-
4. Appeal to the CIT(A) did not bring any relief to the assessee.
5. Short question for our adjudication is, whether this total amount of Rs.40 lakhs is to be assessed as deemed income against which no deduction/set off is available to the assessee. According to the ld.counsel for the assessee, this issue is covered by the decision of ITAT, Chandigarh Benches. He relied upon judgment of the ITAT in the case of Famina Knit Fab Vs.ACIT, reported in 104 taxmann.com 306 (Chandi- Trib). He further contended that thereafter, recently, the Tribunal has again decided this issue in the case of DCIT Vs.Khurana Rolling Mills P.Ltd., ITA No No.745 and 1134/Chd/2016. Copies of these decisions have been placed on record. On the strength of these decisions, he contended that as far as cash found during the course of survey is concerned, it is to be construed as deemed income under sections 69,69A etc. As far as alleged unexplained investment in the building material is concerned, this income derived by the assessee from the business activity, and it is to be treated as business income under normal provision. Therefore, he contended that out of Rs.40 lakhs, Rs.8 lakhs is to be treated as deemed income and Rs.32 lakhs be treated as income from business. The ld.DR on the other hand, relied upon the orders of the Revenue authorities.
3ITA No No.1481/Chd/2017
6. We have duly considered rival submissions and gone through the record carefully. In the case of Famina Knit Fabs (supra), the Tribunal has examined this issue elaborately and propounded that onus is on the assessee to establish the source of surrendered income. If it failed to demonstrate such source, then, it is to be characterized as deemed income under sections 69,69A/B/C, and if that be happened, then such income to be taxed on the gross amount without setting off any expenditure or allowance against the same under section 115BBE of the Act. The discussion made by the Tribunal is worth to note, and we take note of this findings as under:
"10. The contention of the Revenue, on the other hand, was that the character of the income surrendered was in the nature of deemed income as provided u/ss. 69, 69A, 69B and 69C of the Act, having not been disclosed for tax earlier and accordingly, the said incomes were to be charged to tax as per the provisions of section 115BBE of the Act and the benefit of set off losses was not available since the amendment made to section denying the benefit of set off of losses w.e.f. 1.4.2017 was retrospective in nature being curative in character. Alternatively it was contended that the issue was covered by the decision of the Jurisdictional High Court in the case of Kim Pharma Ltd. (supra), as per which these incomes could not be assessed under any heads as provided under the Act and therefore were not eligible to set off any losses against the same.
11. We have heard the rival contentions, perused the orders of the authorities below and have also considered various case laws referred to by both the parties before us.
12. The issues to be addressed in the present case can be summarized as relating to the categorization/characterization of income surrendered by the assessee during survey proceedings, whether from disclosed or undisclosed sources, and the allowability of claim of set off of losses ,both current and brought forward, against the same.
13. The controversy arises on account of the scheme of the Act which mandates incomes to be categorized under specific heads depending on 4 ITA No No.1481/Chd/2017 their nature/source, for computation purposes under chapter IV and thereafter provides for setting off of losses in a specific manner under chapter VI of the Act. If it is from any of the sources as specified in the heads for taxation under Chapter-IV of the Act, the income therefrom it is to be computed as per the provisions provided thereunder. Therefore, if the source/nature of the income is from business and profession, the income to be subjected to tax is to be assessed as provided u/ss. 28 to 44DB of the Act and the set off of current/brought forward losses is to be allowed as per the provisions of sections 70 to 80 of the Act, which allows set off of business losses against current year business losses subject to fulfilment of certain conditions. There is no dispute about the above position of law.
14. Further the Act also provides for treating certain credits, investments, expenses from undisclosed sources, as deemed incomes u/s. 68,69,69A/B/C of the Act, which is also dealt with in chapter VI of the Act. Such deemed incomes are subjected to tax at a special rate without allowing set off of expenses or losses against the same, as provided under section 115BBE of the Act, introduced vide Finance Act 2012, w.e.f. 01-04-2013. Since both the appeals before us relate to A.Ys. 2013-14 & 2014-15, the provisions of section 115BBE are applicable to both of them and to this effect there is no dispute also before us. The provisions of sections 69 to 69C of the Act & section 115BBE of the Act are reproduced hereunder for clarity :
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 5 ITA No No.1481/Chd/2017 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 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 6 ITA No No.1481/Chd/2017 [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) (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).] 7 ITA No No.1481/Chd/2017 [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).
15. As is evident from a bare reading of the above sections any investments, moneys and expenditure which are not disclosed in the books of the assessee, if any, maintained by it and the source of which has also been not explained satisfactorily by the assessee are treated as deemed incomes of the assessees. Thus, the amounts to be treated as deemed incomes are investments, moneys, or expenditure fulfilling the twin criteria of:
(a) not being recorded in the books if any maintained and,
(b) the source of which the assessee is unable to explain satisfactorily.
16. In other words, to put it simply, the unrecorded investments/assets/expenditures made out of unexplained sources are treated as deemed incomes of the assessee. The onus is on the assessee to establish the source of the surrendered income failing which it is to be categorized as deemed income u/s. 69/69A/B/C of the Act. And establishing the source of income is a factual matter. The Ld. DR, had drawn our attention to the decision of the Hon'ble jurisdictional High Court in the case of Pr.CIT v. Khushi Ram & Sons Foods (P) Ltd in [IT Appeal No.126 of 2015, dated 29-07-16], wherein the assessee had set off unabsorbed losses u/ss. 70 & 71 against income surrendered on account of building renovation, office equipment and sundry receivable, to which ,the Hon'ble High Court had held that it is for the assessee to establish that the source of the surrendered income was from business to claim it as such and set off business losses against the same. Our view therefore is fortified by the aforesaid judgment of the Hon'ble High Court.
17. Further the legislature requires such type of deemed incomes to be taxed on the gross amount so determined without setting off any expenditure or allowances against the same, u/s. 115BBE of the Act. Subsequently the section was amended w.e.f 1.4.2017 by the Finance Act, 2016, prohibiting set off of losses also against the said deemed income."
8ITA No No.1481/Chd/2017
7. In the light of the above, let us examine the facts of the present case. The stand of the assessee is that expenditure incurred for construction of building was 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 ld.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 from the business and it will take character of the business income. Once this income is to be assessed under the "business income", then all incidental benefits for set off from brought forward loss or any other expenditure is to be given to the assessee.
9ITA No No.1481/Chd/2017
8. In the judgments relied upon the ld.counsel for the assessee, similar treatment has been given on the amounts which were admitted as trade receivable during the course of search/survey. Respectfully following the order of the Co-ordinate Bench, we direct the Assessing Officer to treat surrendered income to the extent of Rs.32 lakhs as business income.
9. As far as excess cash balance is concerned, the assessee failed to explain the source of such income, and it is to be treated as deemed income, and it is to be assessed on gross basis, as treated by the Assessing Officer. In view of the above discussion, the appeal of the assessee is partly allowed.
10. In the result, appeal of the assessee is partly allowed.
Pronounced in the Open Court on 6th November, 2019.
Sd/- Sd/-
(N.K. SAINI) (RAJPAL YADAV)
VICE-PRESIDENT JUDICIAL MEMBER
Chandigarh; Dated, 06/11/2019
10