Income Tax Appellate Tribunal - Chandigarh
Dcit, Ludhiana vs M/S Khurana Steels Ltd., Ludhiana on 1 July, 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
ू ा गु'ता, लेखा सद य
BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.745/Chd/2016
नधा रण वष / Assessment Year : 2012-13
The D.C.I.T, बनाम M/s Khurana Rolling Mills (P)
Circle-I, Ltd., Village Ram Garh,
Ludhiana. Chandigarh Road,
Ludhiana.
.
थायी लेखा सं./PAN NO: A A D C K 2 1 8 2 R
&
आयकर अपील सं./ ITA No.1134/Chd/2016
नधा रण वष / Assessment Year : 2012-13
The D.C.I.T, बनाम M/s Khurana Steels Ltd.,
Circle-I, Near Focal Point, Phase-VI,
Ludhiana. Dhandari Khurd,
Ludhiana.
.
थायी लेखा सं./PAN NO: A A A C K 6 6 2 6 M
नधा रती क ओर से/Assessee by : Shri Harjinder Singh, Sr.DR
राज व क ओर से/ Revenue by : Shri Sudhir Sehgal, Adv.
सन
ु वाई क तार"ख/Date of Hearing : 23.05.2019
उदघोषणा क तार"ख/Date of Pronouncement: 01.07.2019
2 ITA Nos.745 & 1134/Chd/2016
A.Y.2012-13
आदे श/ORDER
Per Anna pur na G upta, Account ant Member :
B oth the a b ove a p p e a l s re l a ti ng to d if f e re n t a s se sse e s ha v e bee n pre fe rre d b y the Re ve nue a ga i ns t se p a ra te or de rs of th e C ommi ssi on e r o f I n come Ta x ( Ap p e a l s) -I , Lu d hi a n a [( i n s hor t 'CIT( A) '] d a te d 31 . 3. 2 0 16 and 1 9. 8 .2 0 1 6 re spe c ti ve l y, p a ss e d u/s 2 50 ( 6 ) o f t he I n come Ta x Ac t, 1 9 6 1 (h e re i n a fte r re fe rr e d to a s ' Act '), re l a ti n g to a sse ssme n t ye a r 20 1 2 -1 3.
At th e out se t i tse lf , it w a s p oin te d out th a t the i ss ue in vol ve d i nv ol ved in b oth t he appeals was com mo n, the re fo re ,, the se we re he a r d t oge the r a nd a r e be i ng d i sp ose d off b y th is c ons ol id a te d or de r for the s a ke of con ve ni e n ce .
W e sh a ll fi r st be d e a l i ng w i th the Re ve n ue 's a p pe a l in I TA N o. 74 5 /C h d / 2 0 1 6.
ITA No.745/Chd/2016: A.Y 2012-13
2. The grounds of appeal raised by the Revenue read as under:
1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in reversing the action of assessing officer for treating the income surrendered as deemed income u/s 69 & 69B of the Act, and treating the 3 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 same as Business income and allowing the same to be set off against business loss/depreciation loss or any other expenses?
2. That the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored.
3. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off.
3. As is evident from the above, the sole issue involved in the present appeal relates to treatment of income surrendered during the survey whether in the nature of Business Income or deemed income and whether eligible to set off of losses against the same.
4. B r i e f f a c t s r e l a t i n g t o t h e i s s u e a r e t h a t d ur i ng the F . Y. 2 01 1 -1 2 , a su r ve y u /s 1 3 3A w a s con d uc t e d on the pr e mi s e of the a s se sse e on 1 3 .1 0 .2 0 1 1. Th e a ss e ssee sur r e n de re d a n a mou nt of R s. 1, 0 0, 0 0 ,0 0 0 /- on a ccou nt of some p a p e r s li p s f oun d d ur in g t h e c our se of su rv e y. D ur i ng the cou rse of a ss e s sme n t p r oce e d in gs , the a sse sse e w a s a sk e d to sh ow ca u se a s t o w hy th e su r re nde re d i n come b e not a ss e sse d se pa r a te ly u /s 6 8 , 69 , 6 9A , 6 9B a n d 6 9 C of t he Act a n d no a d j ust me n t/se t off be gi ve n of b us i ne ss l osses a ga i nst th e s a me . Th e a s sse sse e f i le d a d e ta il e d re p ly sta ti n g t ha t th e sa me cou l d no t b e tr e a te d a s d e e me d in come si nc e t he su r ve y t e a m c oul d n ot fi n d a ny i nve s tme n t ma d e 4 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 by t he a s se sse e co mp a n y w hi ch w e re n ot r e co rd e d i n t he boo ks of a c count s, a ny d oc ume n ts /in for ma t i on /r e co rd s wh i ch sh ow e d tha t the a sse ssee co mpa n y w a s f o un d to be the ow ne r of a ny mone y, bu l li on , j e we lle r y or other v a lu a b le a rt ic le w hi ch we re not re cor de d in th e b ook s of a cco un t, or wh i ch s how e d th a t th e a ss e ssee co mpa n y h a d i nc ur r e d a ny e xpe n d itu re for w hi ch i t ha d of f e re d no e x pl a n ati on a b out the so ur ce of su ch e xpe nd i tu re of p a r t t he re of . Th e A. O. w a s not sa t is fi e d w i th th e re p ly of th e a sse ssee a n d r e l yi ng on the de ci si on of th e H on 'b le P un ja b & H a r ya n a H ig h C our t i n the ca se of Ki m P ha r ma ( P ) Lt d [I TA N o. 1 06 o f 2 0 1 1] a n d Hon 'b l e Gu j ra t Hi gh C our t i n th e c a se of Fa k i r Moha me d Ha j i H a s a n Vs C I T (2 0 0 0 )1 6 5 C TR 1 1 1 ( Gu j) tr e a te d t he sur r e n de re d i nc ome a s de e me d i nc ome u /s 6 9 & 6 9 B of t he Act . N o se t of f of b us ine s s l oss/d e p r e c ia ti on l os s or a ny othe r e xpe nse s wa s co ns e q ue ntl y a l lo we d a ga i n st th e s a me .
5. Th e Ld. C I T( A) se t a si d e the or de r of th e A .O ., all o w i ng the a p pe a l of th e a sse ssee , h ol d in g t ha t si nc e no e vi de nce wa s f oun d to sh o w th a t th e sur r en d e re d i n come re p re se nte d a ny un di s cl ose d in come /in ve stme n t/e xpe nd i ture , the sou r ce of w h i ch ha d no t be e n d is cl ose d b y th e a sse ssee, i t c oul d not b e re ga r de d a s d e e me d in come u nd e r the p rov is ion s of 5 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 se c tio n 6 8 , 6 9, 6 9 A, 6 9 B a n d 6 9C of th e A ct. Fur th e r the Ld. C I T( A) fou nd tha t t he su r ren de r h a vi ng be en ma d e on a ccou nt of a dv a nc e s re ce i va b les, wh i ch w e re c ons id e re d un de r t he he a d "b us in e s s in come " a nd th e A.O . h a vi ng a cce pte d t he sa me a n d h a vi n g n ot e s ta b li she d in h i s or de r tha t t he in come sur r e n de re d w a s not o ut of th e b us in e ss of the a s se s se e , the su r re n de re d i ncome h a d t o b e b r oug ht to ta x un de r the hea d "bu si n e ss i n come " a n d s e t of f of l oss e s be a l l owe d a ga i ns t the s a me . Th e Ld .C I T(A ) r e l i e d up on t he de ci si on of the ITA T C ha n d ig a r h B e n ch i n the c ase of M/s Ga u r is h Ste e l s (P ) Ltd . V s. AC I T, r e p or te d i n 4 3 I TR ( Tr ib ) 41 4 d a te d 1 7 . 9. 2 0 15 i n th is r e ga r d . The r e l e va n t f in d i ngs of the Ld .C I T( A) a t p a r a 2 . 4 of th e or d e r a re a s u nder :
"2.4 I have carefully considered the facts of the case, the basis of the addition made and the argument of the AR. During the course of the survey operations conducted at its business premises, the appellant surrendered an amount of Rs. 1 crore. The said income has been shown in the P&L account by the appellant. The Assessing Officer assessed the surrendered income as deemed income u/s 69 and 69B by relying on the judgment of M/s Kim Pharma Pvt. Ltd. ITA no. 106 of 2011 (P&H) & Fakir Mohamad Haji Hasan in ITA no. 165 CTR 1011 (Guj). Thus, the business losses were not allowed to be set off against the surrendered income. The AR contended that the appellant is maintaining all the statutory records required under the provisions of the Central Excise Act, VAT Act and Companies Act and that there is no finding during the course of the survey operations or the assessment proceedings to the effect that the appellant is engaged in any activity outside the books of accounts. The AR further contended that all the books of accounts upto the date of the survey along with the relevant purchase bills, sales 6 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 bills, expenditure vouchers, capital expenditure and other supporting documents and details were verified during the course of the survey but no discrepancy was found therein. Further, the stock was verified with the excise and stock records showing details of purchase of raw material, consumable stores, raw material used for production, sale of finished goods, wastage and closing stock of raw materials and no discrepancy was found during the course of the survey operations. No discrepancy was found in the cash in hand verified with the books of accounts. Therefore, there is force in the appellant's contention that it was maintaining complete books of accounts with proper records on the date of the survey and no incriminating evidence or record not in consonance with the books of accounts was found/There was no cash credit found during the survey which the appellant could not explain. No investment was found which was not recorded in the books of accounts. Further, no document, information, records showing ownership of any money, bullion Jewellery or other valuable article was found and neither any evidence showing that the appellant was the owner of any bullion jewellery or other valuable article where it was found that amount invested in the same exceeded the amount recorded in the books of accounts. No evidence was found showing that the appellant had incurred any expenditure for which no explanation could be offered regarding the source of the said expenditure. Thus, the AR contended that sec 68, 69, 69A, 69B and 69C are not applicable in its case. The appellant surrendered Rs.1 crore as business income in the form of sundry debtors during the survey operations. The AR has contended that the surrender offered by appellant on account of undisclosed sundry debtors is purely related to the business carried out by the appellant. No undisclosed business activity has been found during the survey. The AR pointed out that as per the statement of Sh. Baljihder Singh s/o Sh. Charan Singh recorded during the survey operations, the amount of Rs. 1 crore was surrendered as income of the company over and above the normal business income. The AR has rightly pointed out that in the case of Kim Pharma Ltd. vs. ITO, ITAT Chandigarh bench, the amount surrendered on account of cash was not allowed to be assessed as business income since the source has not been explained and the same was assessed u/s 69A of the Act whereas in the appellant's case mode and manner has been applied to the surrendered income as applied to the income 7 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 earned during the regular course of the business. No evidence has been found during the survey operations and the discrepancies found were related to the assessee's business and not to any other source of income. The said submissions of the AR were not controverted in the remand report. Reliance has been placed by the AR on the decision of Sh. Kuldeep Kumar vs. CIT, Hon'ble ITAT Chandigarh bench in ITA 1015/CHD/2009 for A.Y. 2006-07 wherein it has been held, after considering the case of the Hon'ble Gujarat High Court in the case of Fakir Mohamad Haji Hasan, that income cannot fall beyond the five heads made under the act. Further, reliance has been placed on the decision of the Hon'ble Apex court reported in CIT vs. D.P. Sandhu & Bros. 273 ITR 1 wherein it has been held that section 56 provides for chargeability of income of every kind which has not been excluded from the total income under the act only if it is not chargeable to income tax under any heads specified in sec 14 and if the income is included under any one of the heads it cannot be taxed u/s 56. Further, reliance has been placed on the case of DCIT vs. Radhe Developers India Ltd. & Anr. (Guj) 329 ITR 1 wherein the judgment of Fakir Mohamad Haji Hasan has been considered and the judgment of the Hon'ble Apex Court in the case of D.P Sandhu & Bros. P. Ltd. Supra have been referred to and it has been held that the act does not envisage taxing income under any head not specified u/s 14 of the Act. The Department did not find any other source of income except the business of manufacture of steel items and, according to the AR, the same is clear as per the offer letter of surrender also wherein it is stated that the surrender amount is over and above the book version which shows that the income offered is a part and parcel of its existing business activities. Reliance has also been placed by the AR on the judgment of Hon'ble Gujarat High Court in the case of Shilpa Dyeing and Printing Mills 39 taxmann 3 wherein, after considering its earlier judgment of Radhe Developers India Ltd. and of D.P Sandhu & Bros.(SC), the issue was decided in favour of the assessee and the judgment in the case of Kim Pharma Ltd. (P&H) was considered and distinguished. The surrender made by the appellant was on account of advances and receivables which are considered under the head 'business income'. The Assessing Officer has not been able to establish in the assessment order with supporting evidence that the income surrendered was not out of business of the appellant.8 ITA Nos.745 & 1134/Chd/2016
A.Y.2012-13 Further, there is force in the appellant's contention that the Assessing Officer has nowhere objected to the heads under which the appellant has surrendered these amounts. In the case of M/s Kim Pharma P. Ltd. (P&H) supra reliance has been placed on the ratio laid down Fakir Mohamad Haji Hasan vs. CIT 247 ITR 290 (Guj) wherein it has been held that only where the nature and source of investment made or the nature and source of acquisition of money, bullion etc. owned by the assessee or the source of expenditure incurred by the assessee are not explained, then the value of such investments or money and the value of articles not recorded in the books or the unexplained expenditure may be deemed to be the income of such assessee and that the moment a satisfactory explanation is given about the nature and source by assessee, the income would be treated under the appropriate head of income. However, in the appellant's case, the Assessing Officer could not established that payments received as per the slips were from sources other than the business of the appellant. Therefore, apart from the cash, all other income surrendered is to be brought to tax under the head business income while the cash is to be taxed under the head deemed income u/s 69A of the Act. Moreover, the Assessing Officer has not disputed the business losses of the appellant. The Assessing Officer has not found any disallowable expenditure to show that the appellant has manipulated its books of accounts to bring down its total income. No such evidence has been brought on record to show that the assessee has booked any bogus expenditure and there is therefore no reason to doubt the veracity of the books of accounts and the expenditure therein. The heads under which the surrender has been made has not been challenged by the survey team or the Assessing Officer. In the case of Kim Pharma Vs. CIT in ITA no. 106 of 2011(P&H) supra the Hon'ble High Court has upheld the treatment of additional income on account of sundry credits, repairs to building, and advances to staff to be treated under the head 'income from business and profession' and only in respect of cash found where no clear source could be established by the appellant the same was treated under the head ' income from other sources'. The Assessing Officer has not appreciated the decision in the case of Kim Pharma (supra) properly and has misapplied it. The AR has placed reliance on the case of M/s Gaurish Steels Pvt. Ltd. reported in 43 ITR 414 dated 17.09.2015 of the Hon'ble Chandigarh Bench, wherein the Assessing Officer did not dispute the business losses 9 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 incurred by the assessee and did not reject the books of accounts. Relying on the case of Kim Pharma P. Ltd. Vs. CIT (P&H) (supra) and referring to the case of Fakir Mohamad Haji Hasan vs. CIT (Guj) (supra), it was held in the said case that the income apart from cash, in the shape of discrepancies in the cost of construction of building, in stock and in advances and receivables was to be treated as 'business income' as the Assessing Officer and the survey team failed to find other source of income except for business income. Therefore, in the said case only the cash found was treated as income from other sources and it was held that all other income surrendered could be brought to tax under the head 'business income' and the business losses incurred by the assessee during the year were allowed to be set-off against the income surrendered during the survey except the amount of cash surrendered. The appellant's case is covered by the said decision of the Hon'ble Jurisdictional ITAT in the case of M/s Gaurish Steels Pvt. Ltd. (supra).
Respectfully following the above decision of the Hon'ble ITAT, Jurisdictional Bench it is held that the income surrendered under the head 'Debtors' is to be brought to tax under the head 'business income' and benefit of set-off of business loss is to be given against the same."
6. Ag gr i e ve d b y th e sa me th e Re ve n ue h a s come u p i n a pp e a l be f ore us. D ur i ng the c our se of he a r in g, the Ld . DR ve he me ntl y su ppor te d the or de r of the A .O . i n tre a ti n g t he in come f r om u nd i scl os e d s our ce s u/s s 6 9 a nd 6 9 B of the A ct con te n d in g t hat th e a s se sse e cou ld n ot of fe r a ny e xp la na ti on , no r p r od uce a n y e vi de n ce to p r ove the sou r ce of the in come w a s fr om b us in e s s of the a sse ssee . The Ld . DR re lie d up on the d e ci s ion o f the H on 'b le Ju r is di ct ion a l H i gh C our t in the c a se of P r .C I T V s. Kh us hi Ra m & Son s Fo ods ( P ) Ltd . in I TA N o . 12 6 of 2 0 15 d a te d 2 9. 7 .2 0 1 6 f or t he 10 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 pr op os it ion t ha t th e o nu s t o e sta b l is h the s our ce of t he sur r e n de re d in come l a y e nti r e l y on th e a s se s se e . The Ld . DR fu rt he r re l ie d up on t he d e ci s ion of the H on 'ble Jur is d ic ti ona l H i gh C ou rt i n the ca se of M/s Ki m P ha r ma (P ) Ltd . Vs. C I T in I TA N o.1 0 6 o f 2 0 1 1 (O & M) d a te d 2 7. 4 .2 0 1 1 for the p r op os iti on tha t th e su r re nde re d i nc ome is not ne ce s sa r i ly to be tre a te d as in t he n a ture of bu si ne ss in come a nd co ul d be on a ccou nt of a n y o the r t ra ns a cti on le ga l or othe r w is e . Th a t me r e l y b e ca use the a sse ssee is ca r r yi ng on c e r ta i n b us in e s s, i t d oe s n ot ne ce s sar i l y f ol l ow tha t th e a mo un ts sur r e n de re d a re on a c cou nt of t he bu si ne ss t ra n sac ti on a n d tha t it i s f or the a sse ssee to e sta b l i sh the sour ce of s uch sur re nd e re d in co me .
7. Th e a ss e ss ee , on th e o the r ha n d , r e l ie d u po n th e or de r of th e Ld .C I T(A ) a n d fu rt he r p oi nt e d out th a t th e I TA T C ha n d ig a rh B e n ch i n a r e ce n t de ci si on i n th e ca s e o f Fa mi n a Kni t F a bs Vs. A C I T, r e p or te d i n 1 0 4 Ta x ma n n. co m 3 0 6 h a d a na l yz e d the i ssu e of tre a t me nt of s ur r e n de re d inc ome and ha d h e l d th a t th e i n come su rr e nd e re d on a cco un t of d e b tor s not d i sc los e d in th e b ook s of t he a s se sse e ta n ta moun te d to bu si ne ss i n come a n d w a s e xi gi bl e to b e ne f i t of se t off of bu si ne ss l os se s a ga i ns t th e sa m e . Th e Ld .C o un s e l fo r the 11 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 a sss e ssee p oi nted ou t t ha t i n the p r e se n t c a se a l so si nc e t he sur r e n de r w a s on a c coun t of d e b tor s not di sc lo se d i n the boo ks of t he a sses see , a nd the i ssue w a s sq u a re l y cove re d i n fa vo ur of t he a s se sse e b y the de cis io n of the I . T.A . T. i n the ca se of F a mi na Kn it F a b s ( su p ra ) . C op y of the o rd e r w a s pl a ce d be f ore us .
8. W e ha ve h e a r d th e ri va l con te nti ons ca r e fu ll y, h a ve a ls o gon e thr ou gh th e or d e r s of th e a u tho ri tie s b e l ow a n d the de ci si on s r e fe r re d to b e fore us. O n g oin g t h r ou gh t he ju dg me n t of t he I . T. A. T. i n t he c a se o f F a mi na Kn i t Fa b s (s up r a ) w e f in d th a t the I . T.A . T. h a d thr e a db a re d is cu sse d a nd a d ju d ic a te d th e i ssue of de ter mi na tio n of t he n a tu r e of sur r e n de re d i nc ome a nd th e a l lowa b i l ity of se t off of l os se s a ga i nst th e sa me in th e s a id de c isi on. The I . T.A . T., w e f i nd , ha s e xp l a in e d th a t a l l i n come s r e tu r ne d f or ta xa t ion a r e to be c a te g or ize d un d e r va r i ous h e ad s s pe ci fie d un d e r the A ct for th e s a id p ur p os e a n d t he q ua n tum t o be su bj e c te d to ta x, i s to b e ca lc ul a te d a s p r ov id e d f or th e re le v ant he a d i n the Ac t it se l f . Th e I . T. A. T. h a s f u r th e r he l d t ha t be si de s t he a bo ve n a tu re of in come , th e Act a ls o r e cog ni ze s ce r ta i n in come s w hi ch a r e de e me d to be s o on a c cou nt of fa c t tha t a ny in ve stme nt ass e t, i n come or e xp e n di tu re i n curr e d b y the 12 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 a sse sse e is n ot d is cl ose d i n i ts b ook s a n d th e sou rc e of wh i ch is a ls o no t e xp l a ine d . Th e se dee me d inco me s ar e sub j e c te d t o t a x u /ss 6 9 , 6 9 A, 6 9 B , 6 9 C & 6 9 D o f the A ct a nd th e I . T.A . T. fu r the r he l d th a t s uch i ncome s a re sub j e c te d to ta x a t a sp e ci a l r a te a s pe r the pr ov is io ns of se c tio n 11 5 B B E of th e Act w ithou t a ll ow i ng se t of f of e xpe n se s or a ny a l lo wa n ce a gai ns t t he s a me a n d w .e .f.
1. 4 .2 0 1 7 w i tho ut a l low i n g se t of f of los se s a ls o a ga i nst t he sa me . Th e I . T.A . T. h e l d t hi s a me n d me nt t o s e ct ion 1 15 B B E of th e A ct a s pro sp e ct ive i n n a tu re a nd n ot a p pli cab l e to e a r lie r ye a r s . Th e re a fte r , a fte r d iscu ssi n g t he p ositi on of l a w a s a bov e a nd w ith re ga r d to th e na t ur e of th e su r re nde re d in come a nd t he b e ne fi t o f se t off of l oss e s a ga in st th e s a me, the I . T. A. T. d e a l t w ith the me r it s of th e ca se s i n vol ve d a n d he l d the i nc ome su r r e nde re d on a c cou nt of h ith e r to un di sc lo se d de b to rs , to b e i n the n a tur e of b u si ne ss in come a nd no t in th e na t ur e of d ee me d i n come u /ss 6 9 , 6 9 A, 6 9C & 6 9 D o f the A ct. The I . T. A. T., w e fi nd , a ls o de a l t w it h a n d took not e of t he d e ci si on of the H on'b l e Jur i sd i cti on a l H i gh C our t i n th e ca s e of M /s Khu sh i Ra m & So ns Foo ds ( P) Ltd . (s up r a ) w h il e a d ju d ic a ti ng th e i ssue . Th e r e le v a nt f in d in gs of th e I . T. A. T. a t p a r a N o. 12 to 27 of th e or de r a re a s u nd e r : 13 ITA Nos.745 & 1134/Chd/2016
A.Y.2012-13 " 1 2. T h e issu e s to be ad dr e sse d in the pre sen t c ase c an be su mmar ize d a s rel ati n g to th e c atego r iz a ti on /ch ar ac ter iz a ti on of in co me su rre nd ere d b y the as se ssee d u ring su rve y proc ee d in g s, wh e th er f ro m di sc l o se d or u nd i sc l o sed so ur ce s, and th e al l o wa b i l ity of c l a im of se t of f of os se s, bo th c urr en t an d brou gh t f or ward , ag a in s t the sa me.
1 3 . T h e co ntrov er sy ar i se s on ac c ou n t of th e sc h e me of th e Ac t wh i c h man d a te s inc o me s to be c atego r iz ed u n d e r spe c if ic h ea d s d e pen d in g o n the ir n a tu re / so u rce , f or c omp u ta tio n pu r po se s u n de r c h ap ter IV an d th ere af te r pro v ide s f or se tti n g of f of l osse s in a s pec if ic man ne r u n d er c ha p ter V I of th e A c t. If it i s f rom an y of th e so ur ce s a s s pec if ied in th e h e ad s f or tax a ti on u n de r C ha p ter- IV of th e Ac t, th e i n c ome the ref ro m i t is to be c o mpu te d as per th e pro v i sion s pro v ide d the reu n der . T h e ref o re, if th e sou r c e/n atu re of th e in co me is f rom bu s ine ss and pr of es sion , the in co me to be su b jec te d to ta x i s to be a sse s sed a s prov id ed u / s 2 8 to 4 4 D B of the A c t an d the se t of f of c u rren t/ brou g h t f or ward l o s se s i s to be al l o we d a s pe r th e prov i sion s of sec ti on s 7 0 to 8 0 of th e Ac t, wh i ch al l o ws se t of f of bu sin e ss l o s se s ag a in s t c ur ren t ye ar bu s in e s s lo sse s su b j ec t to f u lf ill men t of c ertain c on d iti on s. T h ere is n o d i spu te a bou t th e a bove po s iti on of l a w.
1 4 . Fu r th er th e A c t al so prov id e s f or tre a ti n g c er ta in c red i ts , inv e stmen ts , ex pe n se s f rom u n di sc l o se d sou rce s, a s d ee me d inc o me s u / s 6 8 ,6 9 , 69 A/B /C o f th e A c t, wh i ch i s al so d e al t wi th in ch a p te r V I of th e Ac t. S u ch d ee med in c o me s are su b jec ted to ta x a t a s pec ial ra te wi th ou t al l o wi n g se t of f of expen se s o r l o sse s ag a in st th e s a me, a s prov id ed un d er se c tio n 1 1 5 B BE of th e Ac t, in trod u c ed v id e F in an c e Ac t 2 0 1 2, w.e .f . 0 1- 0 4-
2 0 13 . S inc e bo th th e a p pe al s bef ore u s rel a te to A. Y . 2 0 13 - 1 4 & 20 1 4 -1 5 , th e pro vi sion s of sec tio n 1 1 5B BE are ap pl ic a bl e to bo th of the m and to th i s ef f ec t the re is n o d i spu te al so bef o re us. T he prov is io n s of sec tion s 6 9 to 6 9 C of th e A c t & 14 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 se c tio n 11 5 BBE of th e Ac t are re prod u ce d h ereu n d er f or c l ari ty :
SE CTION 69 U n ex pla ine d i nves t me nt s.
W h ere in th e f in an ci al ye ar i mmed i a tel y prec ed in g the a sse ssmen t ye ar th e a sse ssee h a s made in ve stmen ts wh i c h are n o t re cor ded in th e boo ks of ac co u n t, if an y, ma in ta i ne d b y h i m f or an y so urc e of in co me, an d th e a sse ssee of f ers n o ex pl an a ti on a bou t the na tur e and so ur ce of th e in vestmen ts or th e ex pl an a ti on of f ere d by hi m i s n o t, in th e o p in ion of th e [ 2 0 1 6 ] [A sse ssin g O ff ic er ], sa tisf ac to ry, th e v al u e of th e in ve stm en ts m a y be d ee me d to be th e in co me of the a ss esse e of su c h f inan c i al ye ar.
SE CTION 69 A [ 2 0 1 7 ][U ne xp la ine d m one y, e tc .
W h ere in an y f in an c i al ye ar the as se ss ee i s f oun d to be th e o wn er of an y mo n ey, bu l l io n, je we ll e r y or o th er val u abl e ar ti c l e an d su c h mo ne y, bu l l io n, j e we ll e r y or v al u a bl e ar tic l e i s n o t rec ord ed in th e bo o k s of ac co un t, if any, ma in ta i n ed b y h i m f or an y so ur c e of in c ome, an d th e as se s se e of f ers n o expl a na tio n a bou t the n atu re an d sou rc e of acq u i si tio n of th e mo ne y, bul l ion , je we l l er y or o th er v al u a bl e ar ti c l e, or the e xpl an a ti on of f ered b y h i m i s n o t, in th e o p i nio n of th e [ 2 0 1 8 ] [A sse ssin g Of f icer ], s ati sf ac tory, the mon e y a n d th e v al u e of th e bul l ion , je we l l er y or o th er val u a bl e ar ti c l e ma y be d eemed to be th e in co me of th e a sse ssee of su ch f in anc i al ye ar. ] SE CTION 69 B [ 2 0 1 9 ][Am oun t o f in ves tm en t s, et c. , n ot fu ll y di sclos ed in b oo k s o f acc ou nt .
W h ere in an y f in an c i al ye ar th e a sse s see h a s mad e in ve stmen t s or i s f ou n d to be the o wn er of an y bu l l ion , je we l l er y, or o the r val u a bl e 15 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 ar ti c l e, an d th e [ 2 0 2 0 ] [A s se ss ing Of f icer ] f in d s th a t the a mou n t expen d ed o n ma k in g su ch in ve stmen ts or in acqu ir in g su c h bu l l io n, je we ll e r y o r o th e r val u a ble ar ti cl e ex ce eds th e a mou n t r eco rde d in th i s be h alf in the boo k s of ac cou n t ma in ta i n ed b y th e a sse s see f or an y so ur ce of in c o me , an d the a sse ssee of f ers n o ex pl an a ti on a bou t su ch e xce ss a mou n t or th e ex pl an a ti on of f er ed b y h i m i s no t, in th e op in ion of the [ 2 0 2 1 ] [A s se ss in g Of f ic er ], sa tisf ac tor y, th e exc ess a mou n t ma y be d eemed to be th e in c o me of th e a sse ssee f or su c h f in an c i al ye ar . ] SE CTION 69 C [ 2 0 2 2 ][U ne xp la ine d ex p end it ur e, et c.
W h ere in an y f in anc i al ye ar an a sse sse e h a s in cu rre d an y ex pe nd i tu re an d h e of f ers n o ex pl an a ti on a b ou t th e sou rc e of su ch ex pen d i ture or p ar t th ereof , or th e e xpl an a tio n, if an y, of f ered by h i m is no t, in t h e op in io n of the [ 2 0 2 3 ] [A sse ssi n g Of f ic er ], s ati sf ac tor y, th e a mou n t c ove red b y su ch ex pen d i tu re or p ar t the reof , as th e c a se ma y be, m ay be d ee med to be th e in c o me of th e as se ssee f or su ch f in an ci al ye ar: ] [ 2 0 2 4 ] [P r ovid ed th a t, no t wi th s ta n din g an y th in g c on ta in ed in an y o th er prov is io n of th i s Ac t, su c h u n e x pl ain ed e xpen d itu re wh i c h i s de e med to be the in c o me of th e a s se ssee sh all n o t b e al lo we d a s a d ed uc tio n u n d er an y h e ad of in co me. ] SE CTION 11 5B B E [ 3 0 5 2 ][Ta x on in com e re ferr ed t o i n se ct i on 68 or sect i on 6 9 or sect i on 6 9 A or se ct i on 69 B or s ect i on 69 C or s ect i on 6 9 D. [ 3 0 5 2 ] ["( 1 ) Wh e r e th e to ta l in co me of an a sse ssee ,--
( a) in cl u d e s an y in c o me ref erred to in sec ti o n 6 8, se c tio n 6 9 , sec ti on 6 9 A, sec tion 6 9 B, sec ti on 16 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 6 9 C or sec ti on 6 9 D an d ref l ec ted in the re tu rn of in c ome f u rn ish ed un d er se c tio n 1 3 9; or ( b) de ter min ed b y the A sse ssin g Of f ic er in cl u d es an y inc o me ref erred to in sec ti on 6 8 , sec ti on 6 9 , sec ti on 6 9A , sec ti on 6 9 B, se c tion 6 9 C or se c tio n 6 9 D , if su c h in co me i s n o t co vered u n de r c l au se ( a) [3 0 5 2 a] [ an d c l au se ( b) ], the in co me- ta x p a y abl e sh al l be th e aggre g a te of -- ( i) th e a mo un t of inc ome- ta x c alc u l ated on th e in co me ref erre d to in c l au se ( a) an d c l au se ( b), a t th e r a te of six ty per c en t. ; an d ( i i) th e a mou n t of inc ome- ta x wi th wh ic h th e a sse ssee wo u l d h ave be en ch arg ea bl e h ad h i s to ta l in c o me bee n re du c ed b y th e a mo un t of in co me ref e rred to in c l au se ( i) ."
[30 5 2 ] S u b s. b y T h e T ax ation L a ws ( Se co nd Amen d men t) Ac t, 20 1 6 . T h e Clau se bef o re su b s. re ad a s u n d er. ( w. e.f . 1 - 04 -2 01 7 ) (1 ) W h ere th e to tal inc o me of an a sse ssee in cl u d e s a n y in c o me ref erred to i n sec ti on 6 8, se c tio n 6 9 , sec ti on 6 9 A, sec tion 6 9 B, sec ti on 6 9 C or sec tio n 69 D , th e in c o me - tax p ay a bl e sh al l be th e aggr e ga te of --
( a) the a mo u n t of in come- ta x c al c ul a te d on in co me ref erred to in se c tio n 6 8 , sec ti on 6 9, se c tio n 6 9 A, se c tion 6 9 B, sec t ion 6 9 C or se c tio n 6 9 D , a t th e ra te of th ir ty p er c en t. ; an d ( b) th e amou n t of in c ome - tax wi th wh ic h th e a sse ssee wo u l d h ave be en ch arg ea bl e h ad h i s to ta l in c o me bee n re du c ed b y th e a mo un t of in co me ref e rred to in c l au se ( a) .
( 2 ) N o twi th sta n d in g an y th in g co n ta ine d in th i s Ac t, no d ed u c tio n in re s pec t of an y expen d itu re or al lo wa n ce [ 3 0 5 2 a ] [ "or se t of f of an y l o ss" ] sh all be al lo we d to th e a sse s see u n d er an y prov i sion of th i s Ac t in c o mpu ti n g h i s in co me ref erre d to in c l au se ( a) of su b- sec ti on (1 ) . ] 17 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 [3 0 52 ] O mi tted th e wo rd s, f igu res an d le tter s "f or th e prev io u s ye ar rel ev an t to th e a sse ssmen t ye ar beg in n in g o n th e 1 st d a y of Apr il , 2 0 12 o r beg in n ing on th e 1 st d a y of Apr il , 2 0 13 o r beg in n ing on th e 1 st d a y of Apr il , 2014" by F in anc e ( No. 2) Ac t, 2 0 14 (w. e. f. 1 -4 - 201 5).
In s . b y F in an ce A c t, 2 01 6 ( w. e .f . 1-0 4 - 20 1 7 ) . [3 0 52 a ] In s. b y F in an c e Ac t, 2 0 1 8 ( w.e .f . 1- 0 4- 2 0 17 ) .
15. As i s evid en t f rom a bare re ad i n g of the a bove se c tio ns an y i n ve s tme n ts, mon e y s an d ex pen d i tur e wh ich are no t d iscl o sed in the boo k s of th e a sse ssee , if any, ma in ta in e d b y i t an d the so ur ce of wh ich h as al so been n o t ex pl a ine d sa ti sf ac to r il y by th e a sse ssee are tre a te d a s d eemed in c o me s of th e a sse ssee s. T hu s, th e a mou n ts to be tre ated a s d eemed in co me s are in ve stm en ts , mon e y s, or ex pen d i ture f ulf ill in g th e t wi n cr i te ri a of :
a) no t be ing rec or d ed in th e boo k s if an y ma in ta i n ed an d,
b) th e sou rc e of wh i c h th e a s se ss ee i s u n a bl e to e x pl ain sa ti sf ac tor il y.
16. In o th er wo rd s, to pu t i t si mpl y, th e u n rec ord ed in v es tme n ts/ a sse ts /e x pen d i tu re s mad e ou t of u n expl a in ed sou rce s are tre a ted a s d ee med in co m es of th e a sse sse e . T he on u s i s o n th e as se ss ee to e sta b l i sh th e sou rc e of the su rre nd ere d i nc ome f ail in g wh i c h i t i s to be c atego r iz ed as d eemed in c ome u/s 6 9 /69 A /B /C of th e Ac t. An d es ta bl ish in g th e so ur ce of in co me i s a f ac tu al ma t te r. T he L d . D R , had d r a wn o ur at te n ti on to th e d e ci sio n of th e H on ' ble ju r isd ic ti on al H igh Cou r t i n the c ase of Pr. C IT v s Kh u sh i Ra m & So ns Fo od s ( P) L td in IT A No .1 2 6 of 201 5 d a ted 2 9 -0 7 - 16 , wh ere in the a sse ssee h a d se t of f un ab so rbed l o sse s u / s 7 0 & 7 1 ag a in s t in co me su r ren d ered on ac cou n t of buil d in g ren o v a tion , of f ice 18 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 equ i p me n t an d su n d ry r ece iv abl e, to wh i c h , th e H on ' ble H igh Co u r t h a d h el d th a t i t i s f o r th e a sse ssee to e sta bl i sh th a t th e so ur ce of th e su rre nd ere d in co me wa s f ro m bu s in e s s to c la i m i t as su ch an d se t of f bu s in e s s l o sse s ag a in s t the sa me . Ou r v ie w the ref o re i s f ortif ie d b y th e af ore sa id ju dg e men t of th e H on ' ble H igh C ou r t.
17. F ur th er th e l e gisl atu re requ ire s su ch typ e of d ee med inc o me s to be tax ed on th e gro ss a mou n t so de ter mine d wi th ou t se t ti n g of f any ex pen d i t ure o r al l o wa n c e s ag a in st th e sa me , u / s 11 5 BB E of th e A c t. S u b sequ en tl y th e se c tio n wa s a men d ed w. e.f 1. 4 .20 1 7 b y th e F in an c e Ac t, 2 0 1 6 , proh ib i tin g se t of f of l osse s al so ag a in st th e sa id d ee me d in co me.
18. H av ing ex pl a in ed the prov i s io n s of l a w a s a bove , we n o w pro ce ed to a p pl y the s a me to th e f ac ts of bo th th e c a se s bef ore u s.
19. In th e f ac ts o f the ca se in IT A No .4 0 8 /Ch d /2 0 1 8, th e in co me su rren d ered wa s on acc ou n t of u nac c ou n ted r ece iv a ble s of the bu sin e ss of th e a sse sse e amou n ti n g to Rs.1 . 2 5 c rore s. T h e L d .C IT ( A) in p ar a 9 of th e ord er ha s ou tl in ed th e f ac ts re la tin g to th e su rre nd er m ade by th e a sse sse e sta ti ng th a t d u rin g su rv e y a po c ke t d i ar y wa s f o u nd f ro m the ac c ou n t se c ti o n of the a sse s see c om p an y wh i c h co n ta i ne d en tr y of rec eiv a bl e s a mou n ti n g to R s. 1 . 2 5 c rores o n p age s 2 7 , 2 8, 3 1 an d 3 3 , wh i ch were n o t rec ord ed in th e reg ul ar boo k s of the a sse s se e and we re su b se qu en tl y su rren d ered sta ti n g th a t the se en tr ie s we re u n acc ou n ted su n dr y rec e iv a bl e s be in g su rre nd ere d a s in c o me u n d er the he ad bu sin e ss, to bu y p iece of min d a n d su b jec ted to n o pe n al ty an d f urth er th at the l osse s in cu rre d b y th e a sse ssee in the i mpu gn ed ye ar wi l l be ad ju ste d ag a in st th i s su rren d ered in co me. T h e rel evan t f ac ts a s sta ted b y th e C IT (A ) in p ar a 9 of h is ord er an d wh i c h are no t d is pu ted , are re p ro du c ed h ere u nd er:
19 ITA Nos.745 & 1134/Chd/2016
A.Y.2012-13 "9. Ad ver tin g n o w to th e f ac ts of th e in s ta n t ca se , it i s se e n th a t wh en su rve y proce ed in g s we re co nd u c ted at th e bu s in e s s pre m i se s of th e ap pel l an t com p an y, a poc k e t d i ar y was f oun d f ro m th e ac co un ts s ec tion wh i c h co n ta in ed en tr ie s of receiv a bl e s a mou n ti n g to Rs. 1 .2 5 cr ore s o n p age n o s. 2 7 , 2 8 , 3 1 an d 3 3 , wh ic h we re n o t rec ord e d in th e regu l ar boo k s of acc ou n ts . W h e n th e se en tr ie s we re co n f ron ted to th e ap pel l an t com p an y wh i le re c ord in g th e s ta te men t on 15 /0 9 /20 1 2 , i t wa s sta ted : " th a t the se en tr ie s are su nd r y re ce iv abl es wh i c h ha s n o t been ac c ou n ted f or in th e bo o k s of acc ou n ts an d in ord er to bu y pe ace of mind , the sa me i s su rren d ered a s in co me un d er th e h e ad bu sin e s s f or F .Y .2 01 2 -1 3 rel evan t to a ss tt. Year 2 0 1 3 -1 4 su b jec t to no pen al ty and p ro sec u ti on u n der th e I. T .
Ac t, 1 9 61 . Sin c e th e c o mp an y i s in c u rr ing l o sse s in cu rre n t F . Y. 2 0 12 - 1 3, th e sur ren d e red inc o me wi l l be a d ju s ted ag a in st th e s e l o sse s. " [E x tr ac te d f rom th e im pug ne d a sse ss men t ord er; p ag e s 5 &6 ]. "
2 0 . Cl earl y, i t i s ev i d en t f ro m th e a b ove th at th e su rre nd er was o n ac co un t of d eb to r s/rec e iv a bl e s rel a ti n g to th e b us in e s s of the a sse ssee on l y. T he Re ven u e h a s acc ep ted th e surr en der as su c h, a s be in g on ac co un t of r ece iva ble s. It f ol l o ws th a t th e d eb to r s we re gen era ted f rom th e sal e s made b y th e a sse ssee d u r in g th e co ur se of c arr y in g on th e bu sin e ss of th e a sse sse e, wh ic h wa s n o t re cor d ed in th e bo o k s of th e as se ssee. T h ou gh th e s a id in co me wa s n o t rec ord ed in th e bo o k s of th e a sse ssee bu t th e sou rc e of th e sa me stood d ul y ex pl a in ed b y th e a sse ssee a s be in g f rom th e bu sin e ss of th e a sse s see. E ven o th er wi se n o o th er so ur ce of inc o me of the a sse ssee i s th ere on rec ord ei the r d i scl o sed b y th e a sse sse e or u n ear th ed b y the Rev en ue . T h e pre pon d er an c e of pro b ab il i ty the ref o re is th a t th e d e b tor s were sou rc ed f r om th e bu sin e ss of th e a sse s see. T he ref ore, th ere i s n o 20 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 qu es ti on of tr e a ti n g i t a s d ee m ed in c o me f ro m u n di sc l o se d so ur ces u / s 6 9 , 69 A, 6 9 B an d 6 9C of the Ac t an d the sa me is h el d to be in the n atu re of Bu sin e ss In co me of the a sse ssee. H av in g he l d so, the sa me was a sse ssa bl e un d er th e h ead ' bu s ine ss an d prof e ssion ' a n d a s s ta te d abo ve, the ben ef it of se t of f of l o sse s bo th c urr en t an d brou gh t f or ward wa s al l o wa b l e to the as se ssee in ac co rd an c e wi th l a w.
2 1 . T h e c on ten tio n o f th e Rev en u e th eref ore th a t the inc o me be tre a ted a s d ee med inc o me u / s 6 9 ,6 9 A/B /C of the Ac t i s acc ord i n gl y r e jec ted an d a s a c on sequ en c e th ere to th e pl e a th a t n o se t of f of l osse s be al lo we d ag a in st th e s ame u / s 1 15 BB E of the A c t al so i s re j ec te d.
2 2 . T h er ef o re, as per th e f ac ts of th e ca se in IT A No .4 0 8 /Ch d /2 0 1 8 and as per th e prov i sio n s of l a w rel a ti n g to th e i s su e, th e su rren d ered in c o me , we h ol d , wa s a sse ssa bl e a s bu sin e ss in co me of th e a sse ssee an d se t of f of lo sse s was to be al l o we d ag a in s t th e sa me a s r ig h tl y cl a i med b y th e a sse ssee .
T h e ap pe al of th e Re ven u e, the re f ore, in IT A No .4 0 8 /Ch d /2 0 1 8 i s d i sm is sed .
2 3 . No w c o min g to th e f ac ts of th e ca se in IT A No /1 4 9 4 /Ch d /2 0 1 7, th e in c o me su rren d ered wa s on acc ou n t of th e f ol l o win g a s n arr ated a bov e i n earl ier p ar t of our ord er:
i) in ve stmen t of Rs. 6 0 l ac s in K o th i a t S u kh m an i En c l ave in th e n a me of S mt.R e kh a M ig l an i;
ii) S u nd ry c red i tor s an d ad v an c e s r ece ived f rom c us to mer s a mou n ti n g to R s.1 3 2 l ac s;
ii i) Gro s s prof it o n sal e ou t of book s a mou n ti n g to Rs.1 9 8 l ac s an d ;
iv ) su rren d er to c ov er mi sc el l an eo u s di sc re p an c ie s in l oose pa pe r s e tc . a mo un tin g to R s. 10 l ac s. 21 ITA Nos.745 & 1134/Chd/2016
A.Y.2012-13 2 4 . As f ar a s th e su rr en de r mad e o n acc ou n t of in ve stmen t in Ko th i of R s. 60 l ac s, n e i th e r i s th e sa me d i scl o sed in th e boo k s of th e a sse sse e n or so ur ce of th e sa me d iscl o sed . T h er ef or e, th e s am e i s to be a sse sse d a s dee me d in c ome u / s 6 9 of th e Ac t. T h e sa me a p pl ie s to th e su rre n der of Rs.1 0 l ac s mad e to co v er th e mi sc el l an e ou s d iscre p an c ie s in lo o se p a per of Rs.1 0 l ac s. Ne i t he r th e n a tu re of the d i sc re p a n c ie s, no r an y sou rc e rel a ti n g to th e sa me h a s bee n d i sc l o sed and , th e ref ore, the s a me i s al so to be a s sessed as d ee me d in c o me u / ss 6 9, 6 9 A, 6 9 B and 6 9 C of th e Ac t.
2 5 . As f ar a s th e su rren d er of R s. 1 32 l ac s mad e on acc ou n t of su n dr y c red i tor s an d ad v an c e s rec eive d f rom c us to mer s an d R s.1 9 8 l ac s on ac cou n t of gro ss prof i t o n sale o u t of the boo k s, bo th of th e m cl e a rl y are in rel ati o n to th e bu s in e s s c arr ie d on b y th e as se ssee an d are th u s in th e n a tu re of bus in e s s in c o me. T h eref ore , th e se t of f of bu sin e ss l o s se s, bo th cu rre n t a nd brou gh t f or ward are to be al lo we d a s per the pro vi sion s of l a w. A s f ar as th e inc o m e su rren d ered an d to be a sse ssed u / s 69 , 6 9 A, 6 9 B an d 6 9C of th e A c t, a s he ld a bove bef o re u s, th e s ame i s to be su b jec te d to tax a s per th e prov i si on s of sec tion 1 1 5 BB E of the A c t. 2 6 . No w th e n ex t qu estio n wh e th er th e se t of f of l osse s i s to be al l o we d ag a in s t th e sa me, wh i ch th e Re ven u e h a s ve h e men tl y c on te ste d s ay in g th a t th e a men d men t d en y i n g th e se t of f of losse s wh i ch wa s mad e b y the F in an c e Ac t, 2 0 1 6 w. e.f . 1 .4 . 2 01 7 wa s c lar if ic a tor y in n atu re an d wa s r e tro s pec ti ve, th u s en titl in g th e a sse ssee to cl a im s e t of f of l osse s ag a in s t th e inc o me so su rren d er ed . T h e asse s see , on th e o th er h a nd , h as d ra wn ou r a tten ti on to se ver al d ec i sion s of th e I. T .A .T . , wh i c h h ave he ld the amen d men t to be pro spec ti v e in n a tu re. No c on tr ar y d ec is io n e ith er of th e I. T . A.T . or of an y h igh er ju d ic i al a u th o r ity h as bee n bro u gh t to ou r n o tic e b y the R e ven u e. T h e d ec is ion s ren de red b y the I. T .A .T . wi l l , the ref o re, ap pl y, f ol l o wi n g wh i c h, we ho l d th a t in th e imp u gn ed ye ar th e a sse ssee wa s en ti tl ed to c l a i m se t of f of l osse s ag a in st th e in co me a sse sse d as d eeme d in c o me u /s s 6 8 , 6 9, 22 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 6 9 A, 6 9B and 6 9 C of th e Ac t a s p e r th e pro v i sion s of se c tio n 1 15 BB E of th e A c t a s i t sto od pr ior to a men d men t b y F in an ce A c t, 2 0 1 6.
2 7 . T h u s, we h ol d th at the in co me su r ren d ered b y the a sse sse e i s p ar tl y as se ss a ble a s bu s ine ss in co me an d p ar tl y a sse ssa bl e a s de eme d in co me an d ag a in st bo th of th e m, th e a sse sse e wa s en titl ed to cl a im se t of f of bu sin e ss l o sse s, bo th th e c ur ren t an d bro u gh t f or wa rd. W e, th eref o re, se t a sid e th e ord er of the L d .C IT ( A) an d al l o w th e a p pe al of th e a sses see. "
9. I n the f a cts of the p re se nt ca s e , it is n ot d i sp ute d tha t th e sur re nde r ha d be e n ma d e on a cc oun t of un d is cl ose d de bt or s. Si nce the f a ct s a re i de nti ca l to th a t i n the ca se of Fa mi na K ni t F a bs (s up r a ), a nd no d is tin gu is hi n g fa c ts h a ve be e n b r ou ght to our n oti ce b y th e Ld .D R, the de ci si on re nde re d in th a t ca se w i l l a l so a p pl y t o the p res e nt ca se , fol l ow in g w hi ch we h old th a t t he Ld .C I T(A ) had r i ght ly tr e a te d the su r ren de re d i nc ome as i n the na t ure of bu si ne ss in come of th e a s se s see a nd a cc or d in gl y, a ll ow e d th e be ne f it of s e t of f of l o s se s a ga i ns t th e s a me . The o rd e r of t he Ld. C I T( A) i s a cc or di n gl y, up h e l d. Th e gr oun d r a ise d b y the Re ve nue is d i smi ss e d .
10 . Th e appeal fi l ed by th e Re ven ue the re f ore sta nd s di smi ss e d .
W e n ow ta ke up th e a p pe a l o f th e Re ve nue in I TA N o.1 1 3 4 /C hd /2 0 1 6 .23 ITA Nos.745 & 1134/Chd/2016
A.Y.2012-13 ITA No.1134/Chd/2016:
11. Ground No.1 raised by the Revenue reads as under:
1. Whether upon facts and circumstances of the case, the Ld. CIT(A) justified in reversing the action of Assessing Officer for treated the surrendered income as deemed income u/s 69 & 69B of the I.T. Act,1961 and treating the same as business income and allowed the same to be set off against business loss/depreciation loss or any other expenses?
12. It was common ground between the parties that the above ground is identical to ground No.1 raised by the Revenue in ITA No.745/Chd/2016 and the facts also are identical .Our decision rendered therein at para Nos.8 to 10 of our order above will apply mutatis mutandis to this ground also. Following the same we dismiss the ground no.1 raised by the Revenue
13. Ground No.2 raised by the Revenue reads as under:
2. Whether upon facts and circumstances of the case, the Ld. CIT(A) justified in deleting the disallowance made u/s 36(l)(iii) of the Income-tax Act, 1961, on investment made in the sister concern?
14. T h e f a c t s r e l e v a n t t o t h e i s s u e a r e t h a t d u r in g t he cou rs e of a sse s sme n t p r oce e d in gs , t he A. O. n oti ce d th a t the a sse sse e ha d ma d e in ve stme nt to th e tu ne of Rs.1 0 l a cs i n 24 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 the si ste r c once rn , M /s N o bl e Stee l P v t. Ltd . The ass e ssee wa s asked to show ca u se as to w hy n ot p ro por t ion a te in te re st be d is al low e d u/s 3 6 (1 ) (i i i) of t he Ac t on t he in ve s tme n ts ma d e i n the si ste r con ce r n i n a s se s sme nt ye ar un de r c ons ide ra tion . Th e Ld. C ou ns e l f or the a s sse ssee a l so sub mi tte d i ts d e t a il e d re p l y wi th w hi ch the A .O . was not sa ti sf ie d a n d d i sa l l ow e d a su m of Rs .1 ,2 0 , 00 0 /- a nd a d de d ba c k to th e in come of the a s se s se e .
15 . On appeal, the Ld .C I T( A ) d e let e d the d is a l low a n ce noti n g t ha t th e a sse ssee ha d su ff ic ie nt ow n i nt e re s t free fu nd s for t he p ur p ose of ma k in g t he imp u gne d inv e stme nt a nd fol l ow in g v a r i ous de ci si on s of th e H on' bl e S up r e me C our t a n d o the r Hi gh C our ts for th e p r op osi ti on that w h ere suf fi c ie nt ow n f un d s a re a v a il a b le , the p re su mp tio n is t hat the s a me h a ve be e n u se d f or ma ki n g th e in ve stme nt c a ll i ng for n o d i sa l low a nce of in te re st u /s 3 6 ( 1 )( i ii ) of t he Ac t. The re le va n t f in d in gs of the Ld . C I T( A ) a t pa r a 4. 2 of th e o rde r a re a s u nde r :
"4.2 I have carefully considered the facts of the case, the basis of the disallowance made and the arguments of the AR.
The Assessing Officer has made the disallowance merely by relying on the judgment in the case of Abhishek industries vs. CIT 286 ITR 1 (P&H). The investment in the sister concern is not an investment made during the year under consideration. It appears as a opening balance in this year's 25 ITA Nos.745 & 1134/Chd/2016 A.Y.2012-13 balance sheet. Further, the Assessing Officer has not given any justification or reasons as to why the said investment is not treated as being for business purposes. The AR has explained that the investment in shares cannot be equated with an interest-free loan for non-business purposes. The same is made with the purpose of growth in the value of shares and not to earn any interest. The increase in the value of shares is the return on investment. Moreover, the appellant had sufficient interest free funds of its own in the year of investment in the shape of share capital, reserves and surplus amounting to Rs. 1,49,61,650/-. The AR has placed reliance on the judgment of the Hon'ble Supreme court in the case of Munjal Sales Corp. vs. CIT, CIT vs. Hotel Savera (Mad), CIT vs. Gopal Krishna Murlidhar (AP), Sh. Digvijay Cement Ltd. vs. CIT (Guj) High Court and CIT vs. Phil Corp. Ltd. (Bom) in support of its contention that where loans have been given to sister concern out of its own funds and the own funds are sufficient to cover the loan, there cannot be set to any nexus between interest bearing loans and the interest free advances. In view of the said facts and circumstances, the said disallowance made u/s 36(l)(iii) is not held to be justified and the same is hereby ordered to be deleted."
16 . B e f ore us a t the o uts e t i tse l f, the Ld . C oun se l for t he a sss e ssee po in ted o ut th a t t he p ro pos i tio n of l a w r el ie d up on by the Ld . C I T( A ) v is -à -vi s t h e p re s ump ti on of u sa ge of ow n fu nd s w he re s uf fi cie n t ow n fu nd s a r e a va i la bl e , ha s be e n se ttle d b y t he Ho n'b le S up r e me C our t in th e c ase of C I T Vs . R e l ia n ce I n d ust rie s Ltd . , r e p or te d in 4 1 0 I TR 4 6 6 (S C ) . Th e cop y of t he or de r wa s p la ce d be f ore us . 17 . Th e Ld . D R, on th e othe r h a nd , re l ie d u p on the ord e r of the A .O .
26 ITA Nos.745 & 1134/Chd/2016
A.Y.2012-13 18 . W e ha ve he a r d th e ri v a l con te ntion s. Th e is sue be fore us r e l a te s to d isa l l ow a nc e of i nte re st u/s 3 6( 1 ) (i i i) of t he Act . W e h a ve gon e t hr ou gh the o rd e r of the H on 'b le S up re me C our t i n the ca se o f Re l ia n ce I n dust ri e s Ltd . (s upr a ) a nd we fi nd th a t i t i s no w se ttle d la w th a t w he re s uffi ci e n t own fu nd s a r e a va il ab le , the p re su mp ti on i s th a t the same w e re use d fo r the p u r po se of ma k in g t he i nve st me n t c a ll i ng fo r no di sa l l ow a nc e of in te re st u/s 3 6( 1 ) (i i i) of th e A ct. The Ld. C I T( A) in t he p r e se n t c a se , w e fi n d, ha s g iv e n f a ctu al fi nd i ng s of th e r e be i ng s uf fi ci en t ow n in te re st f re e fu nds wi th the a sse ssee i n the f or m of sh a r e ca p i ta l a nd re se rve s a moun ti ng to Rs. 1. 4 9 cr or e s a g a in st th e in ve s tme nt of Rs. 1 0 la c s i n r e l a ti on to wh i ch d i sa l low a n ce of i nte re st e x pe nse s wa s ma de . Th e fa c tua l fi n di n gs of the CI T( A) ha v e not be e n con tr ove rte d by t he Ld . D R b e f or e us. The r e fore , i n vi e w of the se tt le d p os it ion of la w a s a b o v e a nd th e u nc ont ro ve r te d fa ct ua l f in d in gs of t he Ld. C I T( A ) r e g a r di n g the s uffi ci e n cy of ow n f un d s a va i l ab le w it h the a s se sse e , we f in d no r e a so n to in te r fe re in the or de r of the C I T( A) in d e le tin g t he di sa l l ow a nc e of i nte re st ma d e u/s 3 6 ( 1) ( ii i ) of th e Ac t, a moun ti ng t o R s. 1 ,2 0 ,0 0 0 /-. Th e gr oun d of a p p e a l N o. 2 ra i se d b y the Re ve nue is , the re f ore , d i smi ss e d . 27 ITA Nos.745 & 1134/Chd/2016
A.Y.2012-13 I n e ffe c t, the a p pe a l of the Re ve n ue i s d is mis se d. 19 . I n t he re su l t, b oth th e a p p e a l s fi le d b y the Re ve n ue are di smi ss e d .
O r de r p r o n o u n ce d i n t he O p e n C ou r t .
Sd/- Sd/-
संजय गग अ नपण
ू ा ग'ु ता
(SANJAY GARG) (ANNAPURNA GUPTA)
याय क सद य/Judicial Member लेखा सद य/Accountant Member
+दनांक /Dated: 01 July, 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 आय.
ु त (अपील)/ The CIT(A)
5. *वभागीय ( त न1ध, आयकर अपील"य आ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar