Income Tax Appellate Tribunal - Amritsar
M/S Rkm Internatinal, Amritsar. vs The Dy Commissioner Of Income Tax, ... on 14 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER
AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER
I.T.A. No.285/(Asr)/2015
Assessment year: 2011-12
PAN : AAEFR4798N
ACIT, Circle-III, Vs. M/s R.K.M. International,
Amritsar. 8, G.T. Road, Modal Town,
Amritsar.
(Appellant) (Respondent)
I.T.A. No. 338/(Asr)/2015
Assessment year: 2011-12
M/s R.K.M. International, Vs. Dy. CIT Circle-III,
8, G.T. Road, Modal Town, Amritsar.
Amritsar
(Appellant) (Respondent)
Appellant by : Sh. Rahul Dhawan(Ld. D.R.)
Respondent by: Sh. Ashwani Kalia (Ld. C.A.)
Date of hearing :26/04/2017
Date of pronouncement :14/07/2017
ORDER
PER N. K. CHOUDHRY (JM):
Both the parties preferred to file cross appeals, feeling aggrieved by the same order dated 30.03.2015 passed in Appeal No. 344/13-14 by the Ld. CIT(A) -1, Amritsar for Asst. Year 2011-12.
2. The Revenue Department has raised the following grounds of appeal.
"(i) On the facts and in the circumstances of the case, the learned CIT(A) has failed to appreciate that the assessee has not brought even an iota 2 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 of evidence that the unexplained investment made on hotel building was out of hotel business.
(ii) The learned CIT(A) has erred in reaching a hasty conclusion that just because the assessee had been in hotel business in previous years, the unexplained investment had come from the said source.
(iii) The learned CIT(A) has erred in holding that the Assessing Officer had failed to record any finding that the unexplained investment had been made out of any earning by carrying out any illegal activity.
a) The learned CIT(A) has failed to appreciate that the provisions of chapter VI of the Income Tax Act, 1961 cast obligations upon the assessee to furnish explanation and explanation, if any, is tendered by the assessee, but the same is not found to be plausible by the Assessing Officer, he can invoke the provision of section 67B.
b) The learned CIT(A) has shifted the onus on Assessing Officer of proving that the source of unexplained investment was from any illegal activity which militates against the intendment of the enactment of the provisions of section 69B and other allied deeming provisions of chapter VI of the Income Tax Act, 1961.
c) The learned CIT(A)'s interpretation restricts the application of the provisions of section 69B only to income earned from illegal activities which eminently militates against the intendment of the enactment of the provisions of section 69B.
(iv) The learned CIT(A) has erred in holding that the judgment of the Hon'ble Punjab & Haryana High Court is not applicable in this case without appreciating that the said case has dovetailing similarity to the facts of the case as in that case unexplained cash found and herein the case of unrecorded investment has been detected and the Hon'ble High Court had no where recorded in the said judgment that the Assessing Officer had failed to record a finding that unexplained cash had been from any illegal activity.
(v) The appellant craves leave to amend or add any or more ground(s) of appeal.
Whereas the following grounds of the appeal raised by the assessee.
"1. That the Worthy CIT(Appeals)-1, Amritsar had erred in law and on facts of the case in upholding the disallowance of depreciation of Rs. 21,60,000/- claimed in respect of addition to hotel building made out of income surrendered during the survey.
2. That the order is bad in law and on facts of the case.
3. The Appellant craves leave to add, amend, alter vary an/or withdraw any or all the above grounds of Appeal."3 ITA No.285 & 338/Asr/2015
Asst. Year: 2011-12
3. The brief facts of the case are as under:
That the Assessee file its return of income for the assessment year 2011-12 on 30.03.2011 declaring a total income of Rs. 1,26,59,178/- and the same was processed at the returned version. The assessee is a partnership firm constituted vide deed dated 15.06.2005 and comprises of four partners and running a hotel and restaurant and accounts have been maintained by it in the form of Cash book, Journal and Ledger. Audit report dated 26.09.2011 in form No. 3CB & 3CD as per provisions of section 44AB of the I.T. Act was filed/obtained during the course of assessment proceedings and books of account/bills and vouchers were produced which were test checked vis-à-vis the audited financial statements and the representative of the assessee also furnished information as requisitioned.
A survey u/s 133A was carried out on the business premises of the assessee on 06.01.20111 and during the course of the survey, certain documents were found in which the assessee had noted the figures of the expenditures relating to the construction of the building of the Hotel. The assessee was confronted with the above said documents by the Revenue Department and the assessee was asked to prove as to where it has accounted for the above expenditures in its regular books of account and further asked to show the source of above said expenditures in its regular books of account. The Assessee was unable to explain the sources of the expenditures from his regular books and offered the total amount of the above expenditure to the tune of Rs. 2.16 crores as its additional income for the said year, over and above, its regular income for the said year.
The amount surrendered as additional income during the course of survey at Rs.216 lacs was credited by the assessee to the P & L account after taking into account the said credit entry , the net profit from business was declared by the assessee at Rs. 1,26,59,177/-. Since the assessee has surrendered an amount of Rs. 216 lacs during the course of survey proceedings and such being deemed income, no deduction was allowable against this income by the Assessing Officer and this additional income of 4 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 Rs.216 lacs was required was treated us to be shown separately as not falling under any Heads of income mentioned in section 14 of the Act, but falling squarely under the deemed income table as unexplained investment u/s 69B of the I.T. Act.
Finally the Assessing Officer while relying upon the judgment of the Punjab and Haryana High Court, Chandigarh in the case of Kim Pharma (P) Ltd. versus Commissioner of Income Tax, Panchkula and also judgment of the Hon'ble Gujrat High Court in the case of Faqir Mohammed Haji Hasan Vs. CIT (2011) 274 ITR 290 has considered the surrendered amount being deemed income is assessable u/s 69B of the Act because the same was not reflected in the books of account and no source from where it was derived was declared by the assessee and thus was brought to tax accordingly.
Further, the Assessing Officer did not allow loss of Rs. 89,40,823/- from the surrendered amount and considered the said amount as sacrosanct amount which being deemed income will not fall under any of the five heads of the income.
Further, the Assessing Officer also did not allow the alternative plea of the assessee of assessing the income under the head income from other sources and allowing set off losses u/s 71 of the Act.
Further, the Assessing Officer also disallowed the depreciation to the tune of Rs.21,60,000/-(10% of Rs.216 lacs) in the P & L Account against the building and was added back to the income of the assessee.
Further, the Assessing Officer did not allow the same of the allowances in respect of different heads but which are not under consideration of this appeal.
4. Feeling aggrieved against the order passed by the Assessing Officer, the assessee preferred the first appeal before the CIT(A) and the CIT(A) partly allowed the appeal of the assessee by upholding the surrendered amount as during survey to the tune of Rs.216 lacs under 5 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 the head of profit and gains of business and profession and further allowed business losses of Rs.89,40,823/- against surrendered business income in the profit and loss account, however confirmed the disallowance of depreciation claimed at Rs.21,60,000/- in respect of additions to hotel building out of income surrendered during survey. Concluding part of the order passed by the Ld. CIT(A) is reproduced herein below:
"Likewise, in the present case of the appellant, there is no finding of the AO that the appellant was involved in any illegal activities. The AO has also not placed any evidence to suggest that the impugned expenditure on construction of hotel building outside its regular books of account was not relatable to its Hotel business income and was from a source not related to the hotel business of the assessee or was from an illegal source. In fact, no document/evidence was found at the time of Survey in the case of the appellant to suggest any other source of income, besides the hotel business. The decision of Hon'ble High Court of Gujarat in the case of Fakir Mohmed Haji Hussain was therefore not applicable in the case of the appellant.
During the appeal proceedings the appellant was asked to submit the audit report in Form 3CB and 3CD for AY 2010-11 which was submitted. It revealed that the appellant was in the hotel business in earlier years and in AY 2009-10, the gross turnover of the appellant was Rs 4,33,91,873/- as against Rs 3,60,46,197/- in the year under consideration. The audited profit 85 loss account for the A Y 2010-11 and 2011-12 revealed net profit of Rs 134,140.37 and Rs 12,659,177.88 respectively.
Therefore in the case of the appellant, it is held that the nature and source of the unrecorded expenditure on construction of hotel building found on the impounded documents amounting to Rs 215.15 lakhs, was out of income earned from business transactions relating to hotel business not recorded in regular books of accounts and not from any illegal activity or an unknown source. The said unexplained expenditure of Rs 215.15 Lakh on construction of hotel building had a direct nexus with the hotel business of the appellant as discussed above and is therefore held to be assessable under head "profit & gains of business and profession".
Accordingly, the crediting of the profit & loss account for the year under consideration by the appellant with the income surrendered during Survey at Rs 216 lakhs, under head "Profits 8s Gains of business 8s 6 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 profession" is upheld. No separate addition of Rs 216 lakhs under section 69B of the Act is called for as discussed above and is accordingly deleted." During the appellate proceedings, the appellant was asked to submit the audit with regard to the note allowing set off of current year business loss against the surrendered business income, the Ld. CIT(A) concluded as under:
"Following the said decision in the case of CIT Vs. Shilpa Dying in appeal no. 290 of 2013 dated 04.04.2014, (supra), for the income declared in survey to be taxed, it has to fall under one of the heads of income. Once the head of income is assigned to the additional income disclosed, whether business or other source, it becomes available for set off against current year's business loss, since the current year's business loss is allowed to be set off against current year's income under any other head (Section 71).
Therefore following the said decision of hon'ble Gujarat High Court in the case of CIT vs. Shilpa Dying in appeal no. 290 of 2013 dated 04-04- 2013, the decision of hon'ble Madras High Court in case of Commissioner of Income Tax vs Chensing Venture and of the hon'ble Gujarat High court in the case of Deputy Commissioner of Income Tax vs Radhe Developers India Ltd and and stated above, the income declared in survey at Rs 216 Lakh to be taxed, it had to fall under one of the heads of income specified in section 14 of the Act. The said surrendered income had been held to be income taxable under head "Profit and gains of business and profession" above while deciding the ground of appeal no. 1. Accordingly/the crediting of the profit & loss account for the year under consideration by the appellant with the income surrendered during Survey at Rs 216 lakhs, under head "Profits 8s Gains of business & profession"
has been upheld above.
It was only after the profit and loss account was recast by the AO by excluding the surrendered income of Rs 216,00,000/- that the net loss of Rs 89,40,823/- was arrived at. After crediting the profit and loss account as per audit report with the surrendered income of Rs 216,00,000/-,as upheld above, the resulting net profit of the appellant was Rs 126,59,177.88. i.e. after allowing setting off of the business loss of Rs 89,40,823/- against surrendered business income in the profit & loss a/c. Therefore the ground of appeal is treated to be allowed for statistical purposes."
With regard to the disallowing of depreciation claim of Rs.21,60,000/- qua additions to hotel building out of income surrendered during survey, the Ld. CIT(A) concluded as under:
7 ITA No.285 & 338/Asr/2015
Asst. Year: 2011-12 "However, it is observed that the appellant has not furnished anj argument against the application of the decision of Ld ITAT, Chandigarh Bench in the case of Dr. Tarsem Monga. Ambala Cant vs JCIT vide order dated 27-02-2009 in ITA No. 778 / Chandi / 2008 to disallow depreciation. In the said case it was held that depreciation on amounts surrendered for hospital building and hospital equipments is not allowable notwithstanding the fact that the hospital building and hospital equipments are in the ownership of the assessee and the same have been put to use for assessee's business / professions as the AO has held that such undisclosed investments have been declared as an additional income.
Accordingly, the disallowance of depreciation claimed at Rs.21,60,000/- in respect of additions to hotel building out of income surrendered during survey is upheld.
5. Feeling aggrieved against the order passed by the Ld. CIT(A), the Revenue Department as well as assessee preferred the instant appeals which are under consideration.
6. Let us to decide the Appeal No. 285/Asr/2015 first. In support of its case, the Ld. DR submitted that the Ld. CIT(A) has failed to discuss the judgment passed by Hon'ble. Jurisdictional High Court in the case of Kim Pharma (P) Ltd. Vs. CIT Panchkula and another in ITA No. 106 of 2011 (O &M) Date of decision 27.04.2011, further, wrongly relied upon the judgment passed by the Hon'ble Gujarat High Court and while upholding the surrendered amount under the head of profit and gains of the business and profession, the Ld. CIT(A) fastened the liability/onus on the revenue which is at all illogical, unreasonable and unprecedented. It is universal law that the onus is upon the assessee to establish its case in view of the judgment passed by the Hon'ble Punjab and Haryana High Court in the Commissioner of Income Tax 8 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 Vs. Jagtar Singh 200 11-TIOL-812-Hon'ble High Court-P&H - IT, it is well settled that wherever a receipt is sought to be taxed as income, the department is required to prove that the same falls within the taxing provisions and where the receipts is in the nature of an income, the burden lies in the assessee to show that which is not taxable as it falls within the purview of exemption provided by the Act, however u/s 68 of the Act, where any amount is found credited in the accounts of the assessee relating to any previous year, the same can be charged the income tax as income of the assessee of that year. Where the explanation offered by the assessee about the nature and its source is satisfactory in the opinion of the Assessing Officer, in such a case there is no prima facie evidences against the assessee, viz a viz the receipt of money and if he fails to establish the same, it can be used against him by holding that it was the receipt of income nature. Further, the Ld. DR in the instant case, the assessee has failed to establish source of surrendered amount which remained unexplained, therefore has to be taxed separately even otherwise onus is upon the assessee to produce corroboratory evidence directly or indirectly to establish that surrendered amount relates to the particular business of which the assessee is concerned and subject to the taxation purposes. Further, the Ld. DR drawn our attention to the judgment passed by ITAT Chandigarh Bench (A) in the Liberty Private Ltd. Vs. Assistant Commissioner of Income Tax in ITA No. 7 to 7 (CHD of 2012) and 9 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 submitted that income surrendered/determined u/s 69, 69A, 69B and 69C has to be treated separately as deemed income and is not assessable under any other heads of income, therefore, no set off is allowable. The Ld. DR further emphasized, that the depreciation has remained unobserved because it was not brought in the books of account and further the same cannot be allowed out of income surrendered during survey.
7. On the contrary, the Ld. AR submitted that during the search u/s 133 certain documents have been found which clearly shows that the assessee is involved in the business of hotel and restaurant only and the surrendered amount is from the same hotel business and during the survey not even a single document of any other sources have been seized by the Revenue Department and onus is always upon the Revenue Department to bring the income of the assessee under the relevant income head and once the assessee offered the explanation then the assessee discharged the onus.
Further, it was submitted by the Ld. AR that even otherwise the case of Kim Pharma does not directly deal with the subject matter of the instant case and the case of Faqir Mohammed Haji Hassan Vs. CIT (2001) reported at 247 ITR 290, judgment of the Hon'ble Gujarat High Court has already been distinguished by the Gujarat High Court itself, therefore it cannot be given effects thereto.
10 ITA No.285 & 338/Asr/2015
Asst. Year: 2011-12
8. We have gone through with the facts and circumstances of the case, in the instant case, the main issue is for consideration is that whether surrendered amount of Rs.216 lacs during the course of survey u/s 133A of the Act would form part of the business income or was assessable u/s 69A of the Act. The Assessing Officer treated the said amount as separate income and did not allow the set off of losses from the said surrendered account and treating the same as deemed income u/s 69 of the Act instead of classifying the same under any head of the income as per section 14, the Assessing Officer also did not allow the depreciation on hotel building from the surrendered amount during survey, while relying upon judgment of Gujarat High Court in the case of Faqir Mohammed Haji Hasan Vs. CIT(2001) 274 ITR 290 and the judgment of the Jurisdictional High Court in the case of M/s Kim Pharma (P) Ltd. Vs. CIT Panchkula and another passed in ITA No. 106 of 2011 (O & M) on 27.04.2011.
Further, the Ld. CIT(A) partly reversed the assessment order by relying upon the contention of the assessee and judgment passed by the Hon'ble High Court in the case of CIT Vs. Shilpa Dying and Printing Mills (P) Ltd. as well as M/s G.M. Export Vs. Assistant Commissioner by holding that the judgment relied upon by the Assessing Officer has already been distinguished by the Gujarat High Court and ITAT Ahmedabad Bench .
11 ITA No.285 & 338/Asr/2015
Asst. Year: 2011-12 Let us go through with the ingredients of section 14, 69, 69A, 69B and 69C of the Act heads of income.
Sec.14. Save as otherwise provided by this Act, all income shall show, for the purposes of charge of the income tax and computation of total income be classified under the following heads of income:-
A--salaries;
B- ..........
C--Income from house property;
D--Profit and gains of business or profession;
E--Capital gains;
F--income from other sources;
"Section 69. 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 [Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
"69A. 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 '[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 for such financial year.] "69B. 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 '[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 '[Assessing] Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.] 69C. 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 '[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.]"12 ITA No.285 & 338/Asr/2015
Asst. Year: 2011-12 According to section 14 of the Act, Income shall for the purpose of charge of income tax and computation of total income be classified under six heads of income as prescribed under section 14 and section 56 of the Act prescribed for the chargeability of income which is not to be excluded from the total income under this Act, shall be chargeable under the head "income from other head" if it is not chargeable to income tax under anyone of the heads specified in section 14, items A to E. Now a question posed before us whether the surrendered amount can be treated as income u/s 14 or not or it has to be covered u/s 69, 69A, 69B and 69C of the Act being treated separately, as the Ld. DR raised the controversy that the Ld. CIT(A) fastened the liability/onus upon the Revenue which is at all illogical, unreasonable and unprecedented because the onus was upon the assessee to establish its heads of income for the surrendered amount. No doubt we are agree with the contention of the Ld. DR that in the instant circumstances where the money has been surrendered by the assessee, the onus was upon the assessee but the question is debatable is how the onus has to be discharged. In Civil and Criminal law, discharge of onus are separate because in criminal law the onus has to be established beyond reasonable doubt but in civil law the onus can be discharged on the preponderance of probabilities. Now coming to the instant case, survey was conducted u/s 133A on the business premises of the assessee on 06.01.2011, however fact 13 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 remains undisputed that the appellant is in the hotel business since 2009-10 and the gross turnover of the appellant was Rs.4,33,91,873/- as against Rs.3,60,46,197/- in the year under consideration, and further the audit profit and loss account for the assessment year 2010- 11 and 2011-12 revealed net profit of Rs.134,140,37/- and Rs.1,26,59,177.88 respectively, and further from the record it reflects that the assessee firm is running hotel and restaurant whose books of account have been maintained in the form of Cash book/Journal and Ledger and during the course of survey operation, it was found that assessee had noted the figures of expenses relating to the construction building of the hotel under different heads that is cement, bricks, sands, bujary etc. etc. et. etc., total amounting to Rs.215.15 lakhs and the assessee had not accounted for the above expenditure on construction of hotel building in its regular books of account and further was not able to reconcile the entries on these documents with regular books of account, therefore, surrendered an amount of Rs. 216 lakhs as against the amount spent on construction of hotel building as mentioned in the impounded document of Rs.215.15 lakhs. It is also relevant to mention herein that during the survey, certain documents such as invoices and guest registration forms etc., found/impounded during the course of survey proceedings and even otherwise no contrary material have been found/placed by the Assessing Officer that the assessee is engaged in any other business/activities in addition to 14 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 the hotel business. Once it is clear that the amount was surrendered at the business premises of the assessee firm and no contrary material has been brought forward by the Assessing Officer in order to show that the assessee is engaged in any other business and the corroborative material shows that the income relates to the hotel business of the assessee therefore in our opinion once there is corroborative evidences found and the assessee offered an explanation that the surrendered amount belongs to the assessee business then the assessee has been able to discharge its onus by preponderance of probabilities. Therefore, coming to the case of Kim Pharma as the assessee in that particular case was unable to offer any explanation and no corroborative materials have been found but in the instant case, there are certain documents which goes to show that the assessee has earned income from the hotel business and the same can be treated as income from other sources. Therefore, we do not have any hesitation to conclude that the Ld. CIT(A) was right to treat the surrendered amount assessable under head of profit and gains of business and profession and not liable to be separately added u/s 69B of the Act. Once it is held that the surrendered amount has been treated as income u/s 14 of the Act in that eventuality, the judgment of Liberty Private Ltd. Vs. Assistant Commissioner of Income Tax (supra) has relied upon by the Ld. DR does not apply to the facts of the instant case.
15 ITA No.285 & 338/Asr/2015
Asst. Year: 2011-12 Now coming to the appeal of the assessee by which the assessee raised grievances against disallowance of depreciation claim of Rs.21,60,000/- qua additions to hotel building out of income surrendered during survey. The case of Kim Pharma (P) Ltd. Vs. CIT and another is not applicable to the instant issue for the claim of depreciation because that was not an issue in that case but in the instant case the facts are dissimilar and even otherwise as observed by the Ld. CIT(A) that the assessee has not furnished any explanation against the application of the decision of Ld. ITAT Chandigarh Bench in the case of Dr. Tarsem Monga, Ambala Cant Vs. JCIT vide order dated 27.02.2009 in ITA No. 778 / Chandi / 2008 to disallow depreciation because in the said case it was held that depreciation on amounts surrendered for the hospital building and hospital equipments is not allowable notwithstanding the fact that the hospital building and hospital equipments are in the ownership of the assessee and the same have been put to use to assessee's business/ professions as the Assessing Officer had held that such undisclosed investments have been declared as an additional income.
Coming to the instant case, even by surrender letter itself the assessee has offered the surrendered amount of Rs.216 Lakhs on amount of construction of building therefore, relying upon the aforesaid order of ITAT, Bench Chandigarh and considering the facts 16 ITA No.285 & 338/Asr/2015 Asst. Year: 2011-12 and circumstances independently, we do not found any substance in the argument of the assessee in support of claiming depreciation on the surrendered amount.
For the aforesaid reasons, appeals filed by the Revenue Department as well as the assessee are dismissed and order of the Ld. CIT(A) is upheld.
Order pronounced in the open Court on 14.07.2017.
Sd/- Sd/-
(T. S. KAPOOR) (N.K.CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 14.07.2017.
/GP/ Sr.Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By Order