Income Tax Appellate Tribunal - Amritsar
Sadhu Singh Gurdip Singh vs Assistant Commissioner Of Income Tax on 31 August, 2005
Equivalent citations: (2005)97TTJ(ASR)1
ORDER
Joginder Pall, A.M.
1. This appeal of the assessee has been directed against the order of CIT(A), Jammu, with headquarters at Amritsar for the asst. yr. 1994-95.
2. In this appeal, the assessee has taken following three grounds of appeals :
"1. That the learned CIT(A) has wrongly confirmed the action of the learned AO by treating the amount of Rs. 14,80,000 shown under the head "Other income" in P&L a/c, not eligible for deduction under Sections 80HHC and 80-IA, particularly when the assessee-firm has no other source of income.
1 (A). That the learned CIT(A) has wrongly failed to consider the jurisdictional Bench decision brought to his knowledge on this very issue in the case of Kashmir Steel Rolling Mills v. Dy. CIT (1991) 39 TTJ (Asr) 126 : (1991) 55 Taxman 424 (Asr)(Mag), which is binding upon him.
2. That the learned CIT(A) has wrongly confirmed the short allowability of deduction under Section 80HHC.
3. That the learned CIT(A) has wrongly confirmed the short allowability of deduction under Section 80-IA."
The facts of the case are that assessee filed the return declaring therein income of Rs. 50,98,360. As per information received from ADIT (Inv.), the AO came to know that during the course of search in the case of Shri Harbhajan Singh Chawla, one agreement for sale of one plot measuring 3,744 sq. yards of land executed by Shri Jaspal Singh in favour of assessee for consideration of Rs. 18,72,000 was found. On further inquiry initiated by the ADIT (Inv.) with the seller and buyer that assessee purchased the said land by means of 3 transfer deeds of Rs. 1,40,000 each aggregating to Rs. 4,20,000. As regards the balance amount, the assessee stated that the same had been debited to the books of account of the assessee for the financial year 1993-94 relating to assessment year under reference. In order to cover the amount, assessee surrendered income of Rs. 14,80,000 under the head "Other income" shown as business income. In the return of income filed, the assessee claimed deduction under sections 80-IA and 80HHC of the IT Act, 1961 (in short "the Act"), by including income surrendered of Rs. 14,80,000. The AO was of the view that amount of Rs. 14,80,000 represented unexplained investment in the property was not a business income. Therefore, the assessee was not entitled to deductions under Sections 80HHC and 80-IA in respect of such income. Accordingly, the AO disallowed the claims by passing order under Section 154. But on appeal, the learned CIT(A) deleted the disallowance on the ground that the same was beyond the scope of Section 154 of the IT Act. Thereafter, the AO initiated action under Section 147 and disallowed the claims for deductions under Sections 80-IA and 80HHC in respect of other income of Rs. 14,80,000.
3. Aggrieved, the assessee impugned the disallowances in appeal before the CIT(A). It was contended before the CIT(A) that the only source of assessee's income was from rice shelling. The Department had not brought any evidence on record to establish that assessee had earned such income from any other source except business. Thus, income shown was business profit only. However, these submissions did not find favour with the CIT(A). He observed that 'onus' was on the assessee to establish that income surrendered was business profit. He observed that the manner in which assessee made three agreements of Rs. 1,40,000 each aggregating to Rs. 4,20,000 as against the actual consideration of Rs. 18,72,000 indicated that income disclosed was from undisclosed sources. It was moreso when the income could not be traced back to the books of account of the assessee. He also observed that merely by crediting the income surrendered to the Pand L a/c did not make such income as business profit moreso when there was not an iota of evidence to link such income with the business transactions of the assessee. He further observed that in order to entitle the assessee to deductions under Sections 80HHC and 80-IA, it must be established that profit was derived from export business and industrial undertaking. In the present case, there was no such 'nexus' of income surrendered and business activities of the assessee. Accordingly, learned CIT(A) upheld the disallowance of deductions under Sections 80HHC and 80-IA in respect of income of Rs. 14,80,000. Assessee is aggrieved with the order of CIT(A). Hence, this appeal before us.
4. The learned Authorised Representative reiterated the submissions made before the authorities below. He submitted that the only source of income was from business of rice shelling. He drew our attention to p. 23 of the paper book which is a copy of Pand L a/c for the assessment year under reference. He submitted that a sum of Rs. 19,44,135 was credited under the head "Other income". He then referred to p. 25 of the paper book which is a copy of the details of "Other income". He submitted that a sum of Rs. 14,80,000 was shown as business income. He submitted that since the only source of income was from business of rice shelling, such income was nothing but business profit because of such circumstantial evidence. Relying on the decision of Tribunal, Amritsar Bench, in the case of Kashmir Steels Rolling Mills v. Dy. CIT (1991) 39 TTJ (Asr) 126 and the fact that Department has not brought on record any material to show that the assessee was having income from other sources, the learned Authorised Representative submitted that such income was a business income entitled to deductions under Sections 80HHC and 80-IA. He also relied on the decision of Tribunal, Amritsar Bench, in the case of Dy. CIT v. Chaman Lal Sons (2005) 93 TTJ (Asr) 132.
5. The learned Departmental Representative, on the other hand, heavily relied on the orders of authorities below. He submitted that the 'onus' was on the assessee to establish that income of Rs. 14,80,000 was a profit 'derived from' export business and industrial undertaking. He drew our attention to p. 3 of the paper book which is a copy of the CIT(A)'s order in appeal arising out of order under Section 154 where the CIT(A) has reproduced the letter of ADIT (Inv.) indicating the background of surrender of income of Rs. 14,80,000 necessitating the assessee to debit an amount in the books of account to cover unexplained investment in the plot of land. The income was shown under the head as 'Other income'. He submitted that it is settled law that entries in the books of account are not determinant of nature and character of income. The mere fact that assessee claims to be business income does not make such income as business income. There are no bills, vouchers, invoices to show that there were undisclosed turnover of the assessee resulting in business profit of Rs. 14,80,000. There is no circumstantial evidence also to link such income with the business activities of the assessee. He further drew our attention to p. 13 of the paper book which is a copy of working of deduction under Section 80-IA shown by the assessee. He submitted that assessee owned two units. He submitted that deduction under Section 80-IA was available only in respect of the units. Now even if income of Rs. 14,80,000 is considered as business income, how such income could be considered to be the income of units eligible for deduction under Section 80-IA. Thus, he submitted that assessee was not entitled to deductions under Sections 80HHC and 80-IA in respect of such income. He further stated that both the decisions relied upon by the learned Authorised Representative were not applicable to the facts of present case and accordingly contended that the order of CIT(A) does not merit any interference.
6. We have heard both the parties at some length and given our thoughtful consideration to the rival contentions, gone through the material and evidence placed on record and the orders of authorities below. We have also referred to the decisions relied upon by the learned Counsel for the assessee. The undisputed facts of the case are that assessee surrendered income of Rs. 14,80,000 to cover investment in the plot of land as a result of search and seizure action at the premises of Shri Harbhajan Singh and subsequent enquiries initiated by the Investigation Wing of the Department. Income was credited under the head "Other income." Apart from this, there was no document, bill, invoice, entries in the books of account to indicate undisclosed turnover, inflation of expenses, and suppression of sales/receipts to link such income with the business activities of the assessee. The assessee had neither produced any such evidence before the authorities below or before us to link such income with the business activities of the assessee. Now the question that requires to be considered by this Bench is whether, the assessee would be entitled to claim deductions under Sections 80-IA and 80HHC of the Act in respect of such income. Before recording our findings on this issue, we consider it appropriate to reproduce herein the relevant provisions of the Act which relate to deductions under the Section 80-IA of the Act inserted by the Finance (No. 2) Act, 1991, w.e.f. 1st April, 1991, and relevant for the assessment year under reference read as under :
"Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services or construction and development of housing projects or operating an industrial park or commercial production or refining of mineral oil in the North Eastern Region or in any part of India on or after the 1st day of April, 1997 such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in Sub-section (5) and for such number of assessment years as is specified in Sub-section (6)."
A bare reading of the section shows that it provides for deduction in respect of profits and gains "derived from" any business of industrial undertaking or an infrastructure facility or some other specialized activities added subsequently not relevant to assessment year under reference subject to other provisions of this section. Sub-section (2) of Section 80-IA prescribes certain conditions which must be fulfilled in order to entitle the industrial undertaking for deduction under this section. However, from the above it is clear that deduction shall be only in respect of profits and gains "derived from" the business of industrial undertaking. The expression used is not profits attributable to an industrial undertaking. The Hon'ble apex Court had occasion to consider the difference in expressions used as 'attributable to' and 'derived from' in the case of Cambay Electric Supply Industrial Co. Ltd v. CIT , where it was observed that expression 'derived from' used by the legislature intends to cover only the receipt from the actual conduct of the business of specified nature, whereas the expression "attributable to" having a wider import than the expression "derived from" thereby intending to cover receipt from sources other than the actual conduct of the business of the specified nature. This issue also came before apex Court in the case of CIT v. Sterling Foods . In this case, the facts were that assessee claimed deduction under Section 80HH in respect of profit earned on sale of import entitlements granted by the Central Government under an export promotion scheme. Section 80HH provided deduction in respect of profits "derived from" an industrial undertaking set up in backward area. The apex Court observed that the expression "derived" is usually followed by the word "from" and it means "get to trace from a source, arise from, originate in, show the origin and formation of". The Court further observed that there must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. The source of import entitlements could not be said to be the industrial undertaking of the assessee. The nexus in this case was not direct but only incidental and, therefore, it was held that profit earned on sale of import entitlements could not be held to constitute a profit and gain "derived from" the industrial undertaking. Hence, assessee was not entitled to deduction under Section 80HH. The wording of Section 80HH is similar to the wording used in Section 80-IA of the Act.
7. In the case of Pandian Chemicals Ltd. v. CIT , Hon'ble Supreme Court again considered the deduction under Section 80HH in respect of interest earned on deposit made with Electricity Board for supply to industrial undertaking. The Hon'ble Supreme Court observed that although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed form the business of the industrial undertaking. The Court also observed that the words "derived from" in Section 80HH of the Act must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Thus, it was held that interest earned on deposit made with the Electricity Department was not a profit "derived from" industrial undertaking and hence, not entitled to deduction under Section 80HH.
7.1. The above discussion clearly brings home the point that in order to entitle the assessee to deduction under Section 80-IA, there must be direct nexus between the profit and the industrial undertaking. If the nexus is indirect or incidental, it could not be held to be profit derived from an industrial undertaking. In the present case, the facts are very clear. The assessee had introduced sum of Rs. 14,80,000 in the books under the head "Other income" with a view to explain investment in the plot of land after document was found by the IT authorities during the course of search at the place of Shri Harbhajan Singh and enquiries were initiated by the Investigation Wing with the purchaser and seller. There is not even an iota of evidence in the form of bills, vouchers, invoices, etc. to link such profit with the business of an industrial undertaking. In fact, the assessee was running three units. Out of which two units were entitled to deduction under Section 80-IA. Third unit was not even entitled to such deduction. Therefore, it is not known to anybody as to which unit such income relates. Therefore, how could a deduction under Section 80-IA can be allowed when the assessee is unable to indicate the nature of income earned and to which unit it relates. Since the assessee has failed to establish direct nexus between the profit of Rs. 14,80,000 and the industrial undertaking, we are of the considered view that assessee is not entitled to deduction under Section 80-IA of the Act.
7.2 But before parting with this issue we would like to refer to the two decisions of Tribunal, Amritsar Bench, relied upon by the learned Counsel for the assessee. The first decision in the case of Kashmir Steel Rolling Mills v. Dy. CIT (supra) is dt. 16th May, 1990. In this case the assessee had claimed deduction under Sections. 80HH and 80-I in respect of income disclosed under the Amnesty Scheme. As per Board's Circular No. 281/50-86 (IT) (Inv. III), dt. 17th June, 1986, the field authorities, were precluded from making any enquiry to find out the source of income disclosed under the Amnesty Scheme. Besides, Tribunal also took note of the fact that the Chief CIT, while answering the question on the stock disclosed, had stated that this would qualify for deduction under Sections. 80HH and 80-I. In that case assessee was not bound to disclose the source of such income. In the light of these facts, the Tribunal held that the only source of income was from industrial undertaking, there was strong circumstantial evidence in favour of assessee to come to the conclusion that the income voluntarily disclosed was derived from the industrial undertaking. But these are not the facts of present case. Income has neither been disclosed under the Amnesty Scheme nor the assessee is allowed any immunity from not disclosing the source of income. It is not the claim of assessee that income disclosed/surrendered by the assessee represented unaccounted stock of the industrial undertaking, unaccounted turnover, inflation of expenses which could be linked directly with the business of industrial undertaking. Besides, unlike the case of Kashmir Steel Rolling Mills v. Dy. CIT (supra), the assessee owned more than one unit. No evidence has been placed before us to show that such income related to the units whose income was entitled to deduction under Section 80-IA. Besides, the decision of Tribunal, Amritsar Bench, in the case relied upon by the Authorised Representative is dt. 16th May, 1990 and the judgment of Supreme . Court in the case of CIT v. Sterling Foods (supra) is dt. 15th April, 1999, where it was held that the 'nexus' between the profit and the industrial undertaking has to be direct and not indirect or incidental or based on circumstantial evidence. Therefore, Tribunal Amritsar Bench, did not have the benefit of the judgment of Supreme Court in the aforesaid case. Accordingly, we hold that the decision of Tribunal, Amritsar Bench, in the above case is not applicable to the facts of the present case.
7.3. The next decision of Tribunal, Amritsar Bench, relied upon by the learned Authorised Representative is in the case of Dy. CIT v. Chaman Lal and Sons (supra). In this case, facts were that assessee was running a rice sheller which was an industrial undertaking entitled to deduction under Section 80-IA. In addition to profit derived from shelling of rice, the assessee's business also consisted of trading in rice and total turnover of the assessee from trading included sales of 17.8 per cent. The question was whether profit earned on trading of rice qualified for deduction under Section 80-IA. The Tribunal allowed the claim on the ground that trading activity was part of the business of industrial undertaking. But, besides, Tribunal was influenced more by the fact that in the subsequent assessment year, the Department itself had allowed deduction under Section 80-IA in respect of profit from trading activity and the principle of consistency deserved to the followed. The relevant finding recorded by the Tribunal in para 9 of the order deserves to be reproduced as under:
"9. Another important aspect which cannot be lost sight of is that the assessee has claimed before us that in the subsequent years also deduction was claimed on identical pattern and was allowed accordingly. The learned Departmental Representative was required to verify the factual position in this regard. On next hearing, it was reported by him that the deduction was allowed in the course of proceeding under Section 143(3), as stated on behalf of the assessee and further no action under Section 263 was taken. Keeping into consideration this fact that the assessee was allowed deduction in the same fashion even after the passing of the instant assessment order, we are at a loss to appreciate any logic in pursuing the matter in appeal. Albeit the principle of res judicata is not strictly applicable to the proceedings under the Act, yet, the doctrine of consistency does not permit the Department authorities to change its stand when there is no change in the facts or laws in one year vis-a-vis the other, warranting departure. Our view gets support from a recent decision rendered in the case of Director of IT v. Lovely Bal Shikshan Parishad . In view of the aforenoted factual and legal position, it becomes apparent that the learned CIT(A) was justified in directing the AO to allow deduction in respect of profit from the trading operations in Karnal unit. We uphold the impugned order on this score."
These are not the facts of the present case. It is none of the claim of the assessee that income surrendered represented profit from trading activities of units of industrial undertaking entitled for deduction under Section 80-IA. In the present case, the assessee had not at all explained as to how such income was earned and how it could be linked with the industrial undertaking. Further, unlike the case relied upon by the Authorised Representative, it is not the claim of the assessee that similar claim had been allowed in the subsequent assessment year. Moreover, for the purpose of claiming deduction under Section 80-IA, the assessee is not only required to establish that it was business profit, but also to establish that this was a profit 'derived from' an industrial undertaking which means a direct nexus between the profit and industrial undertaking. The mere fact that such income was a business income would not entitle the assessee for deduction under Section 80-IA. Thus, this decision is also not applicable to the facts of present case.
7.4. In the light of detailed discussion in the preceding paragraphs and legal position discussed above, we hold that the CIT(A) was justified in sustaining the disallowance of deduction under Section 80-IA in respect of income of Rs. 14,80,000 surrendered by the assessee under the head "Other income". We confirm the order of CIT(A) and reject the grounds of appeal of the assessee.
8. We now proceed to record our findings in regard to assessee's claim for deduction under Section 80HHC in respect of income of Rs. 14,80,000 surrendered. The provisions of Section. 80HHC read as under:
"Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of the profits derived by the assessee from the export of such goods or merchandise."
Here also, deduction is available to the assessee who is engaged in the business of export out of India of any goods and merchandise. Deduction is available in respect of profits derived by the assessee from the export of such goods or merchandise. The expression used is profit "derived from" export of such goods. This means that there should be direct 'nexus' between' the profits and gains with the export of goods. Thus, section is, therefore, similar to Section 80-IA. However, there is a difference in the computation of deduction as provided under Section 80HHC(3) of the Act. As per Clause (a) of sub-section (3) of Section 80HHC if the assessee has exported goods out of the goods processed by assessee, the profits derived from export shall be computed on proportionate basis as provided in the section. Clause (b) of Sub-section (3) of Section. 80HHC refers to export out of trading goods, the profits derived from export again requires to be 'computed on proportionate basis; Clause (c) deals with computation of profit, if exports out of India is out of goods or merchandise manufactured or processed by the assessee and of trading goods on proportionate basis. But in order to entitle to the claim of deduction under Section 80HHC, it is for the assessee to establish that the case falls under these clauses of Sub-section (3) of Section 80HHC. This has not been done either before the authorities below or even before us. Here also, it's not enough to show that the, assessee had earned income from business but also to establish that nature of business activity falls under either of the three clauses of Sub-section (3) of Section 80HHC.
8.1 Apart from the above, it is not every kind of income from business which qualifies for computation of deduction under Section 80HHC. Clause (baa) of Explanation below sub-section (4B) of Section 80HHC inserted by the Finance (No. 2) Act, 1991, w.e.f. 1st April, 1992 and also applicable to assessment year under reference reads as under:
"(baa) 'Profits of the business' means the profits of the business as computed under the head 'Profits and gains of business or profession' as reduced by--
1. ninety per cent of any sum referred to in Clauses. (iiia), (iiib) and (iiic) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and
2. the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India."
Thus, from the above it is clear that even if the income constitutes a business profit, but is of the nature mentioned above, 90 per cent of the same has to be reduced for the purpose of computing the deduction under Section 80HHC. In the present case, the assessee has surrendered income of Rs. 14,80,000 without indicating the nature of receipt and also without indicating any turnover on which income of Rs. 14,80,000 was earned. It is income as such. When the attention of the learned Authorised Representative was drawn to Expln. (baa) referred to above, he referred that assessee has no objection if 10 per cent of Rs. 14,80,000 is considered as business profits for the purpose of computing deduction under Section 80HHC. Such plea of the assessee cannot be accepted because the assessee has failed to establish that income disclosed falls in the category of income mentioned under Clause (baa) of Explanation.
8.2 Even in regard to certain other income which may be income from business, but the same is not entitled to deduction under Section 80HHC. In the case of CIT v. S.G. Jhaveti Consultancy Ltd. (2000) 245 ITR 854 (Bom), the Bombay High Court has held that income earned by way of labour charges, service charges and interest are not includible in business profits for purposes of computation of special deduction under Section 80HHC. Same view was taken by Bombay High Court in the case of CIT v. K.K. Doshi and Co. . In the case of Nanji Topanbhai and Co. v. Asstt. CIT and Ors., Kerala High Court has held that interest earned on fixed deposit offered as collateral security for loan is not profit from business and hence, not entitled to special deduction under Section 80HHC. Same view was taken by Bombay High Court in the case of CIT v. Ravi Ratna Exports (P) Ltd. . Thus, it is clear that it is not every kind of business income which qualifies for computation of deduction under Section 80HHC. The case of the assessee is worst because in this case the assessee has not even disclosed the nature of income which was kept outside the books of account. Therefore, there is no question of allowing deduction under Section 80HHC in respect of such income.
9. In the light of detailed discussion in the preceding paragraphs and legal position discussed above, we are of the considered opinion that assessee is not entitled to deduction under Section 80HHC in respect of income of Rs. 14,80,000 surrendered. We, therefore, do not find any justification to interfere with the order of CIT(A). The same is upheld and the grounds of appeal of the assessee are rejected.
10. In the result, the appeal filed by the assessee is dismissed.