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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकरअपीलसं./ITA No. 2608/AHD/2014 (�नधा�रणवष� / Assessment Years: (2008-09) (Virtual Court Hearing) Shilpraj Developers Pvt. Ltd., The ACIT, Circle- 4, Vs. 12, Suryakiran Apartment, Ghod-Dod Surat. Road, Surat-395005. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AADCS3045H (Assessee) (Respondent)
Assessee by : Shri Ashwin K. Parekh, CA Revenue by : Ms Anupama Singla, Sr. DR सुनवाईक�तार�ख/ Date of Hearing : 08/03/2021 घोषणाक�तार�ख/Date of Pronouncement : 19/04/2021 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the assessee, pertaining to the Assessment Year (AY) 2008-09, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-II, Surat [in short “the ld. CIT(A)”] in Appeal No. CAS-II/243/TRFD/2010-11 dated 01.08.2014 which in turn arises out of an order passed by Assessing Officer (in short “the AO) under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”]. The grievances raised by the assessee are as follows:
“I. The learned CIT(A) has grievously erred in law and on facts in confirming the income of Rs.1,10,00,000/- disclosed u/s. 133A of the as income from undisclosed sources instead of business income as per the seized diary and the statement of directors recorded on 27.02.2008. The income disclosed should be treated as business income. II. The learned CIT(A) has grievously erred in law and on facts in not allowing set off of business loss of Rs.77,15,133/- against income of Rs.1,10,00,000/- disclosed u/s. 133A of the Act as loss from business is eligible for set off against profit from business u/s. 71 of the Act. The loss of Rs.77,15,133/- should therefore, be allowed set off.
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. III. The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.31,93,411/- on account of construction expenses claimed against construction receipts disregarding all evidences. The addition should therefore, be deleted.
IV. The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.2,55,743/- by estimating profit on construction expenses disregarding the evidences of expenses already eligible for deduction against receipts. The addition of Rs.2,55,743/- should therefore, be deleted.
The appellant reserves the right to add, alter, modify, amend or withdraw any of the grounds of appeal before hearing.”
At the outset itself, the Learned Counsel for the assessee informs the Bench that assessee does not wish to press Ground Nos.3 and 4 raised by him, therefore we dismiss Ground Nos.3 and 4 raised by the assessee, as not pressed.
The effective grounds before us, to be adjudicated, are ground nos. 1 and 2. In ground No.1 the main grievance of the assessee is that undisclosed income of Rs. 1,10,00,000/- which was disclosed as per seized diary during survey action under section 133A of the Act should be treated under the head ‘business income’ instead of under the head ‘other sources’.
In ground no.2, the assessee states that if income of Rs.1,10,00,000/- is treated under the head ‘business income’ then set off of business loss of Rs.77,15,133/- against such ‘business income’ may be allowed. Since both the grounds are interlinked and mixed in nature, therefore we adjudicate them together.
The facts necessary for disposal of the appeal are stated in brief. During the assessment year 2008-09, a survey action u/s 133A was conducted in the business premises of the assessee wherein assessee has declared a sum of Rs.1,10,00,000/- on account of 'On-money' (Rs.1,08,00,000/-) and other irregularities. (Rs.2,00,000/-). This disclosure was based on a diary (Anupam Dhanlaxmi Red diary) found in the premises of the assessee.
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. 5. During the assessment proceedings, on verification of details submitted it was noticed by the assessing officer that the assessee has offered the income of Rs.1,00,00,000/- only, as an income disclosed during the survey, instead of Rs.1,10,00,000/-. In this regard, the assessee has not furnished any clarification before the assessing officer, despite of specific show cause notices dated 02-11- 2010 and 19-11-2010. The assessing officer noticed that assessee has adjusted the current year loss against said income of Rs.1,10,00,000/-. The assessing officer was of the view that income from undisclosed source does not fall under any heads of income, it is separately taxed as “INCOME FROM UNDISCLOSED INCOME”. Therefore this income is not available either for intra-head adjustment or inter-head adjustment. No carry forward business or depreciation loss is also allowable to be set-off against this head of income. Therefore, assessing officer issued show cause notice to explain the transaction.
In response to show cause notice the assessee submitted reply before the assessing officer. In respect of the income declared during the course of survey it was stated by the assessee that the receipts are fictitious and the diary is prepared as on the date of survey. The assessee prepared an affidavit after four months of survey and such affidavit was filed before the assessing officer on 06-06-2010.
The assessing officer rejected the contention of the assessee. The assessing officer observed that ‘had the diary been fictitious the assessee would never have offered income declared during the survey’. The affidavit has been filed after four months from the date of survey, so it is an after-thought (planning) to avoid the payment of income tax, hence the contention of the assessee was therefore treated by the assessing officer, as wrong and misleading. In respect of difference in income declared during the course of survey and income declared in the return of income, the assessee has not offered any explanation, therefore, the assessing officer treated this sum of Rs.10,00,000/- as an income of the assessee under section 69 of the Act, as an Unexplained Investment in form of unaccounted receivables. The assessing officer relied on the judgment of jurisdictional High Court of Gujarat in the case of Fakir
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. Mohmod Haji Hasan V/s CIT (2001)(247 ITR 290)(Guj) and made the addition of Rs.1,10,00,000/- under section 69 of the Act.
Since the assessee has not proved that the undisclosed income of Rs.1,10,00,000/- was earned out of business activities, therefore assessing officer treated the income disclosed during the course of survey as an undisclosed Income under the head "Income of Undisclosed Sources". Since the income of Rs.1,10,00,000/- was assessed under the head “ other sources” , therefore assessing officer denied any set off of loss against such income.
On appeal, the ld CIT(A) has confirmed the action of the assessing officer. Aggrieved by the order of the ld CIT(A), the assessee is in appeal before us.
Shri Ashwin K. Parekh, Learned Counsel for the assessee, submits before the Bench that the income tax officer in his assessment order, vide para 4 of assessment order, has stated that ‘the income from undisclosed sources does not fall under any heads of income’ which is a wrong observation of the assessing officer and therefore the order passed by the assessing officer is not in accordance with law. Leaned Counsel also submits that the undisclosed income found in the survey action which is mentioned in the diary is derived from business activities and it should be assessed under the head ‘income from business’ therefore set off of business losses should also be allowed to the assessee. To support his view, learned Counsel relied on the judgment of the Hon’able Gujarat High Court in the case of Commissioner of Income Tax vs. Mhaskar General Hospital in Tax appeal No. 1474 of 2009.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents Page | 4
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. The main grievance of the Learned Councel for the assessee is that the income tax officer in his assessment order, vide para 4 of assessment order, has stated that ‘the income from undisclosed sources does not fall under any heads of income’ which is a wrong observation of the assessing officer and therefore the order passed by the assessing officer is not in accordance with law. We note that this issue has been dealt with by the Hon’able Gujarat High Court in the case of Fakir Mohammed Haji Hasan 247 ITR 290 ( Gujarat). We note that Hon`ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan(supra) has answered the following questions which were referred by the Tribunal under Section 256(1) of the Income-tax Act, 1961, for the opinion of the court : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had been found in possession of gold valued at Rs. 48.72 lakhs and as such he was the owner of the said gold and the value of the said gold was liable to be included in the income of the assessee because of the fact that no explanation regarding source from which investment in the said gold had been made, had been given by the assessee? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no deduction in respect of the value of the gold which had been confiscated was allowable from the income of the assessee?”
The Hon`ble Court has answered these questions as follows:
“7. The scheme of Sections 69, 69A. 69B and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of investments made by the assessee 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 at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under Section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so Page | 5
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. classified under any one of the heads of income under Section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of Sections 69, 69A, 69B and 69C will riot apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted. 8. The opening words of Section 14 "save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of Sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from "other sources" because the provisions of Sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head "Income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of Sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions. 9. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because, such deemed income did not fall under the head of income "profits and gains of business or profession". 10. In our opinion, therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold should he allowed as a deduction from his income. 11. Both the questions referred to us are, therefore, answered in the affirmative, against the assessee and in favour of the Revenue. The reference stands disposed of accordingly with no order as to costs.”
From the above decision of Hon`ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan (supra) it is abundantly clear that where an income which is not admitted, but is inferred by the assessing officer and if it could not be brought under any particular head of incomes, deduction may be lost. Where
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. such receipt cannot be brought under any particular head of income, it will have to be assessed under the head “other sources” but deductions under section 57 of the Act may not be admissible as it will not be possible for the assessee to claim deduction as relating to such deemed income, since the assessee has denied that income, but if he is able to prove any expenditure in relation to such admitted income, there is no reason for denying the same. Therefore, the deemed income will be assessable under the head “income from other sources”, however, the deduction available under the head “income from other sources” will be lost. We note that in para 4 of the assessment order the assessing officer observed as follows: “As the income from undisclosed sources does not fall under any heads of income, it is separately taxed as ‘income from undisclosed income’. Here what the assessing officer wants to say that income from undisclosed sources would be included in the income of the assessee, but the assessee can not claim the deduction available under the head “Income from other sources”, as the source of these income is not known. However, taking into account the judgment of the Hon’ble Gujarat High Court, as cited above, we note that assessing officer stated that undisclosed source income would not be assessable under any heads of income, which is not correct. We note that observations of the Hon’ble Gujarat High Court that sections 69, 69A, 69B and 69C incomes` are not assessable under the head “other sources” do not mean that incomes of these sections are headless income. The intention of the Hon’ble Court is that once these deemed income under sections 69, 69A, 69B and 69C etc., are assessable under the head “other sources” then the assessee will not get deduction of the expenses incurred by him to earn said income, if he has failed to prove the source of these incomes. Hence, we note that the judgment of the Hon, able Gujarat High Court has been misunderstood by the assessing officer. Thus, we note that the deemed income would be assessable under the head “income from other sources” but the assessee will not be able to claim the deductions from these incomes as the assessee has failed to Page | 7
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. explain the sources thereof, (that is, whether it is income from business or income from property). We also note that assessing officer, in his assessment order, (vide page 6) has rightly mentioned in the computation of income, the income disclosed during the course of survey under section 69 of the Act at Rs.1,10,00,000/- which is under the head “Income from other sources” and the assessee would not able to claim deduction and set off of loss, as the source of the said income is not known. Therefore, the plea of the ld Counsel that assessing officer has not assessed the income at Rs.1,10,00,000/- under any heads of income, is not tenable. We note that assessing officer did assess the said income under the head “Income from other sources” stating that assessee cannot claim the benefit of set off of losses. That is, the assessee would not be able to get the deduction for the expenses which he has incurred because these are deemed income and the assessee has denied that income, sources are not known, and these incomes were not recorded in the books of accounts of the assessee. Thus, the conclusion of the judgment of Hon'ble Gujarat High Court (supra) is that these deemed incomes belong to the assessee and will enter in the computation of total income of the assessee and assessee is liable to pay taxes thereon, and deduction available under section 57 will be lost.
We note that assessee has not disclosed the source of income of Rs.1,10,00,000/-, whether it relates to his business or other sources. We note that an affidavit has been filed by the assessee after four months from the date of survey. The Ld Counsel did not explain the reasons to file the affidavit so late. Therefore, we are of the view that it is an after-thought (planning) to avoid the payment of income tax. Hence, the nature of income disclosed during the survey at Rs.1,10,00,000/-, cannot be decided based on this affidavit.
Leaned Counsel placed reliance on the judgment of the Hon’ble Gujarat High Court in the case of Mhaskar General Hospital, tax appeal number 1474 of 2009, wherein the stand of the assessee was that its sole business was that of running a hospital, it had no other source of income and therefore treating such undisclosed income from other source was not justified. In the assessee`s case
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. under consideration the assessee has neither explained the entry in diary found during the survey that unaccounted money of Rs.1,10,00,000/- belongs to his business nor he communicated to the survey team that such sum belongs to his business activities. We also note that above judgment of the Hon`ble Court is with reference to section 263 of the Act wherein the main object of the Hon’ble High Court was to examine whether the order passed by the assessing officer was erroneous and prejudicial to the interest of the revenue, therefore this judgment does not apply to the assessee`s facts under consideration, as it has been decided in the context of section 263 of the Income Tax Act. On merit also, the ratio of this judgment is not applicable to the assessee`s facts under consideration.
We note that ld CIT(A) confirmed the action of the assessing officer, observing as follows:
“15. After examining all the above facts, it is apparent that the appellant has been trying to mislead the department. As per the remand report of the Assessing Officer no payment of demolition charges has been paid by the assessee. The demolition of the construction was ordered way back in February 1985, while fresh permission for construction was given by the SMC in October 2005. After construction the building has been given on rent and the demolition of earlier construction has no co-relation with new construction. The income from the building constructed has been shown under the head income from ‘house property’ and not as business income. Therefore, the expenditure incurred in respect of construction of the said building or demolition of earlier building is not allowable, even otherwise, under u/s 37(1) of the Income Tax Act. Moreover, demolition charges of earlier building and the corresponding expenditure, if any does not pertain to assessment year 2008-09 at all. On major component of the said expenditure i.e. demolition charges paid to the Surat Municipal Corporation has been denied by the SMC authorities. Therefore, even the genuineness of the expenditure has not been established. Without prejudice to the same, the said expenditure even if incurred, is not allowable under the head income from ‘business and / or profession'. Ever, otherwise, it does net pertain to assessment year 2008-09. Therefore, the ground no. Ill of the appeal is dismissed. 16. The next issue is whether the business loss can be set off of against the additional income declared at Rs.1,10,00,000. Here again, explanation of the appellant and the facts of the case are very peculiar. If the amount of Rs. 1,10,00,000/-(received from April 2007 to February 2008) mentioned in the Page | 9
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. diary impounded pertains to ‘on money’ in respect of the old building, whose demolition was ordered way back in February 1985, how the “on money” was received in assessment year 2008-09. If this “on money " pertained to the new building which has been constructed why the said building has not been sold and has been given on rent. 16.1 Even if it has been given on rent for the reason that the bookings were cancelled by the customers, the appellant was obliged to return the ‘on money’ received in respect or bookings, if the amount received actually pertained to the booking amount in respect of building under construction. There are no names in the diary mentioning from whom the "on money" was received. It is also strange why the parties have not made any claim for refund of this money. 16.2 From a perusal of the these facts, it is apparent that the sum of Rs.1,10,00,000 received in cash, from April 2007 to February 2008 is in fact 'unexplained money' which is taxable u/s 69A of the Income Tax Act and not on money in respect of the building under reference. Since it is a deemed income of the appellant and cannot be co-related with the construction of building, which has been given on rent, the said income of the appellant cannot be assessed under the head 'business or profession'. The nature of receipts is also not known. 16.3 The decision of jurisdictional High Court in the case of Fakir Mohmed Haji Hasan v/s CIT, relied upon by the assessing officer, supports the observation of the assessing officer. Unless the appellant establishes that the amounts received was actually “on money” and it pertained to the building under construction, the source of sum of Rs.1,10,00,000 remains unexplained. Therefore, it will be 'deemed income' under section 69A of the Act against which, no set off u/s 71 can be given in respect of business loss. 16.4 In view of the above and respectfully following the decision of the jurisdictional High Court (supra), the ground nos. I and II of the appeal are dismissed.”
We have carefully gone through the above findings of ld CIT(A) in the context of the assessee`s facts narrated by us, in above para of this order. The said undisclosed source income of Rs.1,10,00,000/- of the assessee cannot be assessed under the head 'business or profession', as the nature of receipts is not known, that is, the assessee has failed to explain the nature of said undisclosed source income. In Sreelekha Banerjee v. Commissioner of Income-tax [1989] 49 ITR (SC) 114, 120: [1964] 2 SCR 552 (SC), the Hon`ble Supreme Court observed: Page | 10
ITA No. 2608/AHD/2014 Assessment Years.2008-09 Shilpraj Developers Pvt. Ltd. "The very words ' an undisclosed source' show that the disclosure must come from the assessee and not from the department."
Therefore, in the absence of any plausible explanation form the ld Counsel, we are constrained to agree with the findings of the ld CIT(A). That being so, we decline to interfere in the order of ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the assessee is dismissed.
In the result, the appeal filed by the assessee is dismissed
Order is pronounced on 19/04/2021 by placing result on Notice Board.
Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat �दनांक/ Date:19/04/2021 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat