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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. LALIET KUMAR & DR. M. L. MEENA
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. LALIET KUMAR, JUDICIAL MEMBER AND DR. M. L. MEENA, ACCOUNTANT MEMBER I.T.A. No. 702/Asr/2013 Assessment Year: 2009-10
Mr. Maninder Singh Cheema Vs. Asstt. Commissioner of R/o H. No. 298, Gali No. 20, Income Tax Hoshiarpur Guru Nanak Nagar, Hoshiarpur Circle, Hoshiarpur [PAN: AEYPC 4778B] (Appellant) (Respendent)
Appellant by Sh. Surinder Mahajan, C. A. Respondent by Smt. Ratinder Kaur, D. R.
Date of Hearing 05.07.2021 Date of Pronouncement 07.07.2021
ORDER Per Laliet Kumar, J.M. This appeal of the assessee is directed against the order dated 10.09.2013 passed by the Commissioner of Income Tax (Appeals)-1, Ludhiana in respect of A.Y. 2009-10.
Grounds of appeal:
“1. A. That Learned Commissioner of Income Tax (Appeals) has grossly erred in law in confirming addition of Rs.14,15,788/- being development expenses of colony under the
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name and Style of M/s Kartar Estate, Phagwara (Punjab) charged to cost of land. Addition confirmed is illegal and bad in law.
B. That Learned Commissioner of Income Tax (Appeals) has grossly erred in law in concluding that disclosure has been neutralized by assessee to the extent of Rs.14,15,788/- and thus confirming the addition of Rs.14,15,788/-. Addition confirmed is illegal & bad in law.
That the Appellant requests for leave to add or amend the grounds of appeal before the appeal is heard or disposed off.”
Brief Facts
That survey operation u/s 133A of Act were carried out at business premises of assessee and assessee surrendered Rs. 1,20,00,000/- out of which Rs. 83;00,000/- were on account of development cost of Kartar Estate Project, Phagwara. These facts have been incorporated in body of assessment order in para 2 of the assessment order. During the survey the statement of the assessee was recorded and the assessee agreed to surrender the amount. Out of total amount surrendered at Rs. 1,20,00,000/-, Rs. 89,05,000/-(Rs. - 83,00,000/-development cost + Rs. 6,05,000/- cash) related to Kartar Estates and balance 30,95,000/- was-on account of personal assets.(Page 7 of the paper book, statement of the assessee)
It is the case of the assessee that assessee brought in books of accounts amount of Rs. 89,95,000/- being business related entries by debiting Rs. 83500,000/- to development expenses surrendered during survey operations and Rs. 6,95,000/- to cash account & credited capital account with Rs, 89,95,000/-.
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That in the statement of assessable income business related items of Rs. 89,95,000/- were declared under the head business income & balance Rs. 30,05,000/- were declared under the head income from other source.
That Rs. 83,00;000/- development expenses of Kartar Estate were debited in trading account. Few plots were sold for Rs. 48,78,200/- of which cost was Rs. 90,62,903/-(cost of land and proportionate share of development cost) which resulted in gross loss of Rs. 41,84,703/-. Page 10 of paper book.
That during assessment proceedings assessee was asked to justify loss claimed at Rs. 44.70,775/- and assessee explained vide his letter dated 26.12.2011. Page 11 of paper book .That detailed chart of calculation of cost of land sold charged to profit & loss account was also filed, Page 12 of paper book. From the chart , the AR of the assessee had submitted that total cost of land & development expenses which included Rs. 83,00,000/- surrendered during survey have been charged to total saleable land measuring 468 Marlas, out of which 79.83 Marlas was sold during the. year under consideration. It was further submitted that out of Rs. 83,00,000/- surrendered. during survey on account of development expenses Rs. 14,15,788/- (83,00,000/468*79.83) have been charged to cost of land sold & balance Rs. 68,84,212/- have been charged to closing stock.
The assessing officer was not satisfied with the explanation given by the assessee during the course of assessment and. A.O. made addition of Rs.83,00,000/- as per observation in para 3.1 of Asset order by holding that amount of Rs. 83,00,000/- debited in trading account is not allowable since this amount was surrendered during survey operations over & above normal business income.
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Feeling aggrieved by the order passed by the assessing officer the assessee preferred the appeal before the CIT(A). CIT(A) had a partly granted the relief to the assessee. In paragraph 12 of his order mentioned as under
“12. I have considered the basis of addition made by the Assessing Officer and the arguments of the AR on the issue. It is seen that the appellant had included the surrender of Rs.83,00,000/- made during course of survey in the computation of his income in the following manner:
Sr. No. Description Amount 89,95,000/- 1. Under the head business income 30,05,000/- 2. Under the head income from other sources Total 1,20,00,000/-
It is further seen that the debit of Rs. 83,00,000/- in the course of development has been neutralized by including same in the closing stock to the tune of Rs. 68,84,212/- which means that the assessee had claimed additional debit of Rs. 14,15,788/- out of the disclosed amount of Rs.83,00,000/-. This is to mean that the disclosure has been neutralized by the assessee only to the extent of Rs. 14,15,788/- and not Rs. 83,00,000/-. It is very simple to appreciate this issue as but for the surrender of Rs.83,00,000/- included in the computation of total income, the return of income of the assessee could not have been Rs.83,95,910/- with operating net loss of Rs. 44,70,775/- from business operations. The action of the Assessing Officer in adding back Rs. 83,00,000/- is erroneous whereas only an amount of Rs. 14,15,788/- wrongly debited by assessee in P & L account has to be added back. The logic of the Assessing Officer in treating the said debit - P & L account is correct but the amount taken is erroneously taken as Rs. 83,00,000/- where it should be Rs. 14,15,788/-. Therefore, the addition made by the Assessing Officer is confirmed to the tune of Rs.14,15,788/- and the rest of the addition is directed to be deleted.”
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Feeling aggrieved by the confirmation of the addition to the Tune of Rupees 1415788/-the assessee had filed the appeal. Whereas the revenue had filed an appeal bearing No. 721 for deleting the addition of � 6 8,84,212/- however the appeal of the revenue was dismissed on account of law tax effect.
The Ld.AR for the assessee had submitted that the order passed by the CIT(A) is not sustainable in the eyes of law. It was submitted that while making addition of Rs. 83,00,000/- Ld. A.O. has lost sight of following facts:- a) That Rs. 83,00,000/- was development cost of total saleable land measuring 468 Marlas out of which only 79.83 Marlas have been sold during the year. Cost of Rs. 14,15,788/- has been. charged to land sold & balance Rs. 68,84,212/- has been included in closing stock. .As such charge to trading account is. only. of Rs. 14,15,788/- & not Rs. 83,00,000/-. b) That amount of Rs. 83,00,000/- & 83,00,000/- & another amount surrendered total Rs. 1,20,00,000/-.have been duly declared in the return as detailed below:-
Sr. No. Description Amount
Under the head business income 89,95,000/-
Under the head income from other sources 30,05,000/-
Total: 1,20,00,000/-
d) Assessee has declared surrendered amount over & above normal profit which was loss of Rs. 44,70,775/-.
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e) Assessee has not annulled the surrender of Rs. 83,00,000/- by debiting the same in trading account since income of Rs. 83,00,000/- has been separately shown in the statement of assessable income.
It was further submitted that disallowance of Rs. 14,15,788/- confirmed by learned CIT(A) is uncalled for since Rs. 83,00,000/- were surrendered towards development cost of Kartar Estate Pvt. Ltd. It was submitted that this amount has to, be added in the trading account and would result in increased cost of saleable area of the year under consideration.
Per contra DR for the revenue had vehemently relied upon the order passed by the assessing officer as well as by the CIT (A). The Ld. DR had drawn our attention to paragraph 3.1 of the assessment order passed by the assessing officer wherein the assessing Officer had categorically that the amounts under during the course of survey was not done on account of normal business income the assessee during the year under consideration. It was further submitted that the expenditure cannot be allowed against the surrendered amount against any other income . It was also submitted that the amount surrendered was the income of the assessee from undisclosed sources, and the same cannot be claimed as expenses in the trading account.
We have considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of hearing by both the parties. During the course of survey, the assessee had surrendered may amount of � 1.20 crore on various heads including, cash unexplained pertaining to Kartar estate for Rs. 6,05,000/- and development cost of Kartar estate(project phagwarah) for Rs. 83,00,000/-. Assessing officer has opined that the amount of � 83 lacs was income from other sources falling under the
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group of section 69A to 69 C and was not account of the business income. However, the assessee has claimed that the amount declared by the assessee was business income and hence had claimed set off against the business loss is as per the provisions of section 71 of the Act. The assessing officer during the assessment proceedings, had given the notice against set off the business losses and the assessee was asked to explain the business losses claimed by the assessee for an amount of Rs. 44,70,775/-. It is a matter of record that the assessing officer in the entire assessment order had not disputed the business losses however the assessing officer had only denied the claim of the assessee on the premise that the income declared by the assessee was from any other sources and not Business income.
In our considered opinion, once the assessee had surrendered the amount, during the course of survey on account of the investment made for the development of Kartar estate, then it is essential for the assessee to disclose the source of such investment, in case the assessee able to disclose the source of investment, in that case only the amount surrendered shall be considered to be business income of the assessee, however in case the assessee failed to prove, then surrendered amount on account of development cost would be considered as income from any other source within the scope of 69A to 69C of the act.
In the present case the assessee was not able to demonstrate the source of investment made for development of Kartar estate ( s. no 4 of surrendered statement )from the books of account of the assessee or otherwise the source of investment .Instead of showing the source of cost incurred for development of project, the assessee had treated the same to be business income in the computation and it claimed set off against the same in the trading account . In our considered opinion , the initial onus is on the assessee to show the source of investment /cost
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incurred for development of project and thereafter only the same can be treated as business income and as per section 71 of the Act, the losses can be set off against business income only , needful was not done, hence the income disclose during the survey for the cost incurred for development appellate is required to be treated as investment made outside the books of account and is required to be held as income from any other sources. Hence the set off the business losses can not be permitted against the income from any other source. For the above said proposition we may rely upon the decision of the Jurisdictional High Court in the matter of Kim Pharma (P.) Ltd. [2013] 35 taxmann.com 456 (Punjab & Haryana) , wherein it was held as under:- “4. Learned counsel for the assessee submitted that the amountsurrendered by the assessee was business income and assessable as such. He relied upon a decision of the Karnataka High Court in CIT v. S.K. Srigiri & Bros. [2008] 298 ITR 13/171 Taxman 264. 5. The point for determination in this appeal is, whether Rs. 5,00,000 which was surrendered by the assessee during the course of survey under s. 133A of the Act would form part of business income or was assessable under s. 69A of the Act. The AO, the CIT(A) and the Tribunal after considering the factual aspect noticed that the amountsurrenderedduring the survey was not reflected in the books of account and no source from where it was derived was declared by the assessee and, therefore, it was, deemed income of the assessee under s. 69A of the Act. The findings recorded by the Tribunal in this regard are as under: "In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered additional income of Rs. 10 lakhs in asst. yr. 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by assessee was included as income from business. However, in respect of cash found duringsurvey, which was not reflected in the books of account, no source was declared by the assessee and in the absence of nature of source of cash being proved, the same is not assessable as income from business. In the circumstances, we uphold the order of the CIT(A) in including the additional income as deemed income under s. 69A of the Act and not allowing the benefit of the business losses determined against the said deemed income. The grounds of appeal raised by the assessee are dismissed." 6. The Tribunal had relied upon a decision of the Gujarat High Court in Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11. In that case, interpreting the scope and describing the scheme of ss. 69, 69A, 69B and 69C of the Act, it was observed :
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"The scheme of ss. 69, 69A, 69B and 69C of the IT 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 s. 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 classified under any one of the heads of income under s. 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 ss. 69, 69A, 69B and 69C will not 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. The opening words of s. 14 'save as otherwise provided by this Act' clearly leave scope for 'deemed income' of the nature covered under the scheme of ss. 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 ss. 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 ss. 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions. 7. The said decision fully applies to the facts of the present case."
Respectfully following the decision of the Hon’ble High Court, the appeal of the assessee is liable to be dismissed and we accordingly dismissed the same.
At this stage, we would like to mention that the though CIT(A) had deleted the addition for amount of Rs. 68,84,212/-against which the revenue had filed the appeal, however the same had been dismissed on account of low tax effect,
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therefore the appeal of the revenue, cannot be revived as the same had already been dismissed by the bench. Further we are also of the opinion that the assessee cannot be worsen off, in his appeal and benefit accrued in his favor cannot be negated on account of our finding and therefore we are dismissing the appeal of the assessee only to the extent of � 1 4,15,788/- which is the subject matter of the present appeal. 17. In the result, the assessee appeal is dismissed. Order pronounced in the open court on 07.07.2021
Sd/- Sd/- (Dr. M. L. Meena) (Laliet Kumar) Accountant Member Judicial Member
Dated: 07.07.2021 GP/Sr. Ps. Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T.