SANGEETA TOOLS PVT. LTD. vs. CIT LUDHIANA

The assessee has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 24.9.2008, Annexure A.1 passed by the Income Tax Appellate Tribunal 'B' Bench, Chandigarh in ITA No.47(CHANDI) 2006 for the assessment year 2003-04, claiming following substantial questions of law:- 1) Whether, on the facts and circumstances of the case, the ITAT was justified in law in holding that appellant was not entitled to the deduction under Section 80IB on the surrendered amount though utilized for the business of the appellant without placing any evidence against the assessee on record and without rebutting Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh the evidence presented by the assessee on record and thereby reversing a well versed and reasoned orders by the CIT(A)? 2) Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in denying the claims of the appellant under Section 80IB of the Income Tax Act, 1961 by blindly relying upon the judgment of this Hon'ble Court in the case of National Legguard Works v. CIT and another, 288 ITR 18 (P&H) which is distinguishable on facts itself and rather favours the present appellants case? 3) Whether, on the facts and circumstances of the case, the findings of ITAT are perverse and against the evidence on record thus unsustainable in law? 4) Whether the ITAT has misdirected itself in being influenced by irrelevant factors and applying erroneous criteria while deciding the issue for claiming deduction under Section 80IB of the Income Tax Act, 1961?

A few facts relevant for the decision of the controversy involved, as narrated in the appeal, may be noticed. The assessee is engaged in the manufacture of hand tools since February 1995 at Ludhiana. It is a regular income tax assessee. On 13.3.2003, a survey operation under Section 133A of the Act was conducted at the business premises of the assessee. During this survey operation, the assessee surrendered an amount of ` 50 lacs. The assessee filed its income tax return for the assessment year 2003-04 on 28.12.2003 declaring income of ` 52,97,370/-. The case of assessee was selected for scrutiny. The assessee attended the proceedings and filed the requisite information/documents. Its books of account were called Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh for. The assessee was asked to explain as to why the deduction in respect of income of ` 50 lacs under Section 80IA/IB of the Act be not disallowed. The assessee submitted its reply dated 30.11.2004, stating that it derived income from manufacturing activities and the additional income was also derived from industrial activities and no activity other than industrial activity was noticed during survey proceedings and, therefore, it is entitled to deduction under Section 80IB of the Act. The Assessing Officer held that according to Section 80IB of the Act, deduction was available on profits and gains derived from the business of an industrial undertaking and the onus was on the assessee to prove that the income had been derived from the industrial undertaking in order to claim deduction under Section 80IB of the Act. However, there was no such thing on the record which showed that the amount shown to have been invested in building account and cash was the result of income derived from industrial undertaking. By relying upon judgment of the Hon'ble Supreme Court in CIT v. Sterling Foods, (1999) 237 ITR 579, the Assessing Officer vide order dated 30.11.2004, Annexure A.3 disallowed the deduction under Section 80IB of the Act. Aggrieved by the order dated 30.11.2004, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 27.9.2005, Annexure A.2, the CIT(A) partly allowed the appeal qua the deduction under Section 80IB of the Act. Dissatisfied with the order passed by the CIT(A), the revenue filed an appeal before the Tribunal relying upon the judgment of this Court in National Legguard Works Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh v. CIT and another, (2007) 288 ITR 18 wherein it was held that in case of amount surrendered, the burden was on the assessee to prove that the amount represented profits on which deduction was permissible under Chapter VI-A. The Tribunal vide order dated 24.9.2008, Annexure A.1 allowed the appeal and set aside the order passed by the CIT(A). Hence the present appeal by the assessee.

Learned counsel for the appellant-assessee submitted that the surrendered amount of ` 50 lacs was on account of income from business or profession. According to the learned counsel, the finding recorded by the Tribunal that it was not derived from the industrial undertaking was erroneous. It was infact as a result of business income and, therefore, deduction under Section 80IB of the Act was admissible. It was also argued that the income was assessed by the Assessing Officer under the head “business or profession” and, therefore, the assessee was entitled for deduction under Section 80IB of the Act. Reliance was placed upon judgments in CIT v. Abdul Rahman Industries, (2007) 293 ITR 475 (Mad.), CIT v. N.R.Paper & Board Limited, (2009) 24 DTR 154 (Guj.), CIT v. Allied Industries, (2009) 31 DTR Judgments 323 (HP), CIT v. Sheth Developers (P) Limited, (2012) 77 DTR Judgments 249 (Bombay) and CIT v. Haswani Arts, (2013) 83 DTR Judgments 81 (Raj.) in support of the submissions.

Controverting the aforesaid submissions, learned counsel for the revenue relied upon judgments of this Court in Home Tex v. CIT, (2011) 59 DTR Judgments 165 and National Legguard Works's Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh case (supra). Learned counsel for the revenue submitted that there could be trading activity as well and the assessee had not produced anything to prove that it was on account of industrial undertaking and the onus upon the assessee was not discharged.

After hearing learned counsel for the parties and perusing the record, we do not find any merit in the appeal.

The Tribunal while declining the claim of the assessee had specifically recorded as under:- “14. From the aforesaid part of reasoning,it flows that merely because additional income surrendered during the survey is on account of business income, the same would not be enough to establish the conditions laid down under Section 80IB. As noted earlier, Section 80IB requires that the eligible profits and gains should be derived from the industrial undertaking. The assessee, either before the Assessing Officer or before the CIT(Appeals) has not led any evidence or material to explain that the income invested in the surrender made on account of stocks, trade receivable and cash represented income derived from the industrial undertaking. The counsel for the assessee had taken us through the paper books to point out that the additional income has been duly credited in the profit and loss account and even the stocks are duly reflected in the financial statements. In our view, the same does not help the assessee to establish that the income found invested in such stocks, trade receivables and cash has been derived from the industrial undertaking. Further, in view of the judgment of the Hon'ble High Court in the case of National Legguard Works (supra), the burden on this aspect is clearly on the assessee and cannot be shifted to the Assessing Officer, as observed by the CIT(Appeals). Thus in our considered Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh opinion, the CIT(Appeals) clearly fell in error while holding that the surrendered income on account of stocks and trade receivables had a direct nexus with the industrial undertaking of the assessee. Hence, the order of the CIT (Appeals) on this aspect is set aside and that of the Assessing Officer is restored. The plea of the assessee for deduction under Section 80IB with respect to the income surrendered on account of cash is also unsustainable in view of above discussion. On this limb, the orders of the lower authorities are sustained.”

The contention of the learned counsel for the appellant that the income was assessed under the head “business”, is not born out from the record. A perusal of the assessment order shows that it nowhere suggests that the Assessing Officer had taken surrendered Income under the head “business or profession”. Moreover, nothing had been produced by the assessee to show that the surrendered income was derived from the industrial undertaking. Onus was upon the assessee to show that the income on which deduction had been claimed under Section 80IB under Chapter VI-A of the Act, was infact derived from the industrial undertaking.

From the perusal of the findings as noticed above, the Tribunal had come to the conclusion that onus upon the assessee was not discharged. In such a situation, it could not be said that the Tribunal had erred in holding that deduction under Section 80IB of the Act was not admissible to the assessee. This Court in Home Tex's case (supra), while considering similar issue had noticed as under:- “12. It is quite evident from the above letter submitted by assessee that Rs. 40 lakhs income was surrendered only on Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh account of excess stock found as per physical verification. It was also stated in the letter that no adjustment will be made against the surrendered income and such surrendered income is over and above the regular income as per books of account. Advance tax on the additional income was also proposed to be deposited vide post dated cheques. Since in the letter itself the assessee has accepted that this additional income was over and above the regular income as per books of account, the regular income which is arising out of industrial undertaking can only be subject to deduction u/s 80 IB and no other income surrendered on account of additional stock found during the course of survey can be considered for deduction u/s 80 IB. More particularly, in view of the decision of Hon’ble Supreme Court in the case of Liberty India (supra) wherein even the income from DEPB and duty drawback which are received by the industrial undertaking as an incentive in the course of their business were held to be not eligible for claim of deduction u/s 80 IB, nothing is left for granting deduction in respect of such income surrendered during the course of survey which is attributable to the excess stock found during the survey. Nothing was brought on record by the learned Authorised Representative to show that amounts so invested in the excess stock was derived from industrial undertaking. It is not only the income of the business which can be claimed for deduction u/s 80 IB but it is only that income which is derived from industrial undertaking and comes within the first degree of nexus between profit and industrial undertaking as found by the Hon’ble Supreme Court in the case of Liberty India (supra), that can be made available for allowing the deduction u/s 80 IB of the IT Act. We, therefore, do not find any infirmity in the orders of lower authorities for declining claim of deduction u/s 80 IB in respect of extra income surrendered during survey on Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh account of excess stock physically found as compared to the stocks indicated in the regular books of account.”

The Tribunal had specifically recorded that the assessee had failed to show that the amount which was invested in the excess stock and was surrendered at the time of survey was derived from industrial undertaking. In the absence of any such finding or nexus established by the assessee, the Tribunal had rightly declined the claim of deduction under Section 80 IB of the Act in respect of excess income surrendered during survey on account of excess stock which was not reflected in the regular books of accounts. Learned counsel for the assessee was unable to show any perversity or illegality in the findings which may warrant interference by this Court.” Similar view was recorded in National Legguard Works's case (supra) :- “7. We are unable to accept this submission. Deduction under Section 80HHC of the Act is available only on showing fulfilment of conditions specified therein and there could be no presumption that surrender made on account of unexplained stocks represented export income. The assessee was unable to give any explanation. There could be no presumption that additional amount surrendered represented income from exports. Deduction under Section 80HHC of the Act can be claimed only on showing facts which made the assessee eligible for the deduction. The burden to prove these facts was on the assessee and not on the Revenue.

The judgment relied upon is on its own facts and not in respect of claim for deduction under Section 80HHC of the Act. In any case, from the facts of the present case, the assessee cannot be held to be entitled to claim income Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh surrendered as a result of unexplained stocks as Income from exports.”

Adverting to the judgments relied upon by the counsel for the assessee, it may be noticed that in those cases, the finding was recorded that the income which was unaccounted in the books of account was the result of business activity. In other words, the income was derived from the industrial undertaking on which the assessee was entitled to deduction under Section 80IB of the Act. Such is not the position here. The judgments being based on individual fact situation, no benefit could be drawn by the assessee.

In view of the above, the substantial questions of law are answered against the assessee and in favour of the revenue.

As a result, the appeal stands dismissed. (Ajay Kumar Mittal) Judge August 08, 2013 (Jaspal Singh) 'gs' Judge Singh Gurbax 2013.09.24 16:09 integrity of this document High Court Chandigarh