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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: Sh. N. S. Saini & Sh. N. K. Choudhry
Per N. S. Saini, AM:
This is an appeal filed by the Revenue against the order of CIT(A)-1, Amritsar dated 12.02.2016.
The assessee has taken following grounds of appeal: “1. Whether, on the facts and in the circumstances of the case and in law Ld.CIT(A) is justified in holding that sources of Rs.2.09 Crore, being unexplained advances to suppliers and excess stock found at the business premises of the assessee at the time of survey, is the business of the assessee and therefore it is to be treated as business income and not as deemed income under section 69, 69A, 69B and 69C of the Income Tax Act and accordingly not justified in holding that this amount is entitled to set off against the business loss of the assessee for current year?
ITA No. 280/Asr./2016 2 Punjab Commission Shop. 2. Whether, on the facts and in the circumstances of the case and in law Ld.CIT(A) is justified in holding that facts of the present case are not identical to that were before honorable Punjab and Haryana High Court in the case of M/s Kim Pharma Private Limited and accordingly Ld. CIT(A) is not justified in holding that decision of jurisdictional of High Court in M/s Kim Pharma Private Limited in ITA No.106 of 2011 is not applicable to the case of the appellant?
The Appellant craves leave to amend, modify or add any or more ground(s) of appeal.”
The brief facts of the case are that the Assessing Officer observed that there was a survey u/s 133A of the Act at the premises of the assessee on 06.01.2011, when certain documents were found in which assessee had noted figures relating to sale and purchase of vegetables from some parties. In one of the documents, the assessee noted a list of persons to whom he had advanced certain amounts which were recoverable from them in the said year amounting to Rs.196.34 lacs. When confronted with this document, the assessee offered the total amount of above advances of Rs.209 lacs as additional income in order to cover all discrepancies. The assessee credited the said amount of Rs.209 lacs in its profit and loss account and showed net profit from business at Rs.19,93,611/-. The AO observed that if assessee had not taken into consideration, the aforesaid credit then there would have been loss of Rs.1,89,06,389/-. The AO was of the opinion that since the assessee had surrendered an amount of Rs.209 lacs during the course of survey proceedings and such being deemed income, no deduction was allowable against this income and the additional income of Rs.209 lacs was required to be shown separately as not falling under any heads of
ITA No. 280/Asr./2016 3 Punjab Commission Shop. income mentioned in Section 14 of the Act and falling squarely under the deemed income taxable as unexplained investment u/s 69 of the Act. Hence, he assessed the income of the assessee at Rs.209 lacs ignoring the loss of Rs.1,84,06,389/-.
Being aggrieved by the said order of the Assessing Officer, the assessee filed appeal before the CIT(A) who allowed the appeal of the assessee.
Being aggrieved the order by the AO, the Revenue is in appeal before us.
The DR relied on the order of the AO and the AR of the assessee relied on the order of the CIT(A).
We have heard the rival submissions and perused the orders of lower authorities and material available on record. It is the undisputed facts that during the survey conducted on 06.01.2011 u/s 133A of the Act, the assessee surrendered advance of Rs.209 lacs claimed to be given by him to parties against sale and purchase of vegetables as additional income. The assessee credited this amount in its profit and loss account and after deducting all expenses had shown profit of Rs.19,93,611/-.
The Assessing Officer was of the view that no deduction against the surrendered amount of Rs.209 lacs on account of additional income was allowable to the assessee as it was to be taxed as undisclosed investment u/s 69 of the Act.
ITA No. 280/Asr./2016 4 Punjab Commission Shop. 9. On appeal, the CIT(A) allowed the appeal of the assessee and while doing so held as under: “6. I have gone through the grounds of appeal, submission and the assessment order.
A survey was conducted U/s 133A on 06.01.2011 on the business premises of the appellant. AO has treated an amount of Rs. 2,09,00,000/- surrendered during the survey as deemed income u/s 69/69C of the Act. Appellant business is that of commission agent and trading in fresh vegetable. In survey, documents relating to advances made to different suppliers were found and impounded. Total amount of such advances was found to be 1,96,34,000/-. Discrepancy in physical stock compared to books of Accounts was also 12.52 Lakh. Assessee was unable to explain discrepancy and books of Accounts were also found incomplete. Assessee when confronted offered the total amount of 1,96,34,000 + 12,52,000 = 2,09,00,000/- as his additional income for the year, over & above his regular income for the year.
Assessee credited the P&L A/c with amount surrendered and declared net profit of 20,40,700/-. As per AO if no credit entry of survey amount there was present, there would have been a loss of Rs. 1,89,06,389/-.
Statements were recorded during survey and appellant stated in the statement that that surrendered amount is based on his papers relating to advances to suppliers in different mandis. A perusal of impounded papers also shows that these are related to vegetables purchases.
AO held that the amount surrendered during survey by assessee to cover the unaccounted advances to supplier as deemed Income/Investment of assessee u/s 69 and held that surrendered income does not fall within any head of income & shall be taxed separately without allowing any deduction/ set off of losses.
ITA No. 280/Asr./2016 5 Punjab Commission Shop. AO relied on the case of Faqir Mohamed Hazi Hasan Vs. CIT (2001 207 ITR 290 of Gujarat High Court & decision of P&H High Court in the case of Kim Pharma (P) Ltd. Vs. CIT.
The facts of the present case are different from the facts in the case of M/s Kim Pharma V/s CIT Panchkula because in the case of M/s Kim Pharma (P) Ltd, cash amounting to Rs. 5,00,000/- was found during the survey which was surrendered as additional income for the A.Y. 2005-06. The said cash had not been recorded in books of account and assessee had failed to give any explanation regarding the source from which it had derived the said cash. The Hon’ble Punjab & Haryana High Court had held in that case that the income surrendered was not to be treated as business income and was not to be classified under any of the heads of income under section 14 of the Income Tax Act, 1961. It was treated as deemed income u/s 69 of I.T. Act, thereby not allowing the benefit of set off of current year Business Losses against this surrendered income.
Whereas, in present case as per record the assessee had given advances to suppliers amounting to Rs. 196.34 Lacs and there was difference in stock amounting to Rs. 12.52 Lacs. Both these items were found not recorded in books of account during survey. Accordingly, the assessee had surrendered a sum of Rs. 209 Lacs as additional income for the A.Y. 2011-12, the assessee had earned this amount from unrecorded business transaction which were evident from the documents impounded during the survey. Annexure A1-P38 is a list of advances made to suppliers & other papers also clearly shows that transactions and advances are for ginger & vegetable etc. As per survey report and the statement of the Assessee these were not recorded in the regular books of accounts. Moreover the parties to whom advance had been given as per documents impounded during survey are the same parties with whom the assessee was dealing in regular business. Therefore
ITA No. 280/Asr./2016 6 Punjab Commission Shop. in this case, the source from which the income was derived and advances were given and stock was bought was from assessee’s present business only. Therefore, income surrendered should be assessed as business income only and not as deemed business income u/s 69, 69A, 69B and 69C. In Para 8 of the order of Hon'ble Punjab and Haryana High Court in the case of M/s Kim Pharma (P) Ltd, it has been mentioned that “In S.K. Srigiri and Bro’s case (supra) before the Karnataka High Court, a finding of fact was recorded that the assessee received additional income from the business only and therefore, ii was entitled to deduction on account of remuneration paid to the partners.”
In view of above facts of the present case are different from the facts of M/s Kim Pharma (P) Ltd which in my view is not applicable in this case.
A reading of the Faqir Mohd. Hazi hasan case clearly shows that this case not applicable on the appeal. In that case gold was confiscated and assessee was not conducting any business. No nexus was established with any head of income. That case will be applicable only if following condition are fulfilled.-
“1. Money or bullion found from assessee is from income not related to his business and not recorded in his regular books.
2.Nature and source of money /bullion/investment is not income from his regular business and assessee is engaged in unlawful business or is not able to explain the source at all satisfactorily.
In present case documents impounded clearly shows that they relate to purchase of vegetables. No evidence is placed on record that income is from unlawful activities/business. So, fakir Mohd. Ratio doesn’t apply on the present appeal.
Income surrendered clearly falls in the head “profit and gains of business and profession”.
ITA No. 280/Asr./2016 7 Punjab Commission Shop. Section 70/71 allows set off of loss from different sources within same heads and loss in one head against income under other head in the same year.
In Radhey Developers Pvt. Ltd. Gujarat High Court has said that income which doesn’t fall within any of the heads prescribed u/s 14 could not be taxed and any income declared has to fall under one of the heads of income.
In the case of Fashion World vs. ACIT ITA No. 1634/Adh/2006 Ahmedabad ITAT—analyzed Faqir Mohd. Hazi Hasan and said “that for invoking section 69, 69A, 69B, 69C two conditions are to be satisfied:-
Investment or Expenditure are not recorded in the books of accounts of the assessee.
The nature and source of acquisition of the assets/expenditure are not explained or not explained satisfactorily.
The test laid down that an AO should first try to fix the asset expenses under a ‘head’. If he is not able to fix it under any head, only than he should use section 69. It should not be done in the first instance without giving assessee an opportunity to establish nexus.
In this case entire stock surrendered and the calculation relating to impounded paper are for vegetable business. Which is assessee’s declared business. Appellant during survey has stated in his statement that unaccounted business income is invested in advances given and in stock. Book stock and physical stock i.e. vegetables are same.
The difference in stock & advances unaccounted are part & parcel of same lot of stock & business of vegetables. So the difference found between books of account and the stock physically found is only a mathematical expression in lines of value & not a separate independent identifiable assets.
ITA No. 280/Asr./2016 8 Punjab Commission Shop. So where asset in which undeclared investment is sought to be taxed does not have an independent identity but is integral part & inseparable (mixed) part of declared assets & business, falling under a particular head than the difference should be treated as undeclared business Income explaining the investments.
Hence it is clear that facts of this case are substantially different than Fakir Mohamed Hazi Hasan. AO has no where suggested that the advances & stock outside its regular books of A/c was not relatable to its regular vegetable business income and was from an illegal source. All paper impounded during survey on which income has been calculated belong to vegetable business only.
While not allowing set off of current year business losses against surrendered income, Reference of Kim Pharma Case has been used by AO.
The decision of Gujarat High Court in the case of CIT Vs Shilpa Dying and Printing Mills (P) Ltd Appeal No. 290 of 2013 dated 04.04.2013 in view of section 71 of the Income Tax Act 1961, allows an assessee to set off losses other capital gain against income from other head.
It was laid down in the decision of Madras High Court in the case of CIT vs Cheming venture that as per section 71, “once the loss is determined, the same should be set off against the income determined under any other head of income”.
After going through the assessee submissions, case laws quoted by AO and the assessee, the papers found during survey on the basis of which assessee has offered additional unaccounted income and on the basis of which AO has done the addition, I am of the opinion that facts of this case are different from the case of Kim Pharma case and Faquir Mohamed Hazi Hasan case, because in this case as per the impounded documents & statement recorded the unaccounted income was from the vegetable
ITA No. 280/Asr./2016 9 Punjab Commission Shop. trading business, which were not reflected/recorded in his regular books of accounts. The declared business of the assessee is also trading in vegetable.
Hence in my opinion the surrendered income is to be assessed under the head ‘Profit & gain from business and profession’ and not treat this as “deemed income”.
The DR relied on the order of the Assessing Officer. He could not pointed out any specific error in the order of the CIT(A) and hence we find no good reason to interfere with the order of the CIT(A) which is hereby confirmed and grounds of appeal of the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed. (Order Pronounced in the Open Court on 21/02/2019)
Sd/- Sd/- (N. K. Choudhry) (N. S. Saini) Judicial Member Accountant Member
Dated: 21/02/2019 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR