RADHESHAM TOTARAM NARAYANI,NANDURBAR vs. ASSISTANT COMMISSIONER OF INCOME-TAX,

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ITA 1491/PUN/2015Status: DisposedITAT Pune21 March 2018AY 2010-117 pages
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What did the Tribunal hold?

The Tribunal held that certain disclosed items like gross profits and unrecorded purchases constitute business income eligible for set-off against losses. However, excess cash and investment in a house property were treated as deemed income not eligible for set-off.

What were the facts?

During a survey action, discrepancies were found, leading the assessee to disclose additional income. The Assessing Officer (AO) treated this disclosed income as deemed income and denied set-off against business losses. The CIT(A) upheld the AO's decision.

What were the issues?

Whether income disclosed during a survey action is business income eligible for set-off against losses, and whether excess cash and property investment constitute business income.

Which sections of the Income-tax Act were involved?

Section 69A,Section 69B,Section 70,Section 71,Section 133A,Section 68

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Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, SMC BENCH, PUNE

For Appellant: Smt. Deepa Khare
For Respondent: Dr. Vivek Aggarwal
Hearing: 12.03.2018

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the assessee against the order of CIT(A)-1, Nashik, dated 02-09-2015 for the Assessment Year 2010-11.

2.

Grounds raised by the assessee read as under : “1. On the facts and in the prevailing circumstances of the case and the Ld. Assessing Officer and CIT(A) has erred in drawing, the conclusion and inference that income declared during survey action, is a deemed income u/s.69A and 69B of the I.T. Act, instead of business income as claimed by the appellant, as appellant do not any other source of income. The aforesaid finding and inference may please be vacated. 2. On the facts and in the prevailing circumstances of the case and the CIT(A) has erred in not following the binding principles laid down in the following decision of the Hon. Jurisdictional ITAT Pune, without assigning any reasons.  Radha Traders, Sangli V/s. Asst. CIT, Sangli (ITA 193/PN/03 - A.Y. 1999-2000 Dt. 31-08-2006) reported in PCAJ Journal of Feb, 2007… Copy enclosed (Ann.A)

 Prakash Vastu Bhandar V/s. ITO reported (ITA 602/PN/04-A.Y. 2000-2001 Dt. 28-02-2006 reported in PCAJ Journal of June/July- 2006 ..Copy enclosed (Ann.B)  Murlidhar Abhiman Saraf & Co. Vs. ACIT (ITA 186/PN/2006-A.Y. 2003-04 Dt.30-05-2008 (Copy enclosed (Ann.C) Therefore, income declared in survey action may please treated as business income and order of CIT(A) may please be vacated.

3.

On the facts and in the prevailing circumstances of the case and in law, the Ld.CIT(A) has erred in not allowing set off of current year’s losses of Rs.2,65,595/- and earlier year’s carried forward loss of Rs.4,82,585/- against income declared in survey and accounted/shown in books of accounts, as business income. Therefore, order of CIT(A) may please be vacated and set-off of losses as claimed by the appellant may please be allowed.”

3.

Background facts of the case include that the assessee is an

individual and is a dealer in ITC products. He filed the return of income

declaring total income of Rs.6,36,970/-. As a result of the proceedings

u/s.143(3) r.w.s.133A of the Act, the assessed income of the assessee is

determined at Rs.13,74,542/. This is a case where there was action

u/s.133A of the Act on 08-09-2009 and the same resulted in discovery of

various discrepancies. Assessee disclosed the income against each of the

discrepancy and the details of which are given as under :

Sr.No. Nature in respect of which discrepancies Amount noticed disclosed (Rs.) 1 Vimal Pan Masala GP 6,700/- 2 Excess Cash 4,93,290/- 3 GP on unrecorded sales 34,652/- 4 Unrecorded purchase of Vimal Pan Masala 4,39,900/- 5 Investment in house property Uss galli 5,00,000/- Total 14,74,542/-

In the return, the assessee determined the current year business loss

of Rs.4,15,951/- and brought forward losses of Rs.4,82,585/- for A.Y.

2009-10 and reduced the disclosed income by the said losses. Assessee

reported earning of income from other sources.

4.

During the assessment proceedings, assessee submitted that the

above referred items of disclosed income or discrepancy are wholly linked to

the business activities of the assessee. Explaining the same, the assessee

submitted that the various gross profits mentioned at Sl.Nos. 1, and 3 of

the table or the unaccounted sales or the excess cash at Sl.No.2 and

unrecorded purchases mentioned at Sl.No.4 relates to the business

activities and therefore, said disclosed income of Rs.14.75 lakhs (rounded

off) has connection to the business activities of the assessee. However, AO

noticed that the assessee disclosed the said income on account of various

discrepancies and proceeded to reduce the same by claiming set off against

the business losses of the current year as well as the brought forward

losses of the assessee. Contents of Para No.5 of the assessment order are

relevant. Assessee claimed the current year’s business loss amounts to

Rs.4,15,951/- and the brought forward losses for the A.Y. 2009-10

amounts to Rs.4,82,585/-. In the assessment, AO denied the claim of set

off of losses against the disclosed deemed income of Rs.14,74,542/-.

However, he restricted the set off claim to the extent of income from other

sources, i.e. Rs.1,50,497/-. Net current year’s loss carry forward to

subsequent years is Rs.2,65,457/- (current year loss of Rs.4,15,951 (-)

income from other sources of Rs.1,50,497/-). In effect, AO denied the claim

of set off of current year business loss of Rs.2,65,457/-against the said

deemed income of Rs.14,74,542/- and also the entire brought forward loss

of Rs.4,82,585/- for the A.Y. 2009-10. Thus, AO proceeded to tax the

disclosed amount of Rs.14,74,542/-, the deemed income offered in the

survey action. This decision of the AO in not granting set off of the said

losses against the deemed business income of Rs.14,74,542/- was agitated

by the assessee before the CIT(A).

5.

CIT(A) discussed each of the items of discrepancy-linked undisclosed

income and its nexus to the business activities of the assessee in her order.

Eventually, the CIT(A) relied on the decision in the case of M/s. Kim

Pharma Pvt. Ltd., Vs. CIT – ITA No.106 of 2011, dated 27-04-2011 and

Liberty Plywood Pvt. Ltd. – ITA No.727/Chd/2012, dated 01-05-2012 for

the proposition that surrendered income has to be assessed separately as

deemed income without granting the benefit of setting off against the losses

u/s.70 and 71 of the Act.

6.

Aggrieved with the same, the assessee is in appeal before us with the

grounds raised above.

7.

In the Ground No.1, assessee reasoned that the deemed income is

also a business income as the assessee did not carry out any other activity

as source of income. In Ground No.2, assessee relied on the jurisdictional

decision of the Tribunal in the case of Radha Traders, Sangli Vs. ACIT,

which is relevant for the legal proposition that the additional income offered

during survey action constitutes business income. In Ground No.3,

assessee raised the issue of allowing of set off of current year losses as well

as earlier year losses against the deemed income declared in survey.

8.

Before us, Ld. Counsel for the assessee brought our attention to the

list of items disclosed in the survey action amounting to Rs.14,74,542/-.

Bringing our attention to item No.1, 3 and 4, Ld. Counsel submitted that

the items 1, 3 and 4 amounting to Rs.4,81,252/- (i.e. Rs.6,700/-,

Rs.34,652/- and Rs.4,39,900/- respectively) constitutes “business income”

and therefore, they should be available for set off of the said losses.

9.

We heard both the parties on these 3 items. On going through the

facts and considering the details available on record, we find the said items

at Sl.Nos.1, 3, and 4 of the table being gross profits and the unrecorded

purchases, we are of the opinion that the same should constitute business

income and they should be available for set off of the losses in question. To

that extent, the order of CIT(A) and the AO are required to be reversed and

therefore, the AO is directed to grant set off of benefit accordingly.

10.

Regarding the excess cash of Rs.4,93,290/- mentioned at Sl.No.2 of

the table, it is the case of the assessee that the same was found at the

business premises of the assessee, which was surveyed by the Revenue.

The said cash was offered by the assessee during the survey action as the

business income of the assessee. The same was shown in the return of

income as additional income in the profit and loss account. However, the

assessee could not demonstrate by explaining the sources and the manner

of earning of the same from the business activities of the assessee who

deals with the ITC products. He merely stated that the said income

constitutes business income and should be available for set off against the

business losses of the assessee in the current year as well as in the earlier

assessment years. Therefore, the AO denied the benefit of set off of losses

against the excess cash found during the survey action.

11.

After hearing both the parties, we find this is a case where survey

action u/s.133A of the Act resulted in the discovery of the said excess cash

and there is no dispute about it. Further, it is also undisputed that the

assessee failed to explain the manner of earning of the said excess cash

linked to the unaccounted sales of the ITC products. Assessee failed to

explain the modus-operandi of earning of such excess cash from business

sources of any kind. Therefore, we are of the opinion that it is reasonable

to presume that assessee failed to discharge the onus on this aspect of

establishing the business nature of the excess cash. This view is fortified

by the legal proposition laid down by the Hon’ble Punjab & Haryana High

Court in the case of Kim Pharma Pvt. Ltd. Vs. CIT 35 taxmann.com 456

(Punjab & Haryana). The said judgment is relevant for the following ratio :

“where amount surrendered during survey was not reflected in the books of account and no source from where it was derived was declared by the assessee, it was assessable as deemed income of the assessee u/s.69A and not as business income”

12.

Further, we find the Agra Bench of the Tribunal in the case of Satish

Kumar Goyal Vs. JCIT 70 taxmann.com 382 (Agra-Trib.) has also laid down

similar legal proposition. The conclusion of the said Tribunal reads as

under :

“Where assessee received certain amount in cash, since he failed to explain nature and source of said receipt, same was to be treated as income under section 68 assessable under head “income from other sources and as per provisions of section 71, business losses of assessee could be set-off against said income.”

This is also a case where assessee failed to explain the nature and

source of the cash received by that assessee and the same was treated as

income u/s.68 of the Act and taxed under the head “income from other

sources”. The Tribunal did not allow the benefit of set off against the

business losses of the assessee against the said income.

Considering the above legal propositions, we are of the opinion that

the excess cash of Rs.4,93,290/- being deemed income is not to be treated

as “business income” of the assessee. Further, regarding the

investment in the residential house, we find it is the case of appropriation

of income earned by the assessee. Thus, the claim of the assessee is

unsustainable. Therefore, these parts of the claim of the assessee are

dismissed.

Thus, the only amount which is available for set off against the

current year is brought forward loss amounts to Rs.4,81,252/-, i.e. sum of

3 items of income mentioned at Sl.Nos. 1, 3 and 4 of the table above. AO is

directed to grant the benefit of set off of the balance of current year loss of

Rs.2,65,457/- and the brought forward business losses to the extent of

Rs.2,15,795/- (i.e. Rs.4,81,252 – Rs.2,65,457). The balance of brought

forward business loss is allowed to be carried forward to the subsequent

assessment years for set off. Accordingly, the grounds raised by the

assessee are partly allowed.

13.

In the result, appeal of the assessee is partly allowed.

Order pronounced on this 21st day of March, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 21st March, 2018. Satish

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-1. Nashik 3. आयकर आयु� / The CIT-1, Nashik 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “एक सद�य 5. एक सद�य” / एक सद�य एक सद�य DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

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