DCIT, CHANDIGARH vs. M/S AJAY KUMAR SOOD ENGINEERS AND CONTRACTORS, SHIMLA

per the assessment order the surrender made by the assessee is accepted but penalty proceedings under section 271AAA were initiated separately.

18.2 The issue before us in the appeal filed by the Revenue is while the addition made on account of GP rate @10% was Rs. 3,15,69,373 /- the Ld. CIT(A) erred in restricting the GP to Rs. 1,40,69,373/- by giving benefit of Rs. 1.75 Cr. surrendered and declared in the return. Primarily on the facts of the case the surrender made by the assessee has to be given benefit by extrapolating the additions made based on the seized material in the search assessments against the surrendered income in the remaining amount determined is to be brought to tax.

18.3 Before us, the Ld. DR argued that the surrendered income cannot be allowed to be set off against the additions made as the surrendered income should be treated not as income from business and profession but as deemed income under section 69 C by relying on the judgment of Hon’ble Gujarat High Court in the case of Fakir Mohemed Haji Hasan Vs. CIT 247 ITR 290.

18.4 The Ld. DR vehemently argued that since the surrendered income has not been substantiated with any documentary evidence nor the assessee has given any explanation regarding the source it cannot be allowed to be set off against the business income / loss. The arguments made by the Ld. DR in written form are as under:

The Ld.AR argued that the department could not find any other source of income during the search except the business of the appellant. All purchases and receipts are fully vouched. The AR contended that, no defect was pointed out in the books of accounts. According to the AR, the surrendered amount have been recorded in the business heads of the assessee in its books of accounts and duly offered to tax which has been accepted by the Assessing Officer The AR also stated that once the surrender had been accepted by the department, the Assessing Officer cannot tax it as income u/s 69, 69A and 69B during the assessment proceedings and argued that decision in the case of the Assessing Officer but being raised by the Revenue in the appellate stage.

18.5 The Ld. AR relied on the decision in the case of Gaurish Steels Pvt. Ltd. vs. ACIT ITA no. 1080/CHD/2014, and on the decision of Hon'ble ITAT, Chandigarh in the case of Kumar Enterprises vs. DCIT Chandigarh ITA no. 525/CHD/2014.

18.6 We have gone through the arguments of both the parties and perused the material placed on record, we find that as per the assessment order the assessee has surrendered the income, offer the same in computation of income, filed return and the same was accepted by the Assessing Officer. The Assessing Officer never brought this surrendered income nor intended to bring this income

to tax under any other head. Even if it is considered to be treated under deemed income under section 69C as per the arguments of the Ld. DR the facts of the case are totally different compare to the case laws relied by the Ld. DR. The only issue in the case of M/s Kim Pharma Pvt. Ltd. of the Hon'ble Punjab & Haryana High Court was relating to the cash surrendered as the other incomes were already treated by the Assessing Officer himself as business income. It has been held in the case of M/s Khurana Rolling Mills (P) Ltd. in Appeal No. 518/ IT/CIT(A)-l/Ldh./2014-15 dated 31.03.2016 for A.Y. 2012-13 as under:

" I have carefully considered the facts of the case, the basis of the addition made and the argument of the AR. During the course of the survey operations conducted at its business premises, the appellant surrendered an amount of Rs. 1 crore. The said income has been shown in the P&L account by the appellant. The Assessing Officer assessed the surrendered income as deemed income u/s 69 and 69B by relying on the judgment of M/s Kim Pharma Pvt. Ltd. ITA no. 106 of 2011 (P&H) & Fakir Mohamad Haji Hasan in ITA no. 165 CTR 1011 (Guj). Thus, the business losses were not allowed to be set off against the surrendered income. The AR contended that the appellant is maintaining all the statutory records required under the provisions of the Central Excise Act, VAT Act and Companies Act and that there is no finding during the course of the survey operations or the assessment proceedings to the effect that the appellant is engaged in any activity outside the books of accounts. The AR further contended that all the books of accounts upto the date of the survey along with the relevant purchase bills, sales bills, expenditure vouchers, capital expenditure and other supporting documents and details were verified during the course of the survey but no discrepancy was found therein. Further, the stock was verified with the excise and stock records showing details of purchase of raw material, consumable stores, raw material used for production, sale of finished goods, wastage and closing stock of raw materials and no discrepancy was found during the course of the survey operations. No discrepancy was found in the cash in hand verified with the books of accounts. Therefore, there is force in the appellant's contention that it was maintaining complete books of accounts with proper records on the date of the survey and no incriminating evidence or record not in consonance with the books of accounts was found. There was no cash credit found during the survey which the appellant could not explain. No investment was found which was not recorded in the books of accounts. Further, no document, information, records showing ownership of any money, bullion Jewellery or other valuable article was found and neither any evidence showing that the appellant was the owner of any bullion jewellery or other valuable article where it was found that amount invested in the same exceeded the amount recorded in the books of accounts. No evidence was found showing that the appellant had incurred any expenditure for which no explanation could be offered regarding the source of the said expenditure. Thus, the AR contended that sec68, 69, 69A, 69B and 69C are not applicable in its case. The appellant surrendered Rs. 1 crore as business income in the form of sundry debtors during the survey operations. The AR has contended that the surrender offered by appellant on account of undisclosed sundry debtors is purely related to the business carried out by the appellant. No undisclosed business activity has been found during the survey. The AR pointed out that as per the statement of Sh. Baljinder Singh s/o Sh. Charan Singh recorded during the survey operations, the amount of Rs. 1 crore was surrendered as income of the company over and above the normal business income. The AR has rightly pointed out that in the case of Kim Pharma Ltd. vs. ITO, IT AT Chandigarh bench, the amount surrendered on account of cash was not allowed to be assessed as business income since the source has not been explained and the same was assessed u/s 69A of the Act whereas in the appellant's case mode and manner has been applied to the surrendered income as applied to the income earned during the regular course of the business. No evidence has been found during the survey operations and the discrepancies found were related to the

assessee's business and not to any other source of income. The said submissions of the AR were not controverted in the remand report. Reliance has been placed by the AR on the decision of Sh. Kuldeep Kumar vs. CIT, Hon'ble ITAT Chandigarh bench in ITA 1015/CHD/2009 for A.Y. 2006-07 wherein it has been held,after considering the case of the Hon'ble Gujarat High Court in the case of Fakir Mohamad Haji Hasan,that income cannot fall beyond the five heads made under the act. Further, reliance has been placed on the decision of the Hon'ble Apex court reported in CIT vs. D.P. Sandhu & Bros. 273 ITR 1 wherein it has been held that section 56 provides for chargeability of income of every kind which has not been excluded from the total income under the act only if it is not chargeable to income tax under any heads specified in sec 14 and if the income is included under any one of the heads it cannot be taxed u/s 56. Further, reliance has been placed on the case of DCITvs. Radhe Developers India Ltd. &Anr. (Guj) 329 ITR 1 wherein the judgment of Fakir Mohamad Haji Hasan has been considered and the judgment of the Hon'ble Apex Court in the case of D.P Sandhu & Bros. P. Ltd. Supra have been referred to and it has been held that the act does not envisage taxing income under any head not specified u/s 14 of the Act. The Department did not find any other source of income except the business of manufacture of steel items and, according to the AR, the same is clear as per the offer letter of surrender also wherein it is stated that the surrender amount is over and above the book version which shows that the income offered is a part and parcel of its existing business activities. Reliance has also been placed by the AR on the judgment of Hon'ble Gujarat High Court in the case of Shi I pa Dyeing and Printing Mills 39 taxmann 3 wherein, after considering its earlier judgment of Radhe Developers India Ltd. and of D.P Sandhu & Bros.(SC), the issue was decided in favour of the assessee and the judgment in the case of Kim Pharma Ltd. (P&H) was considered and distinguished. The surrender made by the appellant was on account of advances and receivables which are considered under the head 'business income'. The Assessing Officer has not been able to establish in the assessment order with supporting evidence that the income surrendered was not out of the business of the appellant. Further, there is force in the appellant's contention that the Assessing Officer has nowhere objected to the heads under which the appellant has surrendered these amounts. In the case of M/s Kim Pharma P. Ltd. (P&H) supra reliance has been placed on the ratio laid down in Fakir Mohamad Haji Hasan vs. CIT 247ITR 290 (Guj) wherein it has been held that only where the nature and source of investment made 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, then the value of such investments or money and the value of articles not recorded in the books or the unexplained expenditure may be deemed to be the income of such assessee and that the moment a satisfactory explanation is given about the nature and source by assessee, the income would be treated under the appropriate head of income. However, in the appellant's case, the Assessing Officer could not established that payments received as per the slips were from sources other than the business of the appellant. Therefore, apart from the cash, all other income surrendered is to be brought to tax under the head business income while the cash is to be taxed under the head deemed income u/s 69A of the Act. Moreover, the Assessing Officer has not disputed the business losses of the appellant. The Assessing Officer has not found any disallowable expenditure to show that the appellant has manipulated its books of accounts to bring down its total income. No such evidence has been brought on record to show that the assessee has booked any bogus expenditure and there is therefore no reason to doubt the veracity of the books of accounts and the expenditure therein. The heads under which the surrender has been made has not been challenged by the survey team or the Assessing Officer. In the case of Kim Pharma Vs. CIT in ITA no. 106 of2011(P&H) supra the Hon'ble High Court has upheld the treatment of additional income on account of sundry credits, repairs to building, and advances to staff to be treated under the head 'income from business and profession' and only in respect of cash found where no clear source could be established by the appellant the same was treated under the head ' income from other sources'. The Assessing Officer has not appreciated the decision in the case of Kim Pharma (supra) properly and has misapplied it. The AR has placed reliance on the case of M/s Gaurish Steels Pvt. Ltd. reported in 43 ITR 414 dated 17.09.2015 of the Hon'ble ITAT Chandigarh Bench, wherein the Assessing Officer

did not dispute the business losses incurred by the assessee and did not reject the books of accounts. Relying on the case of Kim Pharma P. Ltd. Vs. CIT (P&H) (supra) and referring to the case of Fakir Mohamad Haji Hasan vs. CIT (Guj) (supra), it was held in the said case that the income apart from cash, in the shape of discrepancies in the cost of construction of building, in stock and in advances and receivables was to be treated as 'business income' as the Assessing Officer and the survey team failed to find other source of income except for business income. Therefore, in the said case only the cash found was treated as income from other sources and it was held that all other income surrendered could be brought to tax under the head 'business income' and the business losses incurred by the assessee during the year were allowed to be set- off against the income surrendered during the survey except the amount of cash surrendered. The appellant's case is covered by the said decision of the Hon'ble Jurisdictional ITAT in the case of M/s Gaurish Steels Pvt. Ltd. (supra)

18.7 Similarly the facts in the instant case are different from the facts of the case of M/s Kim Pharma (supra) , Fakir Mohmed Ali Hasan(supra) and Khusi Ram & Sons. There is no surrender in the form of cash or on account of unexplained expenditure or investment by the assessee. It is also not the case of the Assessing Officer to treat the amount for taxation separately beyond the established heads. Hence, keeping in view the facts of the case the appeal of the Revenue is hereby dismissed.

Order pronounced in the open court.

Sd/- Sd/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 13/06/2018 AG Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR