DCIT, CENTRAL CIRCLE II, CHANDIGARH vs. M/S SAB INDUSTRIES LIMITED, CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘B’, CHANDIGARH

BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER

I.T.A. No. 848/Chd/2017 Assessment Year: 2013-14

M/s SAB Industries Limited Vs. Deputy Commissioner of Income Tax SCO 49-50, Sector-26, Central Circle-II, Chandigarh. Chandigarh. PAN:AACCS5078H (Appellant) (Respondent)

I.T.A. No. 986/Chd/2017 Assessment Year: 2013-14

Deputy Commissioner of Vs. M/s SAB Industries Limited SCO 49- Income Tax Central Circle- 50, Sector-26, Chandigarh. II, Chandigarh. PAN:AACCS5078H (Appellant) (Respondent)

Assessee by : Sh. Ashwani Kumar & Shri Aditya Kumar Revenue by : Sh. Ashish Abrol

Date of hearing : 03/01/2018 Date of Pronouncement : 28 /03/2018

ORDER PER DIVA SINGH

The present appeals have been filed by the assessee and the Revenue assailing the correctness of the order dated 31/03/2017 of CIT(A)-3 Gurgaon pertaining to 2013–14 assessment year. For ready reference the respective grounds raised by the parties are reproduced hereunder: 2. The Grounds raised in ITA 848/CHD/2017 by the assessee are as under: “1 That the Ld. CIT(Appeals) has erred in confirming and treating the surrendered sum of Rs.1,21,85,000/- as income/deemed income whereas the assessee has merely offered the sum as blanket surrender to cover discrepancies found if any. Since Ld. AO has not found any discrepancies in seized documents, therefore Rs.1,21,85,000/- cannot be treated as income/deemed income at all and same may please be allowed to be reduced from taxable income. 2. Without prejudice to ground no.1 as above, the Ld. CIT(Appeals) has erred in confirming and treating the business income of Rs.1,21,85,000/- as deemed income u/s 69, whereas it is surrendered as business income. Therefore it is prayed that set off of business losses and depreciation losses may be allowed against the surrendered income of Rs.1,21,85,000/- being a business income.

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 2 of 11 The assessee craves leave to add, alter and amend any of the above grounds of appeal before the same is heard or disposed of. It is respectfully prayed that the relief may kindly be allowed to the assessee keeping in view of the aforesaid grounds of appeal.” 3. The Revenue in its appeal has raised the following ground: “Whether on the facts and circumstances of the case, the CIT(A) was correct in treating the unaccounted surrendered income emanating from the seized document as business income against deemed income u/s 69 of the I. T. Act, 1961 assessed by the AO.” 4. The ld. CIT-DR relying upon the assessment order submitted that the order of the CIT(A) on facts qua the sole issue of the Revenue may be reversed upholding the finding arrived at in the assessment order. Reliance was placed upon the decision of the jurisdictional High Court in the case of Kim Pharma relied upon by the AO.

5.1 Inviting attention to para-4 of the assessment order, it was submitted that the assessee participated fully in the proceedings and made all the relevant information available supported by bills and vouchers. Referring to para-5.1 of the order it was submitted that the assessing officer takes note of the fact that the assessee in his statement under section 132 (4) admitted undisclosed income and the assessee vide letter dated 08/11/2012 had offered the same. Inviting attention to the extract of the letter reproduced in the assessment order, it was submitted that there is no dispute that the respective grounds of the assessee and the revenue pertain to the second issue addressed therein. For ready reference the relevant extract is reproduced hereunder from the assessment order: “5.1 During the course of search proceedings, the assessee had made a voluntary statement u/s 132(4) admitting the below mentioned undisclosed income and made a total surrender of Rs.26,88,99,169/- for AY 2013-14 vide surrender letter 08.11.2012, detail of which is given as under:

S Name of the Amount Basis No. Concern/Individual Surrendered 1 SAB Industries 0)11,67,14,169 (i) Offered as Capital gain income to cover any

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 3 of 11 discrepancies in the seized documents Limited as found and seized during the course of search as per Annexure A-4 page nos.119, 127 & 128. The capital gain was earned from the sale of investment in shares. (ii) 3,00,00,000 (ii) In addition to Rs.11.67 crores as aforesaid, a sum of Rs.3.00 crores has been forfeited by the Company against advance for sale of aforesaid investment in shares. 2 SAB Industries 11,00,00,000 Offered as business income to cover any discrepancies in all the seized documents as found and seized during the course of search including as per the Annexure A -35 page no. 8 and the above stated receivable business income i.e. from the real estate transactions was earned in the same manner as business income reflected and recorded in the regular books of accounts and is derived from the same business carried by the assessee The above business income covers the amount receivable from various parties as per Annexure A-35 page no.8 against real estate transactions and that same is yet to be recorded as receivable business income in the books of accounts. 2 SAB Industries 1,21,85,000 Offered as business income to cover any Limited discrepancies in all the seized documents as found and seized during the course of search, if any. Total 26,88,99,169

5.2 Referring to the said document the assessing officer it was submitted concluded that it has the heading “ SAB industries ‘and contain certain entries of names with figures written in front of them the total of the figures it was noted by the assessing officer is Rs. 11 Crores. The assessee was confronted with this document and his statement was recorded on 05/10/2012. The relevant extract reproduced from the assessment order was read out. For ready reference the same is reproduced hereunder…

“ A perusal of the document reveals that it has the heading “SAB Industries” and contains certain entries of names with figures written in front of them. The total of the figures in front of these names is Rs.11 crores. The assesses, Sh. R.K. Garg was confronted with this document in his statement recorded on 5/10/2012, the extract of which is being reproduced as follows:

"Q.4 I am showing you P.No. 8 of Annexure A-35, seized from the corporate office. Please explain? Ans.4 Sir, on behalf of SAB Industries, certain property transactions were undertaken whereby purchase and sale of property on bianas were made, and the company is to receive the profits on these transactions. These are the naem of five property deals, and the total receivable amounts is Rs. 11 crores. Q.5 Who are these parties. Are these transactions recorded in the books of accounts of the company? Ans. 5 Sir, these transactions are not reflected in the books of accounts of the company. These are done through irregular market brokers and I do not have the

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 4 of 11 addresses. Therese receivable amounts of Rs. 11 crores are the income of the company, which is unaccounted for the F. Y. 2012-13. Q. 6 Please produce the bianas. ? Ans.6 The bianas are destroyed after the deals are done."

5.3 Carrying us through the assessment order it was submitted, the assessing officer analyzed the facts in the following manner : As can be seen from the seized document and the statement of Sh. R.K. Garg, the assessee company M/s. SAB Industries Ltd. has carried out these transactions pertaining to sale and purchase of properties on bianas(agreements). The figures in front of the names of various people on the document are actually profits on account of these transactions, which are yet to be received by the assessee company. The director of the assessee company, Sh. R.K. Garg has also admitted that the bianas corresponding to these transactions carried out by the company have already been destroyed. Sh. R.K. Garg has admitted in his statement that these transactions are outside the regular books of accounts. He has, on behalf of M/s.SAB Industries Ltd., disclosed the receivable amount of Rs.11 crores as unaccounted income of the company in the F.Y.2012-13. 5.4 Reading from para 5.3 of the assessment order, it was submitted, the assessee was confronted with this conclusion and required to explain the nature and manner of earning the surrendered income of Rs. 26.88 crores and substantiate the manner in which such income has been derived alongwith documentary evidence and show how it has been accounted in its return of income. The assessee was further required to also address whether the taxes due thereon have been paid on or before the specified date. It was submitted that the assessee in the detailed reply which has been extracted in para 5.3.1 from pages 12 to 19 by the assessing officer in its order offered a detailed explanation. Heavy reliance was placed on the said order. Reverting to the assessment order, it was submitted that the assessing officer rejected the explanation in para 5.5 of his order. Aggrieved by this the assessee filed an appeal before the CITA. The relevant finding of the assessing officer was challenged before the CITA which is reproduced hereunder : “5.5 However, with respect to the other disclosure of Rs.11,00,00,000/- made on account of real estate transactions, assessee’s contention is not found to be acceptable. The contention of the assessee that the recoverable income of Rs.11.00 crores is from real estate true but the fact remains that on the date of search, assessee had not recorded the same in its books of accounts and also admitted u/s 132(4) statement (through its promoter Sh. R.K Garg) that he had already destroyed the bianas, hence it was not possible for him to substantiate the manner of earning the same with documentary evidence. Hence, the assessee did not substantiate the same with documentary evidence even at the stage of assessment proceedings. Further, the assessee has taken it as part of it profit and loss account by treating the same as business income. However, this accounting treatment is not correct as the same being unaccounted, should be treated as deemed income of the assessee and be brought to tax in entirety without allowing any set off against the normal business losses. In other words, since, the surrendered income is over and above the normal business income, the same shall not be allowed to be included in the P & L account while computing the income of the assessee and shall be considered separately for the purpose of computing total income of the assessee. The surrendered income cannot be'classified

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 5 of 11 under any of the heads of income under section 14 of the 1. T. Act, 1961. In this regard, reliance is placed on ratio laid down in M/s Kim Pharma Pvt Ltd Vs CIT, Panchkula (ITA No. 106/2011 dated 27.04.2011, Punjab & Haryana High Court) and in the case of Fakir Mohmed Haji Hasan vs CIT 247ITR 230 (Gujrat High Court). 5.6 Thus, for the purpose of taxability, the surrendered income amounting to Rs. 11,00,00,000/- is not allowed to be adjusted against the current business losses and taxable business income during the current year will be computed after excluding the above surrendered income from P & L account The surrendered income of Rs. 11 cr. shall be considered separately and brought to tax in entirety as deemed income and taxes shall be payable on the same. The assessee however is eligible for credit of MAT as per provisions of Income Tax Act, 1961. 5.5 Reverting to the impugned order, it was submitted by the ld. AR that the CIT(A) from pages 2 to 16 has first discussed the view of the assessing officer including the prayer made on behalf of the assessee before him at page 16. The specific ground of the assessee is reproduced along with submissions originally advanced and the detailed submissions advanced qua the two issues, it was submitted, have been again set out in pages 19 to 20 considering which the CITA concluded the issue in para 5 of his order holding as under:-

“5. Decision:- I have gone through the assessment order and submissions filed by the appellant and following observations are made:- Ground no. 1 relates to business income of Rs. 11,00,00,000/- treated as deemed income and set off of business losses and depreciation not allowed against this surrendered income. The AO has not accepted the contention of the appellant in the assessment order due to following reasons:- (i) The AO has stated that the recoverable income of Rs. 11 crores is from real estate transactions may be true but the fact remains that on the due date of search, the appellant had not recorded the same in books of accounts and also admitted u/s 132(4) statement through its promoter that he had already destroyed the bianas to substantiate the same with documentary evidence. (ii) The appellant has taken this income as part of its profit and loss account by treating the same as business income, which is not the correct accounting treatment and should be treated as deemed income of the appellant (iii) This surrendered income cannot be classified under any of the heads of income under section 14 of the act. (iv) Reliance was placed on Hon’ble Punjab & Haryana High Court in the case of M/s Kim Pharma Pvt Ltd vs CIT Panchkula. (v) The surrendered income of Rs. 11 crores shall be considered separately and brought to tax in entirely as deemed income. Before deciding this issue, the judgment of Hon'ble High Court in Kim Pharma Pvt Ltd. needs to be discussed. "It was held by the Hon'ble Court that the amount surrendered during the survey which was not reflected in books of accounts and no source from where it was derived was declared by the assessee and therefore it was deemed income of the assessee u/s 69 of the Act and corresponding deductions which are applicable to the income under any of these various heads will not be attracted in the case of deemed income which are covered u/s 69,69A,69B and 69C of the Act in view of the scheme of the provision." The aforesaid judgment is not applicable to this income of Rs. 11,00,00,000/- declared by the appellant because:- (i) This income was not found in cash during search proceedings. (ii) During the search proceedings,in the year under consideration the appellant vide letter dated 08.11.2012 surrendered an amount of Rs. 11,00,00,000/- in the hands of appellant and offered the same as business income to cover any . discrepancies in the seized

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 6 of 11 document as per the annexure A-35, page No-8 and the above stated receivable business income from the real estate transactions was earned in the same manner as business income reflected and recorded in the regular books of accounts and is derived from the same business carried by the appellant. (iii) During the search proceedings, Shri R.K. Garg in his statement recorded u/s 132(4J of the Act had stated that the transaction at page no. 8 of annexure A-35 seized from corporate office reflect certain property transaction undertaken by SAB Industries whereby purchase and sale of property on bianas were made and the company is to receive the profit on these transactions. It was further stated that there are name of 5 property deals on this document and the total receivable amounts Rs. 11 crore which is income of the company for the year under consideration. (iv) Thus, it is apparent that this income of Rs. 11 crores is related to the receivables from business which was declared as unaccounted income during the year under consideration. (v) The AO in the assessment order at para 5.4 has accepted that the contention of the appellant that the recoverable income of Rs. 11 crore is from real estate transaction may be true. Thus, it is clear from the above fact that the income surrendered is 'Income from Business' on facts of the case and cannot be treated as deemed income as held by the AO. Further reliance is placed on the judgment of Hon'ble ITAT Chandigarh in the case of Garuish Steels Pvt Ltd vs ACIT 173 TTJ 764. In view of the same, this income of Rs. 11,00,00,000/-is held to be business income and the appellant will be allowed to adjust the same against current business losses; if any as per provisions of law.

5.6 In the background of the said findings of the respective authorities, it was his submission that there is no dispute that the assessee was in the business of real estate which has been accepted by the assessing officer. On the specific aspect a specific query was raised by the Bench from the department also as admittedly search & seizure operation has been carried out, whether there was any other business of the assessee disclosed or undisclosed as to the nature of the assessee’s business. In response thereto ld. CIT-DR submitted that the assessee is in the real estate business. The ld. AR reiterating this stated position submitted that once it is accepted that the assessee is engaged in the real Estate business which fact is accepted by the CIT-DR also in the said background it was his submission that whatever has been surrendered, has been surrendered from the activities of real Estate business only. Consequently, the insistence of the Revenue qua the ground raised by them that it is not the business income of the assessee cannot be accepted. It was also his vehement stand that the insistence that necessarily the manner is also required to be disclosed, it was submitted, is not what the Statute mandates. It was his submission that the same was from property business and on account of the fact the assessee has also disclosed that it is from the property business etc. then there is no discrepancy in the assessee's stand. Thus, once the entire income is business thereafter the occasion for the assessee to justify it with some further explanation was not capable of being

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 7 of 11 addressed. Accordingly, it was his submission that the departmental appeal may be dismissed and the assessee’s appeal should be allowed.

6.1 On the next date of hearing the statement of the assessee recorded by the assessing officer qua the issues was made available. On a perusal of the same the Ld. CITDR submitted that more or less same questions are relevant as only those which were relevant for addressing the issue have been extracted in the orders. Inviting attention to section 69A of the Act it was his submission that as far as the departmental appeal is concerned the deletion on facts was not warranted considering the specific questions put to the assessee in the course of the proceedings by the assessing officer. It was his submission that the income which has been surrendered is over and above the normal what has been recorded in the normal books of accounts as would be evident from page 10 of the assessment order page 16 of the CIT(A)’s order page 11 of the assessment order and page 19 and 20 of the CIT(A)’s order. Thus, it was his submission that the prayer of the assessee may not be allowed. Addressing the ground, it was his submission that it has never been offered by the assessee and it is unexplained money of the assessee as such section 69A of the act is attracted.

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 8 of 11 it is an admitted fact which has been admitted even by the CIT-DR also that the assessee is in the business of real estate and the assessee admits the fact and the manner of earning is evident that it is from real estate. No document relatable to it , it was submitted, has been found it has been accepted as business income by the assessee. As nothing has been found linking it to any article or thing inviting attention to the decision of the ITAT in the case of Gaurish Steel 43 ITR TRIB 414 it was submitted that Kim Pharma’s decision has been distinguished by the ITAT in the said decision on which heavy reliance was being placed.

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 9 of 11 reason to vary the conclusion arrived at by the Ld. CIT-A. Being satisfied with the consistent explanation offered on behalf of the assessee which stands unrebutted and considering the legal position thereon the departmental ground is dismissed.

5.7 Also the assessee has surrendered an additional amount of Rs. 1,21,85,0007- to cover any other discrepancies found during the course of search and not recorded in the books of accounts. Since the assessee has not claimed this income against any specific document, and himself admitted the same, no adverse view is taken and this income is accepted as such. However, since it was surrendered other than the normal income so it shall also be treated as deemed income for taxation purposes and be taxed separately as discussed in the proceeding paragraph.” 11. The issue was carried in appeal before the CIT(A) who considering the submissions of the assessee has dismissed the ground holding as under :

“Ground no. 2 and 3 relate to the business income of Rs. 1,21,85,000/- as deemed income. i) During the search proceedings, the appellant had offered Rs. 1,21,85,000/- as business income to cover any discrepancies in all the seized documents as found and seized during the course of search if any. ii) It has been stated by the AO in the assessment order that this income has not been offered against any specific document and hence treated as deemed income for taxation purpose. iii) As this amount disclosed by the appellant in the return of income has not been linked with any document/ source of business the same will be treated as unexplained money u/s 69A of the Act. iv) Thereafter, this income will be covered by the provisions of section 115BBE of the Act for the year under consideration and the appellant is liable to pay taxes as per provisions of section 115BBE(1) of the act and the appellant will not to be allowed any deduction in respect of any expenditure or allowance against this income as per provisions of the section 115BBE(2) of the Act. In view of the above, this addition made by the AO is confirmed and appellant's ground of appeal no. 2 and 3 are dismissed.” 12. Addressing the background of the case and reiterating the arguments that the sole business of the assessee was real estate business it was his submission that the submissions already advanced on behalf of the assessee qua the issue raised by the Revenue in their appeal would fully address this

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 10 of 11 ground also. It was his submission at the cost of repetition that the assessee’s business was real estate and the assessee has admitted that there were certain transactions which were not recorded and infact the record of the unrecorded transactions has not been retained thus by way of hyper caution the assessee had specifically made a blanket surrender of the said amount stating clearly and categorically that it would cover any discrepancies in all the seized documents as found and seized during the course of search. Thus, in these circumstances, it was argued the occasion to consider the same as deemed income in the peculiar facts and circumstances of the present case is contrary to facts and law. 13. The Ld. CIT-DR heavily relying upon the consistent orders of the tax authorities submitted that the addition as deemed income in the peculiar facts and circumstances of the present case deserves to be sustained.

ITA-848&986/CHD/2017 A.Y. 2013-2014 Page 11 of 11 issue is fact specific considering the peculiar facts and circumstance of the present case which have been elaborated hereinabove in detail we find that the assessee’s ground deserves to be allowed. Ordered accordingly.

Order pronounced in the Open Court on 28.03. 2018.

Sd/- Sd/-

(ANNAPURNA GUPTA) ( DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

*Gyan Prakash/Amit Kumar*/Poonam Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR

Asstt. Registrar ITAT, Chandigarh.