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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
The captioned appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana dated 04.10.2016 for Assessment Year: 2012-2013.
Millennium Real Estate Developers P. Ltd. v. Asstt. CIT
The assessee has raised the following grounds of appeal:
“1. That the learned CIT (Appeals) Central Circle have erred both on facts and in law while passing his orders upholding the decision of the Assessing Officer treating the surrendered income of Rs.1.10 Crore as deemed income u/s 69 A of the Act; rather than income from Business or Profession, in view of the fact that the Returned Income as declared by the assessee has been accepted on which due taxes had been duly paid.
2. That both the Ld. CIT (Appeals) and Assessing Officer have erred on both facts and in Law, the essence and specific provisions of section 14A of the Act read with section 56(i) of the Act, combined reading whereof clearly specify what shall constitute income from other sources, which encompasses even the deemed income nature to fall under the Income from other Sources; since law do not stipulate any other heads of income other than what is specified in section 14 of the Act; the expression save otherwise provided in section 14 read with specific provision of section 56, with no other contrary specific provisions in section 69A, as invoked, clearly leaves no scope to read it otherwise and consequent application of the set off provisions u/s 71 of the Act.
3. That learned CIT (Appeals) while passing his orders have also summarily ignored the observations and decisions of the Hon'able Gujrat High Court in the case of CIT vs Mahendra C Shah (2008) 299 ITR 305 and 278 ITR 454 (2008) in the case of CIT vs Radha Krishan Goel vis a vis the spirit of the statement u/s 132(4) of the Act, which are quite pertinent and relevant since the explanations of the assessee have been disregarded by the worthy CIT(A) without passing any speaking orders.
4. That the assessee craves to add, modify the grounds of appeal during the course of the appeal proceedings.”
3. Briefly, the facts of the case are that a search operation u/s 132(1) of the Income Tax Act, 1.961 (for short ‘the Act’} was undertaken at the premises of the assessee on 03.08.2011. During Scrutiny proceedings, on Millennium Real Estate Developers P. Ltd. v. Asstt. CIT verification of documents relating to the search proceedings, the AO noticed that statement of Sh. Rakesh Khanna, the then director of the assessee, was recorded in the search proceedings on 04.08.2011. In his statement Sh. Rakesh Khanna had made a disclosure of Rs. 10,00,00,000/- as additional income in respect of all the concerns related to himself and his wife, and the assessee-wise bifurcation was given later on vide his letter dated 14.10.2011 during the course of his statement before the ADIT (lnv.), Jalandhar. As per this letter, the assessee surrendered an additional income of Rs, 1,10,00,000/- for the Assessment Year 2012-13 being income from the same modus operandi as declared before the Income Tax Department and to cover up all other discrepancies in the seized documents. Therefore, this amount of surrender represented the undisclosed and unexplained income of the assessee which could not be substantiated, with explained source of income. On verifications, it was also noticed that the amount of surrendered income has been introduced by the assessee as cash in its books of account. Being not satisfied with the submission of the assessee that it could not directly correlate the additional income, which was admittedly as not recorded in the books of account of the assessee, with any business transactions, the AO held that it was undisclosed income being introduced by the assessee in its books of Millennium Real Estate Developers P. Ltd. v. Asstt. CIT account as 'Cash’ and he relied on decision of jurisdictional High Court as squarely applicable in this case since the income surrendered against the unexplained amount has not been substantiated with evidence to any known source of income. Accordingly, the AO assessed the additional income declared, by the assessee as clearly covered under provisions of section 69A of the Act and hence, the income of Rs. 1,10,00,000/- declared by the assessee was held taxable as deemed income u/s 69A of the Act and not as income from ‘Business' with Penalty proceedings u/s 271 AAA of the Act.
4. In appeal, CIT appeal has confirmed the addition by observing as under:
3.1 Grounds of Appeal Nos. 1 & 2 pertain to assessment of surrendered income of Rs. 1.16 Crores as assessable u/s 69A and not allowing the set-off of the business loss from this income. The AO has mentioned that a search u/s 132 was carried out at the premises of the assessee on 03.08.2011 and the assessee surrendered an additional income of Rs. 1,10,00,000/- for A.Y. 2012-13 being income from the same modus operandi as declared before the Income Tax Department and to cover up all other discrepancies in the seized documents. The AO noted that the surrendered income had been introduced by the assessee as cash in its books of accounts and the assessee could not directly correlate the additional income with any business transaction. On these facts, the AO assessed this income u/s 69A and the business loss of Rs. 2,80,490/- was not allowed to be set-off against this income. The facts of the case, the order passed by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The AR has argued that the surrender was on account of the same modus operandi as Millennium Real Estate Developers P. Ltd. v. Asstt. CIT debated before the Income Tax Department which has duly been recorded by the AO also in the assessment order. The AR further argued that the income of every kind other than u/s 14 TV to 'E' shall constitute income under the head 'Other Sources'. The AR further argued that as per the provisions of Section 71(1) the inter head income/loss of the same year are allowed to be set off against each other. AO has not allowed the set off in view of Hon'ble Punjab & Haryana High Court decision in the case of Kim Pharma Pvt. Ltd vs. CIT(2013) 35 Taxmann 456 observing that opening lines of section 14 i.e. save as otherwise provided by this Act clearly leave scope for the deemed income of the nature covered under the scheme of section 69 to 69C being treated separately. There appears to be merit in the observation of the AO in view of direct decision of the jurisdictional High Court on the issue. Therefore, the action of the AO in not allowing the set off of business loss against the surrendered income is upheld as the assessee has credited the surrendered amount in its books of accounts as cash. Accordingly, these grounds of appeal are dismissed.
5. The Ld. AR submitted that the learned CIT (Appeals) while passing impugned order have summarily ignored the observations and decisions of the Hon'ble Gujrat High Court in the case of CIT vs Mahendra C Shah (2008) 299 ITR 305 and 278 ITR 454 (2008) in the case of CIT vs Radha Krishan Goel vis a vis the spirit of the statement u/s 132(4) of the Act, which are quite pertinent and relevant since the explanations of the assessee have been disregarded by the worthy CIT(A) without passing any speaking orders. The brief reply filed is reproduced as under:
“1. That the Search & Seizure Operations u/s 132 were carried on the Shri Rakesh Khanna, Sarita Khanna and the Group companies and entities including this company i.e. Millennium Real Estate Developers Private Limited, Jalandhar. On 3rd of August, 2011, During the said Search & Seizure proceedings of the said persons and entities, the appellant assessee ' Millennium Real Estate Developers Private Limited' was also searched as one of the entity, in which Millennium Real Estate Developers P. Ltd. v. Asstt. CIT the persons other than the said ShriRakesh Khanna& family were holding substantial shareholding of about 50%. 2. No incriminating material was found in respect of the this Company entity during the Search/ Seizure proceedings as is evident from the statements as recorded on 04.08.2011, 14.09.2011 and 14.10.2011.
That the sum of Rs.1.10 crore was declared/surrendered in the hands of the assessee company, being part of the surrendered income of Rs. 10.00 cr. as surrendered & declared by the said Shri Rakesh Khanna.
That it shall be relevant and pertinent:
a) That there is no material which leads and establishes that any income/receipt which was found as not declared by the assessee from the perusal of the seized records or any finding in the asstt. Proceedings as is evident from the contents of the asstt. order. b) That the facts of the assessee case shows that there was no undisclosed income found during the course of search and no incriminating material was found of any undisclosed income /assets. c) That no cash, money, bullion, jewellery or other valuable articles, asset or things or any entry in the books of accounts or other document or transaction found in the course of search proceedings of the said company entity and also during the course of assessment proceedings;
That it is also submitted and reiterated that during the course of the Search proceedings and also during the recording of the statement u/s 132(4) of the Act, no specific question/query was raised by the Revenue Authorities with regard to manner in which such income have been derived; And The assessee, during the course of the assessment proceedings, on such query raised have duly explained as regard to the manner in which such income, as disclosed, have been derived vide our specific submissions of 18th March, 2014 and 24th March, 2014, as stated in paras (i) and (ii) below;
Vide submissions of 18thMarch, 2014; Such disclosures of income of (i) Rs.1.10 cr. in the hands of the company, being part of the group cases of Shri Rakesh Khanna and Sarita Khanna, out of the total surrender
Millennium Real Estate Developers P. Ltd. v. Asstt. CIT amount of Rs. 10 cr, has been accepted and taken on record vide detailed declaration dated 14.09.2011, for the relevant asstt. year 2012- 13 alongwithmanner in which the income has been derived and basis thereof, pertaining to the business operations and amounts received against sales/booking etc and in respect of cost of constructions which also interalia to cover any discrepancy in the seized documents. Such disclosures have been also recorded in the books of accounts, financial statements and also Profit & Loss account statement where the said income has been accounted for as income from pursuit of its business activities. (Copy of the submission dt. 18.03.2014 is annexed - Annexure 'A')
(ii) That the assessee also again submitted and reiterated the manner of deriving income as extracts of his submissions of 24thMarch, 2014, in continuation of his earlier submissions of 18th March, 2014 and relevant part thereof is reproduced for brevity sake, as under:
"That in view of the said submissions as the company has derived the aforesaid income from the pursuit of its business activities having been formed for the very objective of carrying on the real estate developers in the year 2008-09; and that being the only business activity and source of income generation of the company and as the company has explained the manner in which income has been derived being pertaining to the aforesaid business operations in pursuit of its only business activities and amounts derived in due course of the sale/booking of residential unit and in respect cost of construction etc, which also interalia to cover any discrepancies in the documents and record, therefore, there appears no justification and reasons to invoke the provisions of section 69A of the Act and to assess the same as deemed income under the said provisions."
(Copy of the submission dt. 24.03.2014 is annexed - Annexure 'B') And therefore, it was sufficient compliances as to the legal requirements as contemplated u/s 132(4) of the Act.
On the subject issue with regard, the manner of deriving the income, the worthy CIT(Appeals) after due consideration of the assessee’s submissions of 18thMarch, 2014 in context of penalty proceedings u/s 271AAA of the Act vis a vis the issue of substantiating the manner in which undisclosed
Millennium Real Estate Developers P. Ltd. v. Asstt. CIT income was derived have held in favour of the assessee company for the same asstt. year 2012-13, vide his orders dated 17.04.2018. the relevant Para (ii) at Page 9 of the said appeal :
"Such disclosures of income of Rs.1.10 cr. in the hands of the company, being part of the group cases of Shri Rakesh Khanna and Sarita Khanna, out of the total surrender amount of Rs. 10 cr, has been accepted and taken on record vide detailed declaration dated 14.09.2011, for the relevant asstt. year 2012-13 alongwithmanner in which the income has been derived and basis thereof, pertaining to the business operations and amounts received against sales/booking etc and in respect of cost of constructions which also interalia to cover any discrepancy in the seized documents. Such disclosures have been also recorded in the books of accounts, financial statements and also Profit & Loss account statement where the said income has been accounted for as income from pursuit of its business activities. "
Copy of the Appeal order of worthy CIT(Appeals)- 5, Ludhiana dated 17.04.2018 is annexed. - Annexure 'C.
7. In context thereof, and in support of arguments and submissions, assessee places reliance on the decision of Hon'able Bombay High Court in the case of Principal Commissioner of Income tax vs Phoenix Mills Limited reported in 307 CTR (2019) 700;dated 7thFeb., 2019 where in para 3 of the order, the Hon'able Court have held:
Para 3 Having heard learned Counsel for the parties and having perused the documents on record, we do not find any error in the view of the Tribunal. The requirement in question flowing from clause (i) of sub-section (2) of section 271AAA of the Act is similar to one specified in sub- da use (2) of Explanation 5 to section 271 of the Act. In context of this provision that Allahabad High Court in case of Rad ha Kishan Goei (supra) had held that unless the AuthorizedOfficer recording the statement under section 132f4)fa) of the Act puts the specific questionwith regard to the manner in which income have been derived has not been stated, but hasbeen stated subsequently, it amounts of compliance with explanation 5(a).
(As already annexed as per our submission dated 4.02.2020 vide Pages 33 - 35).
Millennium Real Estate Developers P. Ltd. v. Asstt. CIT
That pursuing the Additional Grounds of Appeal, the assessee, therefore, during the course of assessment proceedings did make specific submissions as to substantiating the amount of Rs.1.10 crore which both the Assessing Officer and also worthy CIT(Appeals) should have considered in view of the nature of the business activities/operations of the assessee, being Real Estate Developers and whatever on money was received on sale/booking of flats or expenses incurred during the course of business activities undoubtedly be part of and in pursuit of its business activities of booking/selling of the apartments would be nothing but amounts of consideration receipted in cash in pursuit of its business activities and not any unexplained amounts as contemplated and assessable u/s 69A of the Income Tax Act; coupled with the fact that the Ld. Assessing Officer has accepted the Returned Income including the constituents of cash amounts of Rs.1.10 cr. credited in the Books of accounts as Misc. Receipts/credits, without any rebuttal or bringing on records any other material or evidence otherwise, therefore, treating the said amounts as income from undisclosed sources u/s 69A of the Act, merely because the said amounts were received/recorded in cash would not make change in the nature of income being in pursuit of its business activity, especially in view of no objections, questions, doubts raised while recording statement u/s 132 and 131(1A) of the Act during the search proceedings. In view of the aforesaid facts and consideration, the ratio of the decision of KIM Pharma (P) Ld vs DCIT (2013) 258 CTR 454 (Pb. & Haryana) as relied upon while framing assessment is not applicable and distinguishable as per Para supra above.
(As already annexed as per our submission dated 4.02.2020 vide Pages 36- 39) Contd....6.... 9. The assessee also further rely on the ratio of decision of Hon'able ITAT Amritsar Bench in the case of M/s Dev Raj Hi-Tech Machine Limited vs DCIT (2014) where in the Hon'able Bench considered the question as to whether surrendered made by the assessee considered as business income or can be taxed as deemed income u/s 69A of the Income Tax Act.
The Hon'able Bench while upholding in the favour of the assessee considered the applicability of decision of jurisdictional Punjab & Haryana High Court in the case of KIM Pharma (P) Ld vs DCIT (2013) 258 CTR 454 (Pb. & Haryana)as not applicable in facts /circumstances of the case.
Millennium Real Estate Developers P. Ltd. v. Asstt. CIT (As already annexed as per our submission dated 4.02.2020 vide Pages 40 - 57)
In view of the aforesaid facts submissions, legal citations, it is respectfully prayed that sought for relief may please be allowed to the assessee. It is so submitted.”
6. Per Contra, the CIT (DR) has supported the impugned order, however, he failed to rebut the contention of the appellant that the explanations of the assessee have been disregarded by the worthy CIT(A) without passing any speaking orders. Therefore, he has no objection in restoring the matter to CIT(A) for afresh adjudication after granting fresh opportunity to the appellant.
We have heard the ld. DR, perused material on record, written submission of appellant and impugned order. Admittedly, the appellant has introduced the surrendered income of Rs. 1,10,00,000 as on money as cash in its books of accounts as per the discussion by the AO in the assessment order alleging that the appellant assessee could not substantiate the source of the surrendered amount of Rs.1.10 crore. The Ld. AR in written submission contended that both the Assessing Officer and the worthy CIT(Appeals) should have considered the source as business income in view of the nature of the business activities/operations of the Millennium Real Estate Developers P. Ltd. v. Asstt. CIT assessee, being Real Estate Developers and whatever on money was received on sale/booking of flats or expenses incurred during the course of business activities undoubtedly be part of and in pursuit of its business activities of booking/selling of the apartments would be nothing but amounts of consideration received in cash in pursuit of its business activities and not any unexplained amounts as contemplated and assessable u/s 69A of the Income Tax Act. However, it is noted that neither the authorities below nor the appellant referred to the relevant part of the surrender statement and to the source of income to substantiate the On money cash claimed to be introduced in the booked of account on account of discloser of income in view of search action u/s 132 of the Act.
8. In view of that matter, we consider it deem fit to remand the matter back to the file of the CIT Appeal to adjudicate the issue of deemed income u/s 69A afresh after allowing sufficient opportunity of being heard to the appellant and considering the material filed on the record and to filed in the course of the fresh proceedings in respect of the issue of unexplained source of cash introduced in books on account in view of disclosure of On money receipts during the course of search action u/s 132 of the Act. The CIT(A) is directed to pass a speaking order addressing the grievance of the Millennium Real Estate Developers P. Ltd. v. Asstt. CIT appellant that the on money received in pursuit of its business activities and not any unexplained amounts as contemplated and assessable u/s 69A of the Income Tax Act by rebuttal or bringing on records material or evidence to treat the said amounts as income from undisclosed sources u/s 69A of the Act, in consonance to surrender and investigation by the search team while recording statement u/s 132 and 131(1A) of the Act during the search proceedings.
Accordingly, the matter is remanded back to the file of the CIT appeal for afresh adjudication on the issue of assessment of surrendered income u/s 69A of the Act.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 13.09.2023