M/s Renny Strips Pvt. Ltd., Ludhiana V. ACIT, Ludhiana

ITA 1018/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95781 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-11-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 20-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Business income; Depreciation; Loose papers; Deemed to accrue or arise in india; Unabsorbed depreciation
• Section: 69C; 2(14); 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.1018/CHD/2014 (ASSESSMENT YEAR : 2011-12) M/S RENNY STRIPS PVT. LTD., VS. THE A.C.I.T., 1007, DHOLEWAL CHOWK, CIRCLE-V, G.T. ROAD, LUDHIANA. LUDHIANA. PAN: AADCR7670P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 05.11.2015 DATE OF PRONOUNCEMENT : 28.12.2015 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INC OME TAX (APPEALS)-II, LUDHIANA DATED 21.10.2014 FOR ASSESSMENT YEAR 20011-12. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF STE EL ROUND IN COIL, SCRAP AND TRADING OF HMS, IRON AND S TEEL. SURVEY UNDER SECTION 133 OF THE INCOME TAX ACT, 196 1 (IN SHORT THE ACT) WAS CARRIED OUT AT ASSESSEES PREM ISES AS 2 ON 5.10.2010. DURING THE COURSE OF SURVEY, AN AMOU NT OF RS.1.25 CRORES WAS SURRENDERED BY THE ASSESSEE. TH E ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN THIS SURRENDERED INCOME AS BUSINESS INCOME UNDER THE PR OFIT & LOSS ACCOUNT. REFERRING TO THE CASE OF I.T.A.T., CHANDIGARH BENCH IN THE CASE OF KIM PHARMA (P) LTD . VS. ITO, ITA NO.189/CHD/2010 FOR ASSESSMENT YEAR 2006-0 7, THE ASSESSING OFFICER CONSIDERED THE SURRENDERED IN COME AS DEEMED INCOME. THE ASSESSEE CONTENDED BEFORE TH E ASSESSING OFFICER THAT THE EXCESS CASH AND THE RECE IVABLES FROM THE PARTIES AS PER THE LOOSE PAPERS ON THE BAS IS OF WHICH SURRENDER WAS MADE PERTAINED TO THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY, BE TREATED AS ITS BUS INESS INCOME. THE ASSESSING OFFICER NOTICED THAT AT THE TIME OF SURVEY, IT WAS NOTICED THAT THE SURRENDERED AMOUNT WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS, THEREFORE, H E TREATED THE SURRENDERED INCOME AS DEEMED INCOME O F THE ASSESSEE. THE SUM AND SUBSTANCE OF THE SAID ACTION OF THE ASSESSING OFFICER WAS THAT THE LOSSES SUFFERED BY THE ASSESSEE DURING THE YEAR WERE NOT ALLOWED TO BE SET OFF AGAINST THE SURRENDERED INCOME. 3. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE CONTENDED THAT AS PER THE PROVISIONS OF SECTION 14, SECTIONS 5 AND 2(14) OF THE ACT, THE INCOME COULD N OT BE ASSESSED UNDER ANY HEAD OTHER THAN THAT THE FIVE HE ADS PROVIDED UNDER THE ACT. IT WAS ALSO CONTENDED THAT THE SUNDRY RECEIVABLES SURRENDERED DURING THE COURSE OF 3 SURVEY IS ONLY A BUSINESS INCOME AND THE ASSESSEE B EING A COMPANY, NO INCOME OTHER THAN THE BUSINESS INCOME C AN ACCRUE TO IT. RELIANCE WAS PLACED ON THE JUDGMENTS OF GUJARAT HIGH COURT IN THE CASE OF RADHE DEVELOPERS INDIA LTD. (2010) 329 ITR (GUJ) AND SHILPA DYEING & PRINT ING MILLS LTD. (2013) 39 TAXMANN.COM 3 (GUJRAT). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND REF ERRING TO A NUMBER OF JUDGMENTS OF VARIOUS COURTS, THE LEA RNED CIT (APPEALS) DISMISSED THE GROUND OF APPEAL RAISED BY THE ASSESSEE. 4. AGGRIEVED BY THIS ORDER, THE ASSESSEE HAS COME IN APPEAL BEFORE US. 5. GROUND NOS.1 TO 4 RELATE TO THE ISSUE OF TAXABILITY OF SURRENDERED INCOME. THE LEARNED COUN SEL FOR THE ASSESSEE ON THIS ISSUE RELIED ON THE ORDER OF T HE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF GAURISH STEELS PVT. LTD. IN ITA NO.1080/CHD/2014 DATED 17.9.2015, WHEREBY IT HAS BEEN HELD THAT APART FROM THE CASH, SURRENDER MADE ON ACCOUNT OF SUNDRY RECEIVABLES IS TO BE TREATED AS BUSINESS INCOME. 6. THE LEARNED D.R. RELIED ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF HOME TE X VS. CIT, 243 CTR 81 (P&H) AND THAT OF THE I.T.A.T., CHA NDIGARH BENCH IN THE CASE OF MANSAROVAR FORGINGS PVT. LTD. VS. ACIT, ITA NO.873/CHD/2012, DATED 6.12.2012 AND SMT.PROMILA JAIN VS. DCIT, ITA NO.1449/CHD/2010 DAT ED 4 25.9.2012. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THIS IS A FACT ON RECORD THAT THE ASSESSEE SURRENDE RED AN AMOUNT OF RS.1.25 CRORES DURING THE COURSE OF SURVE Y CARRIED OUT AT THE BUSINESS PREMISES ON 5.10.2010, ON ACCOUNT OF FOLLOWING HEADS : EXCESS CASH FOUND RS. 9,00,000/- SUNDRY RECEIVABLES RS.1,16,00,000/- 8. THIS IS ALSO CLEAR FROM THE PERUSAL OF THE SURRENDER LETTER FILED BEFORE THE ASSESSING OFFICER , THAT THE CASH WAS SURRENDERED AS THE EXCESS AMOUNT OF CA SH WAS FOUND DURING THE COURSE OF SURVEY AND SUNDRY RECEIVABLES SURRENDER WAS MADE AS CERTAIN LOOSE PAP ERS WERE FOUND FROM THE BUSINESS PREMISES ON WHICH CERT AIN AMOUNTS RECEIVABLE AS ON 2.10.2010 BELONGING TO THE ASSESSEE WERE MENTIONED. THESE FACTS HAVE NEVER BE EN CONTROVERTED BY THE LOWER AUTHORITIES AT ANY STAGE. THE ASSESSING OFFICER HAS NOT MADE ANY INVESTIGATION TO FIND THE EXACT SOURCE OF THIS SURRENDER AND HAS ACCEPTED THE SAME AS SUCH. 9 THE ISSUE OF THE HEAD UNDER WHICH THE SURRENDERED INCOME IS TO BE TAXES BECOMES IMPORTANT IN VIEW OF THE FACT THAT APART FROM THE SURRENDERED I NCOME, THE ASSESSEE HAS SUFFERED LOSSES DURING THE YEAR AN D IF 5 SURRENDERED INCOME IS ASSESSED NOT UNDER ANY OF THE HEADS PROVIDED UNDER SECTION 14 OF THE ACT, THEN TH E ASSESSEE WOULD HAVE TO PAY TAX ON SURRENDERED INCOM E, AS THE BUSINESS LOSSES ARE NOT ALLOWED TO BE SET OFF A GAINST THE SURRENDERED INCOME IT IS PERTINENT TO MENTION HERE THAT IT WAS STATED AT THE BAR THAT THE ASSESSEE WAS SUFFERING LOSSES EVEN AT THE TIME OF SURVEY, A COPY OF TRADING ACCOUNT PREPARED AT THE TIME OF SURVEY IS P LACED ON RECORD. FURTHER, DURING THE ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER HAS NOT BEEN ABLE TO BRING ON RECORD ANY EVIDENCE OR MATERIAL TO PROVE THAT THE LOSSES W ERE INFLATED BY THE ASSESSEE. EVEN THE BOOKS OF ACCOUN TS OF THE ASSESSEE ARE NOT REJECTED. IN THIS BACKGROUND, NOW, WE SEE THAT THE RELIANCE PLACED BY THE ASSESSEE ON THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF GAURISH STEELS PVT. LTD.. (SUPRA) IS NOT OUT OF PLA CE. IN EXACTLY THE SAME FACTS AS THAT OF THE PRESENT CASE, THE I.T.A.T., CHANDIGARH BENCH HELD AS UNDER : 11. THESE FACTS HAVE NOT BEEN DISPUTED BY ANY ONE AT ANY STAGE. THE ONLY ISSUE TO BE CONSIDERED BY US IS WHETHER THE INCOME OF RS.70 LACS SURRENDERED IS TO BE TAXABLE AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES OR AS DEEMED INCOME UNDER SECTIONS 69A, 69B AND 69C OF THE ACT AS HELD BY THE ASSESSING OFFICER. A NUMBER OF JUDICIAL PRONOUNCEMENTS HAVE BEEN CITED DURING THE COURSE OF HEARING, HOWEVER, WE HAVE TO BOW DOWN TO THE PROPOSITION LAID DOWN BY THE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S KIM PHARMA PVT. LTD.(SUPRA) 6 SINCE THIS IS THE ONLY JUDGMENT OF THE JURISDICTIONAL HIGH COURT WHICH WERE BROUGHT TO OUR NOTICE. 12. ON PERUSAL OF THE SAID JUDGMENT, WE FIND OURSELVES IN AGREEMENT WITH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE, THAT THE ONLY ISSUE IN THAT CASE WAS THE TAXABILITY OF CASH SURRENDERED DURING THE COURSE OF SURVEY, AS THE ASSESSEE HAD ALSO SURRENDERED INCOME OF RS.10 LACS IN ASSESSMENT YEAR 2005-06 ON ACCOUNT OF SUNDRY CREDITS, REPAIRS TO BUILDING AND ADVANCES TO STAFF, WHICH BEING RELATABLE TO BUSINESS CARRIED ON BY THE ASSESSEE WAS ALREADY INCLUDED AS INCOME FROM BUSINESS. 13. IN THE PRESENT CASE, WE SEE THAT THE ASSESSING OFFICER HAS NOWHERE DISPUTED THE BUSINESS LOSSES INCURRED BY THE ASSESSEE. THE BOOKS HAVE NOT BEEN REJECTED. IT WAS STATED AT THE BAR THAT EVEN AT THE TIME OF SURVEY, IN THE TRADING ACCOUNT PREPARED BY THE SURVEY TEAM, THERE WERE LOSSES INCURRED BY THE ASSESSEE. ALL THESE FACTS HAVE NOT BEEN DISPUTED BY THE ASSESSING OFFICER. FURTHER, THE SURRENDER MADE BY THE ASSESSEE WAS ON ACCOUNT OF CASH FOUND DURING THE COURSE OF SURVEY, DISCREPANCY IN THE COST OF CONSTRUCTION OF BUILDING, DISCREPANCY IN STOCK AND DISCREPANCY IN ADVANCES AND RECEIVABLES. BY NO STRETCH OF IMAGINATION, ANY OF THESE INCOMES APART FROM CASH CAN BE CONSIDERED AS INCOME UNDER ANY HEAD OTHER THAT THE BUSINESS INCOME. 14. NOWHERE IN HIS ORDER THE ASSESSING OFFICER HAS BEEN ABLE TO BRING ON RECORD THE FACT THAT THE INCOME SURRENDERED DURING THE COURSE OF SURVEY WAS NOT OUT OF THE BUSINESS OF THE 7 ASSESSEE. ALSO NOWHERE HE HAS OBJECTED TO THE HEADS UNDER WHICH THE ASSESSEE HAD SURRENDERED THESE AMOUNTS, I.E. CASH, CONSTRUCTION OF BUILDING, DISCREPANCY IN STOCK AND DISCREPANCY IN ADVANCES AND RECEIVABLE. FURTHER, EVEN THE SURVEY TEAM HAS NOT FOUND ANY SOURCE OF INCOME EXCEPT THE BUSINESS INCOME. NOW, FOLLOWING THE JUDGMENT OF JURISDICTIONAL HIGH COURT, IN THE BACKGROUND OF THE FACTS OF THE PRESENT CASE, WE CAN SAFELY INFER THAT APART FROM CASH ALL OTHER INCOME SURRENDERED MAY BE BROUGHT TO TAX UNDER THE HEAD BUSINESS INCOME WHILE THE CASH HAS TO BE TAXED UNDER THE HEAD DEEMED INCOME UNDER SECTION 69A OF THE ACT. 15. NOW, AS REGARDS THE BUSINESS LOSSES INCURRED BY THE ASSESSEE DURING THE YEAR, THESE CAN BE SET OFF AGAINST THE INCOME SURRENDERED DURING THE COURSE OF SURVEY EXCEPT FOR THE AMOUNT OF CASH SURRENDERED, AS PER THE MANDATE OF SECTION 71 OF THE ACT. NO LOSS CAN BE SET OFF AGAINST THE CASH SURRENDERED AS THE SAME HAS ALREADY BEEN HELD TO BE TAXED UNDER A DIFFERENT HEAD. THE ASSESSING OFFICER IS HEREBY DIRECTED TO SET OFF BUSINESS LOSSES SUFFERED BY THE ASSESSEE OUT OF THE SURRENDERED INCOME EXCEPT THE ELEMENT OF CASH SURRENDERED. 16. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RAISED AN ADDITIONAL GROUND, WHICH READS AS UNDER : 'NOTWITHSTANDING THE OTHER GROUNDS OF APPEAL AS ALREADY TAKEN IN ITA NO. 1080/CHD/2014 FOR ASSTT.YEAR 2011-12, IT IS SUBMITTED THAT THE DEEMED INCOME AS ASSESSED BY THE ASSESSING OFFICER U/S 69 AND CONFIRMED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS TO BE 8 ADJUSTED AGAINST THE UNABSORBED DEPRECIATION, WHICH HAS BEEN DETERMINED BY THE ASSESSING OFFICER IN THE ORDER PASSED U/S 154, DATED 18.02.2015.' THE CASES RELIED ON BY THE LEARNED D.R. HAVE ALL BEEN DEALT IN THE CASE OF GAURISH STEELS PVT. LTDC. (SUPRA) 10. RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH, WE HEREBY DIRECT THE ASSESSING OF FICER TO ALLOW BUSINESS LOSSES SUFFERED BY THE ASSESSEE O UT OF SURRENDERED INCOME ON ACCOUNT OF SUNDRY RECEIVABLES ONLY AND NOT OUT OF SURRENDERED CASH. 11. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE RAISED AN ADDITIONAL GROUN D, WHICH READS AS UNDER : 1. 'NOTWITHSTANDING THE OTHER GROUNDS OF APPEAL AS ALREADY TAKEN IN ITA NO. 1018/CHD/2014 FOR ASSTT.YEAR 2011-12, IT IS SUBMITTED THAT THE DEPRECIATION OF RS. 41,70,733/- BEING THE CURRENT YEAR DEPRECIATION BE SET OFF AGAINST THE DEEMED INCOME AS DETERMINED BY THE ASSESSING OFFICER U/S 69 TO THE TUN E OF RS. 1,25,00,000/- AS PER THE JUDGMENT OF JURISDICTIONAL BENCH OF THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH, CHANDIGARH IN THE CASE OF M/S LIBERTY PLYWOOD (P) LTD.' 12. SINCE THE GROUND IS PURELY LEGAL IN NATURE AND ALL FACTS ARE THERE ON RECORD, WE HEREBY ADMIT THE SAME. 13. AS WE HAVE ALREADY HELD THAT THE AMOUNT SURRENDERED ON ACCOUNT OF SUNDRY RECEIVABLES IS TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME, THE ASSE SSING 9 OFFICER IS HEREBY DIRECTED TO ALLOW THE BENEFIT OF CURRENT YEAR DEPRECIATION TO THE ASSESSEE OUT OF THE SAME, AS PER LAW. 14. THE LEARNED COUNSEL FOR THE ASSESSEE PREFERRED NOT TO PRESS GROUND NO.5 OF THE APPEAL. THEREFORE, THE SAME IS DISMISSED AS NOT BEING PRESSED. 15. THE GROUND NOS. 6 AND 7 OF THE APPEAL ARE GENERAL AND NEED NO ADJUDICATION. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF DECEMBER, 2015. SD/- SD/- (H.L. KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 28 TH DECEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH