Mrs. Promila Jain, Ambala Cantt. V. DCIT, Ambala

ITA 1449/CHANDI/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63959 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Unexplained investment; Unexplained expenditure; Business income; Deemed to accrue or arise in india; Question of law
• Section: 69; 6; 69C; 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 1449/CHD/2010 ASSESSMENT YEAR: 2007-08 SMT.PROMILA JAIN, V DCIT, PROP. M/S HIND MOTOR STORES, AMBALA. RAI MARKET, AMBALA CANTT. PAN: ACHPJ-9013B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT : SHRI N.K.SAINI DATE OF HEARING : 11.09.2012 DATE OF PRONOUNCEMENT : 25.09.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 15.11.2010 PASSED BY THE LD . CIT(A) PANCHKULA U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE ACT'). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AS WELL AS ON FACTS IN HOLDING SURRENDERED AMOUNT O F RS. 4,00,000/- AT THE TIME OF SURVEY TO BE THE ADDITIONAL INCOME UNDER SECTION S 69 & 69A OF THE ACT AS AGAINST THE CLAIM OF THE APPELLANT TO ITS BEING THE INCOME FROM BUSINESS AND SURRENDERED AGAINST THE CASH AND EXCESS STOCK FOUND AT THE TIME OF SURVEY AND HENCE IT IS ARBITRARY AND UNJUSTIFIED. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER ERRED IN UPHOLDING THE REJECTION OF THE TRADING ACCOUNT AND THEREBY UPHOLDING THE 2 ADDITION OF RS. 1,07,278/- WHICH IS ARBITRARY & UNJ USTIFIED. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS FURTHER ERRED IN NOT TELESCOPING THE TWO ADDITIONS OF RS. 1,07,278/- AND RS.4,00,000/- LACS SURRENDERED AT THE TIME OF SURVEY WHICH IS ARBITRAR Y & UNJUSTIFIED. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS FURTHER ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 19,630/- OUT OF THE INTEREST PAID TO THE RELATIVES HOLDING THAT INTERES T @ 12% COULD BE REASONABLE IN PLACE OF INTEREST PAID AT 15%. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) W RONGLY RELIED UPON THE JUDGMENT OF THE ABHISHEK INDUSTRIES WHICH IS ALSO ARBITRARY & UNJUSTIFIED. 6. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TA X (APPEALS) IS ERRONEOUS, ARBITRARY, OPPOSED LAW AND FACTS OF THE CASE AND IS, THUS, UNTENABLE. 3. IN THE COURSE OF PRESENT APPELLATE PROCEEDIN GS, LD. 'AR' GAVE BRIEF FACT-SITUATION OF THE CASE AND STATED TH AT SEARCH WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSES SEE AND DURING THE COURSE OF SURVEY, THE ASSESSEE DECLARED ADDITIONAL INCOME OF RS.4,00,000/- WHICH WAS DULY REFLECTED IN THE RETURN OF INCOME. THE SURRENDER WAS MADE IN VIEW O F THE DISCREPANCY IN CASH, STOCK AND INVESTMENT ETC. THE LD. 'AR' IS OF THE OPINION THAT THE AMOUNT OF SURRENDER IS T O BE TREATED AS INCOME FROM REGULAR BUSINESS. HOWEVER, THE AO TREATED THE ADDITIONAL INCOME OF RS. 4,00,000/- SUR RENDERED BY THE AO IN THE COURSE OF SURVEY AS NOT INCOME FRO M HIS REGULAR BUSINESS AND CONSEQUENTIALLY, ASSESSED THE SAME AS DEEMED INCOME U/S 69 AND 69A OF THE ACT, AS THE SAM E REPRESENTS ASSESSEE'S UNEXPLAINED CASH/STOCK AND INVESTMENT. THE AO, PLACED RELIANCE ON THE DECISIO N OF THE HON'BLE GUJRAT HIGH COURT IN THE CASE OF FAKIR MOHD . HAZI 3 HASSAN, 247 ITR 290. LD. 'AR' REFERRED TO PAGE NO. 3 OF THE APPELLATE ORDER PASSED BY THE CIT(A) AND PLACED REL IANCE ON THE DECISION OF CIT V S.K.SRIGIRI & BROTHERS 298 IT R 13 (KAR). IT IS MENTIONED THAT IN M/S KIM PHARMA (P) LTD. V C IT, PANCHKULA IN ITA NO. 106 OF 2011 ( O&M ) VIDE DECIS ION, DATED 27.4.2011, IDENTICAL ISSUE HAS BEEN DECIDED A GAINST THE ASSESSEE. THE FACTS OF THE CASE BEFORE THE HON' BLE JURISDICTIONAL HIGH COURT ARE IDENTICAL TO THE FACT S OF THE PRESENT APPEAL. THEREFORE, THE ISSUE INVOLVED IN T HE PRESENT APPEAL IS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT. THE DECISION OF THE KARN ATAKA HIGH COURT, IN THE CASE OF S.K.SRIGIRI & BROTHERS (SUPRA ) HAS BEEN CONSIDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT , WHILE ADJUDICATING THE ISSUE IN QUESTION. 4. LD. 'DR', ON THE OTHER HAND, PLACED RELIANCE O N THE ORDER PASSED BY THE AO AND THE CIT(A). 5. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSION S, FACTS OF THE CASE AND THE RELEVANT RECORD AND FOUND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE GUJRAT HIGH COURT IN THE CASE OF FAKIR MOHD. HAZI HASSAN V CIT (SUPRA). THE RELEVANT PART OF THE DECISION IS REPR ODUCED HEREUNDER : THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C OF THE INCOME-TAX ACT,1961, WOULD SHOW THAT IN CASES WHERE THE NATUR E AND SOURCE OF INVESTMENTS MADE BY THE ASSESSEE 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 EXPLAI NED AT ALL, OR NOT SATISFACTORILY EXPLAINED, THEN, THE VALUE OF SUCH I NVESTMENTS AND MONEY OR VALUE OF ARTICLES NOR RECORDED IN THE BOOKS OF ACCO UNT OR THE UNEXPLAINED 4 EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF SUCH ASSESSEE. IT FOLLOWS THAT THE MOMENT A SATISFACTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE BY THE ASSESSEE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL, THEREFORE, BE KNOWN AND THE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FOR ASSESSMENT AS PER TH E PROVISIONS OF THE ACT. WHEN THE INCOME CANNOT BE SO CLASSIFIED UNDER ANY ONE OF THE HEADS OF INCOME UNDER SECTION 14, IT FOLLOWS THAT THE QUE STION OF GIVING ANY DEDUCTIONS UNDER THE PROVISIONS WHICH CORRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE. THE PROVISIONS OF SECTIONS 6 9, 69A. 695 AND 69C, TREAT UNEXPLAINED INVESTMENTS, UNEXPLAINED MONEY, B ULLION, ETC., AND UNEXPLAINED EXPENDITURE AS DEEMED INCOME WHERE THE NATURE AND SOURCE OF INVESTMENT, ACQUISITION OR EXPENDITURE, AS THE CASE MAY BE, HAVE NOT BEEN EXPLAINED OR SATISFACTORILY EXPLAINED. THEREFORE, I N THESE CASES, THE SOURCE NOT BEING KNOWN, SUCH DEEMED INCOME WILL NOT FALL E VEN UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THEREFORE, THE CORRESP ONDING DEDUCTIONS WHICH ARE APPLICABLE TO THE INCOMES UNDER ANY OF TH ESE VARIOUS HEADS, WILL NOT BE ATTRACTED IN THE CASE OF DEEMED INCOMES WHICH ARE COVERED UNDER THE PROVISIONS OF SECTIONS 69, 69A, 69B AND 6 9C OF THE ACT IN VIEW OF THE SCHEME OF THOSE PROVISIONS : HELD,__ ON THE FACTS, THAT IT WAS CLEAR THAT WHEN T HE INVESTMENT IN OR ACQUISITION OF GOLD, WHICH WAS RECOVERED FROM THE A SSESSEE WAS NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE O FFERED NO EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH INVESTMENT OR A CQUISITION AND THE VALUE OF SUCH GOLD WAS NOT RECORDED IN THE BOOKS OF ACCOUNT, NOR THE NATURE AND SOURCE OF ITS ACQUISITION EXPLAINED, THE RE COULD ARISE NO QUESTION OF TREATING THE VALUE OF SUCH GOLD, WHICH WAS DEEMED TO BE THE INCOME OF THE ASSESSEE, AS A DEDUCTIBLE TRADING LOS S ON ITS CONFISCATION, BECAUSE SUCH DEEMED INCOME DID NOT FALL UNDER THE H EAD OF INCOME 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THER EFORE, THE TRIBUNAL WAS PERFECTLY RIGHT IN HOLDING THAT THE VALUE OF TH E GOLD WAS LIABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE AS THE SOURC E OF INVESTMENT IN THE GOLD OR OF ITS ACQUISITION WAS NOT EXPLAINED AND TH AT THE ASSESSEE WAS NOT ENTITLED TO CLAIM, THAT THE VALUE OF THE GOLD SHOUL D BE ALLOWED AS A DEDUCTION FROM HIS INCOME. 6. IN THE COURSE OF SURVEY OPERATIONS, THE ADDIT IONAL INCOME OF RS.4,00,000/- DECLARED BY THE ASSESSEE, I N THE 5 COURSE OF SURVEY OPERATION U/S 133A OF THE ACT. IT REPRESENTS UNACCOUNTED INVESTMENT, IN THE STOCK AND UNACCOUNTE D CASH. SUCH INCOME HAS BEEN RIGHTLY ASSESSED BY THE AO, AS DEEMED INCOME U/S 69, 69A AND 69B OF THE ACT AND NOT INCOM E FROM REGULAR BUSINESS. THEREFORE, UNACCOUNTED INVESTMEN T OR UNACCOUNTED CASH CANNOT BE TREATED AS INCOME FROM R EGULAR BUSINESS INCOME. 7. LD. CIT(A), PLACED RELIANCE ON THE DECISION OF CHANDIGARH BENCH IN M/S KIM PHARMA (P) LTD. IN ITA NO. 189/CHD/2010 DATED 30.4.2011, WHEREIN DECISION OF T HE HON'BLE GUJRAT HIGH COURT IN FAKIR MOHD. HAZI HASSA N (SUPRA) HAS BEEN RELIED UPON, UPHELD FINDINGS OF TH E AO. THE DECISION OF M/S KIM PHARMA P.LTD. (SUPRA) RENDERED BY THE BENCH HAS BEEN UPHELD BY THE HON'BLE PUNJAB & HARYA NA HIGH COURT. THE FINDINGS OF THE CIT(A), AS CONTAIN ED IN PARA 4.1 TO 4.4, ARE REPRODUCED HEREUNDER : 4.1 THE APPELLANT HAS CHALLENGED THE ACTION OF T HE AO STATING THAT THE SURRENDERED AMOUNT HAS BEEN RIGHTL Y CREDITED IN P&L ACCOUNT AND CORRESPONDINGLY DEBITED TO THE CAPITAL ACCOUNT MEANING THEREBY THAT NEITHER THE STOCK NOR THE CASH IN HAND HAVE BEEN ENHANCED. IT HAS BEEN FURTHER STATED THAT THE A.O. HAS WRONGL Y PLACED RELIANCE UPON THE DECISION OF HON'BLE GUJRAT HIGH COURT (SUP RA) AS THE FACTS OF THE TWO CASES ARE ENTIRELY DIFFERENT. IT HAS BEEN F URTHER STATED THAT THE SURRENDER MADE DURING THE COURSE OF SURVEY OPERATIO N ON THE BUSINESS PREMISES CONSEQUENT TO DETECTION OF DISCREPANCIES I S A NORMAL FEATURE OF SUCH SURVEY OPERATIONS AND THE SURRENDER WAS ACCEPT ED ON ACCOUNT OF THESE DISCREPANCIES. 4.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSION MAD E BY THE APPELLANT. THE APPELLANT HAS CHALLENGED THE AO'S AC TION OF TREATING THE ADDITIONAL INCOME AS DEEMED INCOME MAINLY STATI NG THAT THE FACTS OF THE CASE IN THE CASE OF FAKIR MOHD. HAZI HASSAN (SU PRA) RELIED UPON BY THE A.O. ARE DIFFERENT FROM THE FACTS OF THE CASE U NDER APPEAL. IT HAS BEEN 6 FURTHER STATED THAT THE SURRENDER MADE DURING THE S URVEY WAS DUE TO THE DIFFERENCE FOUND IN THE CASH, STOCK AND OTHER DISCR EPANCIES AND THEREFORE HAS TO BE TREATED AS THE BUSINESS INCOME OF THE APPELLANT. THE AO ON THE OTHER HAND CATEGORICALLY MENTIONED THAT T HE ADDITIONAL INCOME DOES NOT RELATE TO THE BUSINESS OF THE APPELLANT AN D HAS TO BE TREATED AS DEEMED INCOME. 4.3 IT IS SEEN THAT THE SURRENDER HAS BEEN MADE BEC AUSE OF THE EXCESS STOCK FOUND DURING THE COURSE OF SURVEY. THE APPELL ANT HAS HOWEVER NOT EXPLAINED THE SOURCE OF INVESTMENT IN THE EXCESS ST OCK EITHER DURING THE COURSE OF SURVEY OR BEFORE THE A.O. OR BEFORE THE U NDERSIGNED. THE APPELLANT HAS NOT BEEN ABLE TO GIVE ANY EVIDENCE TO STATE THAT THE INVESTMENT IN THE EXCESS SOCK WAS MADE OUT OF HIS B USINESS INCOME EARNED OUTSIDE THE BOOKS OF ACCOUNT. THE HON'BLE GU JRAT HIGH COURT IN FAKIR MOHD. HAZI HASSAN VS. CIT ON WHICH THE A.O . HAS RELIED HAS OBSERVED AS UNDER :- 'THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C OF THE INCOME-TAX ACT, 1961, WOULD SHOW THAT IN CASES WHERE THE NATUR E AND SOURCE OF INVESTMENTS MADE BY THE ASSESSES OR THE NATURE A ND SOURCE OF ACQUISITION OF MONEY, BULLION, ETC., OWNED BY THE A SSESSEE OR THE SOURCE OF EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT EXPLAINED AT ALL, OR NOT SATISFACTORILY EXPLAINED, THEN, THE VALUE OF SUCH INVESTMENTS AND MONEY OR THE VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCOUNT OR THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF SUCH ASSESSEE. IT FOLLOWS THAT THE MOMENT A SATISFACTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE BY THE ASSESSEE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL, THEREFORE, BE KNOWN AND THE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FOR ASSESSMENT AS PER TH E PROVISIONS OF THE ACT. HOWEVER, WHEN THESE PROVISIONS APPLY BE CAUSE NO SOURCE IS DISCLOSED AT ALL ON THE BASIS OF WHICH TH E INCOME CAN BE CLASSIFIED UNDER ONE OF THE HEADS OF INCOME UNDE R SECTION 14 OF THE ACT, IT WOULD NOT BE POSSIBLE TO CLASSIFY SUCH DEEMED INCOME UNDER ANY OF THESE HEADS INCLUDING INCOME FROM 'OTH ER SOURCES' WHICH HAVE TO BE SOURCES KNOWN OR EXPLAINED. WHEN T HE INCOME CANNOT BE SO CLASSIFIED UNDER ANY ONE OF THE HEADS OF INCOME UNDER 7 SECTION 14, IT FOLLOWS THAT THE QUESTION OF GIVING ANY DEDUCTIONS UNDER THE PROVISIONS WHICH CORRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE. IF IT IS POSSIBLE TO PEG THE INCOME UNDER ANY ONE OF THOSE HEADS BY VIRTUE OF A SATISFACTORY EXPLANATION BEING GIVEN, THEN THESE PROVISIONS OF SECTIONS 69, 69A, 69B AND 69C WILL NOT APPLY, IN WHICH EVENT, THE PROVISIONS REGARDING DED UCTIONS, ETC., APPLICABLE TO THE RELEVANT HEAD OF INCOME UNDER WHI CH SUCH INCOME FALLS WILL AUTOMATICALLY BE ATTRACTED. THE OPENING WORDS OF SECTION 14 'SAVE AS OTHERWISE PROVIDED BY THIS ACT' CLEARLY LEAVE SCOPE FOR 'DEEMED INCOME' O F THE NATURE COVERED UNDER THE SCHEME OF SECTIONS 69, 69A, 69B A ND 69C BEING TREATED SEPARATELY, BECAUSE DEEMED INCOME IS NOT IN COME FROM SALARY, HOUSE PROPERTY, PROFITS AND GAINS OF BUSINE SS OR PROFESSION, OR CAPITAL GAINS, NOR IS IT INCOME FROM 'OTHER SOURCES' BECAUSE THE PROVISIONS OF SECTIONS 69, 69A , 69B AND 69C TREAT UNEXPLAINED INVESTMENTS, UNEXPLAINED MONE Y, BULLION, ETC., AND UNEXPLAINED EXPENDITURE AS DEEME D INCOME WHERE THE NATURE AND SOURCE OF INVESTMENT, ACQUISIT ION OR EXPENDITURE, AS THE CASE MAY BE, HAVE NOT BEEN EXPL AINED OR SATISFACTORILY EXPLAINED. THEREFORE, IN THESE CASES , THE SOURCE NOT BEING KNOWN, SUCH DEEMED INCOME WILL NOT FALL E VEN UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THEREFORE, TH E CORRESPONDING DEDUCTIONS WHICH ARE APPLICABLE TO TH E INCOMES UNDER ANY OF THESE VARIOUS HEADS, WILL NOT BE ATTRA CTED IN THE CASE OF DEEMED INCOMES WHICH ARE COVERED UNDER THE PROVISIONS OF SECTIONS 69, 69A, 69B AND 69C OF THE ACT IN VIEW OF THE SCHEME OF THOSE PROVISIONS.' IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION/EVID ENCE REGARDING THE SOURCES OF THE ADDITIONAL INCOME DECLARED BY TH E APPELLANT DURING SURVEY ON ACCOUNT OF DISCREPANCY IN STOCK, C ASH AND INVESTMENT AND APPLYING THE RATIO OF HON'BLE GUJRAT HIGH COURT, THE AO'S ACTION IN TREATING THE ADDITIONAL INCOME AS DE EMED INCOME U/S 69 & 69 A OF THE ACT IS UPHELD. 4.4 RELIANCE IN THIS REGARD IS ALSO PLACED ON CHAND IGARH BENCH DECISION IN THE CASE OF M/S KIM PHARMA PVT. LTD. IN ITA NO. 8 189/CHD/2010 DATED 30.04.2010 WHERE IN ON SIMILAR F ACTS, THE HON'BLE BENCH HAS UPHELD THE ACTION OF THE AO OBSER VING AS UNDER: 'IN THE ABSENCE OF THE EXPLANATION/EVIDENCE REGARDI NG THE SOURCES OF THE ADDITIONAL INCOME BEING SATISFACTORILY EXPLA INED BY THE ASSESSES AND APPLYING THE RATIO OF THE HON'BLE GUJR AT HIGH COURT IN FAKIR MOHMED HAJI HASSAN VS. CIT (SUPRA), WE HOL D THAT THE ADDITIONAL INCOME OFFERED IS DEEMED INCOME ASSESSAB LE U/S 69A OF THE ACT AND NO DEDUCTION IS ALLOWABLE SUCH DEEME D INCOME ASSESSED U/S 69A OF THE ACT IN THE HANDS OF THE ASS ESSEE. FOLLOWING THE RATIO LAID DOWN BY THE GUJRAT HIGH CO URT IN FAKIR MOHMED HAJI HASSAN VS. CIT (SUPRA), ONCE THE ASSESS EE HAS FAILED TO EXPLAIN THE NATURE AND SOURCE OF CASH FOU ND AVAILABLE WITH IT AND THE SAME IS ASSESSED AS DEEMED INCOME U /S 69A OF THE ACT. THEREFORE, THE CORRESPONDING DEDUCTIONS UNDER THE HEAD PROFITS AND GAINS ARE NOT AVAILABLE TO THE ASSESSEE . ' THIS GROUND OF APPEAL IS THEREFORE DISMISSED. 9. THE RELEVANT FINDINGS OF THE JURISDICTIONAL HIGH COURT, WHEREIN BOTH DECISIONS OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT V S.K.SHRIGIRI & BROS. (SUPRA) AND DECI SION OF THE GUJRAT HIGH COURT IN FAKIR MOHD. HAZI HASSAN V CIT (SUPRA) HAVE BEEN DISCUSSED, ARE REPRODUCED HEREUNDER: C. WHETHER THE ACTION ON THE PART OF THE ID. AUTHO RITIES BELOW NOT TO TREAT THE INCOME SURRENDERED DURING SURVEY A S 'INCOME FROM BUSINESS' AND ADJUSTABLE AGAINST THE BUSINE SS LOSSES DETERMINED FOR THE YEAR, IS LEGALLY SUSTAINABLE IN THE EYES OF LAW?' 2. BRIEFLY STATED, THE FACTS NECESSARY FOR ADJUDICA TION AS NARRATED IN THE APPEAL ARE THAT A SURVEY WAS CONDUC TED UNDER SECTION 133A OF THE ACT AT THE BUSINESS PREMISES OF THE ASS ESSEE ON 1.9.2005. DURING THE COURSE OF SEARCH, A CASH AMOUNT OF RS.5, 00,000/- WAS FOUND AND THE BOOKS OF ACCOUNTS FOR THE YEAR UNDER CONSID ERATION WERE NOT FOUND TO BE COMPLETE UPTODATE. THE ASSESSEE SURREND ERED ADDITIONAL INCOME OF RS.10,00,000/- RELATING TO THE ASSESSMENT YEAR 2005-06 AND RS.5,00,000/- FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSING OFFICER VIDE ORDER DATED 26.12.2008 MADE ADDITIONS ON ACCOU NT OF CERTAIN DISALLOWANCES AND THE TOTAL LOSS DECLARED BY THE AS SESSEE AT 9 RS.5,37,300/- WAS REDUCED TO RS.2,22,765/-. THE SAI D LOSS WAS ASSESSED AS 'INCOME FROM BUSINESS' AND THE SURRENDE RED INCOME WAS ASSESSED AS AN INCOME UNDER SECTION 69A OF THE ACT. FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) [IN SHORT 'THE CIT(A)'] WHO VI DE ORDER DATED 16.12.2009 DISMISSED THE APPEAL. ON FURTHER APPEAL BY THE ASSESSEE, THE TRIBUNAL VIDE ORDER DATED 30.4.2010 UPHELD THE ORDE R OF THE CIT(A) AND DISMISSED THE APPEAL WHICH GAVE RISE TO THE ASSESSE E TO APPROACH \THIS COURT BY WAY OF THE INSTANT APPEAL. 3. WE HAVE HEARD LEARNED COUNSEL FOR THE ASSESSEE. 4. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE AMOUNT SURRENDERED BY THE ASSESSEE WAS BUSINESS INCOME AND ASSESSABLE AS SUCH. HE RELIED UPON A DECISION OF THE KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME-TAX AND ANOTHER V. S.K. SRIGIRI AND BROS. [2008] 298 ITR 13 (KARN). 5. THE POINT FOR DETERMINATION IN THIS APPEAL IS, W HETHER RS.5,00,000/- WHICH WAS SURRENDERED BY THE ASSESSE E DURING THE COURSE OF SURVEY UNDER SECTION 133A OF THE ACT WOUL D FORM PART OF BUSINESS INCOME OR WAS ASSESSABLE UNDER SECTION 69A OF THE ACT. THE ASSESSING OFFICER, THE CIT(A) AND THE TRIBUNAL AFTE R CONSIDERING THE FACTUAL ASPECT NOTICED THAT THE AMOUNT SURRENDERED DURING THE SURVEY WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT AND NO SOURCE FROM WHERE IT WAS DERIVED WAS DECLARED BY THE ASSESSEE AND, THEREFORE , IT WAS DEEMED INCOME OF THE ASSESSEE UNDER SECTION 69A OF THE ACT . THE FINDINGS RECORDED BY THE TRIBUNAL IN THIS REGARD ARE AS UNDE R:- 'IN THE FACTS OF THE PRESENT CASE, WE FIND THAT ASS ESSEE DURING THE COURSE OF SURVEY HAD SURRENDERED THE INCOME AS INCOME FROM OTHER SOURCES THOUGH A PLEA HAS BEEN RAISED BY THE ASSESSEE THAT THE INCOME WAS SURRENDERED AS INCOME FROM JOB WORK BUT NO EVIDENCE TO PROVE THE STAND OF THE ASSESSEE HAS BEE N BROUGHT ON RECORD. THE ASSESSEE HAD ALSO SURRENDERED ADDITIONA L INCOME OF RS.10 LACS IN ASSESSMENT YEAR 2005-06 ON ACCOUNT OF SUNDRY CREDITS, REPAIRS TO BUILDING AND ADVANCES TO STAFF, WHICH BE ING RELATABLE TO BUSINESS CARRIED ON BY ASSESSEE WAS INCLUDED AS INC OME FROM BUSINESS. HOWEVER, IN RESPECT OF CASH FOUND DURING SURVEY, WHICH WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT, NO SOURC E WAS DECLARED BY THE ASSESSEE AND IN THE ABSENCE OF NATU RE OF SOURCE OF 10 CASH BEING PROVED; THE SAME IS NOT ASSESSABLE AS IN COME FROM BUSINESS. IN THE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE CIT(A) IN INCLUDING THE ADDITIONAL INCOME AS DEEMED INCOME U/S 69A OF THE ACT AND NOT ALLOWING THE BENEFIT OF THE BUSINES S LOSSES DETERMINED AGAINST THE SAID DEEMED INCOME. THE GROU NDS OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED.' 6. THE TRIBUNAL HAD RELIED UPON A DECISION OF THE GUJARAT HIGH COURT IN FAKIR MOHMED HAJI HASAN V. COMMISSIONER OF INCOM E-TAX [2001] 247 ITR 290 . IN THAT CASE, INTERPRETING THE SCOPE AND DESCRIBING THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C OF THE ACT, IT WAS OBSERVED:- 'THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C OF THE INCOME-TAX ACT, 1961, WOULD SHOW THAT IN CASES WHERE THE NATURE AND SOURCE OF INVESTMENTS MADE BY THE ASSESSEE OR THE NATURE AND SOURCE OF ACQUISITION OF MONEY, BULLION ETC., OWNED BY THE ASSESSEE OR TH E SOURCE OF EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT EXPLAI NED AT ALL, OR NOT SATISFACTORILY EXPLAINED, THEN, THE VALUE OF SUCH I NVESTMENTS AND MONEY OR THE VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCOUNT OR THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INC OME OF SUCH ASSESSEE. IT FOLLOWS THAT THE MOMENT A SATISFACTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE BY THE ASSESSEE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL, THEREFORE, BE KNOWN AND T HE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FOR AS SESSMENT AS PER THE PROVISIONS OF THE ACT. HOWEVER, WHEN THESE PROVISIO NS APPLY BECAUSE NO SOURCES IS DISCLOSED AT ALL ON THE BASIS OF WHICH T HE INCOME CAN BE CLASSIFIED UNDER ONE OF THE HEADS OF INCOME UNDER SECTION 14 O F THE ACT, IT WOULD NOT BE POSSIBLE TO CLASSIFY SUCH DEEMED INCOME UNDER AN Y OF THESE HEADS INCLUDING INCOME FROM 'OTHER SOURCES' WHICH HAVE TO BE SOURCES KNOWN OR EXPLAINED. WHEN THE INCOME CANNOT BE SO CLASSIFI ED UNDER ANY ONE OF THE HEADS OF INCOME UNDER SECTION 14, IT FOLLOWS TH AT THE QUESTION OF GIVING ANY DEDUCTIONS UNDER THE PROVISIONS WHICH CO RRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE. IF IT IS POSSIBLE TO PEG THE INCOME UNDER ANY ONE OF THOSE HEADS BY VIRTUE OF A SATISFACTORY EXPLANATION BEING GIVEN, THEN THESE PROVISIONS OF SECTIONS 69.69A, 69B AND 69C WILL NOT APPLY, IN WHICH EVENT, THE PROVISIONS REGARDING DEDUCTIONS ETC. APPLICABLE TO THE RELEVANT HEAD 11 OF INCOME UNDER WHICH SUCH INCOME FALLS WILL AUTOMATICALLY BE ATTRACTED. THE OPENING WORDS OF SECTION 14 'SAVE AS OTHERWISE PROVIDED BY THIS ACT' CLEARLY LEAVE SCOPE FOR 'DEEMED INCOME' OF THE NATURE COVERED UNDER THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C B EING TREATED SEPARATELY, BECAUSE SUCH DEEMED INCOME IS NOT INCOM E FROM SALARY, HOUSE PROPERTY, PROFITS AND GAINS OF BUSINESS OR PR OFESSION, OR CAPITAL GAINS, NOR AS IT INCOME FROM 'OTHER SOURCES' BECAUS E THE PROVISIONS OF SECTIONS 69,69A, 69B AND 69C TREAT UN EXPLAINED INVESTMENTS, UNEXPLAINED MONEY, BULLION ETC. AND UN EXPLAINED EXPENDITURE AS DEEMED INCOME WHERE THE NATURE AND S OURCES OF INVESTMENT ACQUISITION OR EXPENDITURE, AS THE CASE MAY BE, HAVE NOT BEEN EXPLAINED OR SATISFACTORILY EXPLAINED. THE REFORE, IN THESE CASES, THE SOURCE NOT BEING KNOWN, SUCH DEEMED INCO ME WILL NOT FALL EVEN UNDER THE HEAD 'INCOME FROM OTHER SOURCES' . T HEREFORE, THE CORRESPONDING DEDUCTIONS WHICH ARE APPLICABLE T O THE INCOMES UNDER ANY OF THESE VARIOUS HEADS, WILL NOT BE ATTRA CTED IN THE CASE OF DEEMED INCOMES WHICH ARE COVERED UNDER THE PROVISIO NS OF SECTIONS 69.69A, 69B AND 69C OF THE ACT IN VIEW OF THE SCHEM E OF THOSE PROVISIONS.' 7. THE SAID DECISION FULLY APPLIES TO THE FACTS OF THE PRESENT CASE. 8. IN S.K. SRIGIRI AND BROS'S CASE (SUPRA) BEFORE T HE KARNATAKA HIGH COURT, A FINDING OF FACT WAS RECORDE D THAT THE ASSESSEE RECEIVED ADDITIONAL INCOME FROM BUSINESS O NLY AND, THEREFORE, IT WAS ENTITLED TO DEDUCTION ON ACCOUN T OF REMUNERATION PAID TO THE PARTNERS. SUCH IS NOT THE SITUATION HERE. 9. IN VIEW OF THE ABOVE, NO SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPEAL. THE APPEAL IS ACCORDINGLY DISMISSED . 9(I) RESPECTFULLY FOLLOWING THE DECISION OF THE H ON'BLE JURISDICTIONAL HIGH COURT, ISSUE IS DECIDED IN FAVO UR OF THE REVENUE AND AGAINST THE ASSESSEE. ACCORDINGLY, THI S GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 12 10. IN GROUND NOS. 2 & 3, APPELLANT CONTENDED THAT CIT(A) ERRED IN UPHOLDING THE REJECTION OF THE TRADING ACC OUNT AND UPHOLDING THE ADDITION OF RS.1,07,278/-, WHICH IS A RBITRARY AND UNJUSTIFIED. LD. 'AR' REFERRED TO PAGE 26 OF T HE PAPER BOOK TO SUPPORT HIS CONTENTIONS IN THE MATTER OF AD DITION MADE BY THE AO, ON ACCOUNT OF LOW GP. HOWEVER, A P ERUSAL OF THE COMPARABLE CHART IN ANNEXURE-I AT PAGE 26 OF THE PAPER BOOK, FILED BY THE ASSESSEE REVEALS THAT THER E IS A DECLINE BOTH IN GP RATE AND NP RATE, IN ASSESSEE'S CASE. THE RELEVANT COMPARATIVE CHART OF THE GP IS REPRODUCED HEREUNDER : COMPARATIVE CHART ASSTT.YR. SALES GROSS PROFIT G.P.RATE NET PROFI T % 2005-06 57,60,455/- 4,11,873/- 07.15% 3, 82,178/- 4.70 2006-07 64,17,921/- 4,80,702/- 07.48% 3, 15,113/- 4.90 2007-08 81,27,187/- 5,01,094/- 06.16% 2, 76,329/- 4.79 11. LD. 'AR', FURTHER POINTED OUT THAT BOOKS OF ACCOUNT WERE WRONGLY REJECTED AND NO ADDITION IS CALLED FOR IN THE MATTER. HOWEVER, LD. 'DR' PLACED RELIANCE ON THE ORDER PASS ED BY THE LOWER AUTHORITIES. THE AO, REJECTED BOOKS OF ACCOU NT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T, BY OBSERVING THAT THE DISCREPANCIES IN STOCK CONSTITUT E SPECIFIC DEFECT IN MAINTENANCE OF REGULAR BOOKS OF ACCOUNT B Y THE APPELLANT. THE AO COMPARED THE GP RATE, AS SHOWN BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATIO N, VIS-- VIS GP RATE SHOWN BY THE APPELLANT IN THE PREVIOUS YEAR. THE GP RATE AND THE NP RATE, IN ASSESSEE'S CASE, HAD SH OWN DECLINING TREND, AS IS EVIDENT FROM THE CHART, 13 REPRODUCED ABOVE. THE BOOKS OF ACCOUNT OF THE APPE LLANT HAVE BEEN RIGHTLY REJECTED BY THE AO AND UPHELD BY LD. CIT(A). AS THERE WAS SPECIFIC DEFECT AND DISCREPAN CY, NOTICED BY THE REVENUE AUTHORITIES IN STOCK, WHICH LED TO T HE SAID SURRENDER, FINDINGS OF THE CIT(A), IN THE MATTER OF REJECTION OF ACCOUNT BOOKS, ARE UPHELD. 11(I) LD. CIT(A), UPHELD THE ADDITION MADE BY TH E AO OF RS.1,07,278/-, ON ACCOUNT OF LOW GP RATE VIS--VIS IMMEDIATELY PRECEDING PREVIOUS YEAR. THE LD. CIT(A ), HAS UPHELD FINDINGS OF THE AO, IN THE MATTER. HAVING RE GARD TO THE FACT-SITUATION OF THE PRESENT CASE AND DECLINE IN GP RATE AS WELL AS NP RATE, AS INDICATED IN THE CHART REPRO DUCED ABOVE, WE DO NOT FIND ANY INFIRMITY IN FINDINGS OF THE CIT(A) AND, HENCE, THE SAME ARE UPHELD. HOWEVER, FOR PROP ER APPRECIATION OF THE SAME, FINDINGS AS CONTAINED IN PARA 5.3 TO 5.5 ARE REPRODUCED HEREUNDER : 5.3 NOW COMING TO THE TRADING ADDITION OF RS. 1,07, 278/-, IT IS SEEN THAT THE AO HAS APPLIED THE GP RATE OF THE PREVIOUS YEAR WHICH WAS ACCEPTED BY THE APPELLANT DURING THE COURSE OF SURV EY WHILE DRAWING THE TRADING ACCOUNT SO AS TO WORK OUT THE CLOSING S TOCK AS PER BOOKS. THE APPELLANT HAVING ACCEPTED THE GP RATE CANNOT N OW TURN AROUND TO DISPUTE THE APPLICATION OF THE SAME. THEREFORE, THE ADDITION IN THIS REGARD IS UPHELD. 5.4 AS REGARDS APPELLANT'S CONTENTION THAT THE TRADING ADDITION SO MADE SHOULD BE ADJUSTED AGAINST THE ADD ITIONAL INCOME OF RS.4 LACS SURRENDERED BY THE APPELLANT DU RING THE COURSE OF SURVEY, THE SAME IS ALSO REJECTED. IT HAS ALREAD Y BEEN BROUGHT OUT IN THE PRECEDING PARA THAT THE ADDITIONAL INCOM E SURRENDERED BY THE APPELLANT ON ACCOUNT OF DISCREPANCY IN STOCK HAS BEEN RIGHTLY HELD TO BE DEEMED INCOME ARISING FROM SOURC ES OTHER THAN BUSINESS INCOME. THEREFORE, THE TRADING ADDITI ON MADE ON 14 ACCOUNT OF LOW GP CANNOT BE ADJUSTED AGAINST THE AD DITIONAL INCOME DECLARED BY THE APPELLANT DURING THE COURSE OF SURVEY. 5.5 THE APPELLANT'S RELIANCE ON THE TWO DECISIONS MENTI ONED IN THE PRECEDING PARA IS MISPLACED AS THE FACTS OF THE CASES RELIED UPON BY THE APPELLANT ARE DIFFERENT FROM THE FACTS OF THE CASE IN HAND. AS PER THE ASSESSMENT ORDER CERTAIN DOCUMENTS REFLECTING SALES OF BATTERIES OUTSIDE THE BOOKS OF ACCOUNT AMO UNTING TO RS.3 8,0647- WERE FOUND DURING THE COURSE OF SURVEY FOR WHICH A SEPARATE ADDITION HAS BEEN MADE BY THE A.O. THER EFORE, THIS ARGUMENT OF THE APPELLANT IS ALSO REJECTED. IN VIE W OF THE AFORESAID DISCUSSION, THIS GROUND OF APPEAL IS DISM ISSED. 12. IN VIEW OF THE ABOVE, GROUNDS OF APPEAL NO. 2 & 3 ARE DISMISSED. 13. IN GROUND NO.4, APPELLANT CONTENDED THAT CIT(A) ERRED IN UPHOLDING DISALLOWANCE OF INTEREST AMOUNTING TO RS.19,630/- OUT OF INTEREST PAID TO RELATIVES, HOLD ING THAT INTEREST @ 12% COULD BE REASONABLE IN PLACE OF 15%. LD. 'AR' REFERRED TO PAGE 22 AND 27 OF THE PAPER BOOK. PAGE 22 OF THE PAPER BOOK IS SUBMISSION MADE BY THE ASSESSEE BEFOR E THE CIT(A) AND PAGE 27 OF THE PAPER BOOK IS A CHART OF INTEREST PAID BY THE ASSESSEE. THE ASSESSEE HAS PAID INTERE ST IN THE CASE OF SHRI ATIN JAIN AND SHRI ANKUR JAIN AT 12%, WHO ARE NOT RELATIVES OF THE ASSESSEE, WHEREAS IN THE CASE OF SHRI S.C.JAIN, WHO IS NOT RELATIVE OF THE ASSESSEE, INTE REST WAS PAID AT 15%. HOWEVER, IN THE CASE OF SHRI VISHAL J AIN, INTEREST HAS BEEN PAID AT 15%, WHO IS RELATIVE OF T HE APPELLANT. 15 14. LD. 'DR' PLACED RELIANCE ON THE ORDER OF THE AO AND CIT(A). 15. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS , FACTS OF THE CASE AND THE RELEVANT FINDINGS OF THE LOWER AUTHORITIES. IT IS EVIDENT THAT THE ASSESSEE HAS PAID INTEREST A T 12% AND 15% TO BOTH THE PERSONS, WHO ARE NOT RELATED TO HIM AS WELL AS TO THE PERSONS RELATED TO HIM. IN VIEW OF THIS, THERE CANNOT BE DEFINITE CONCLUSION THAT ASSESSEE PAID HI GHER RATE TO THE RELATIVES VIS--VIS TO NON-RELATIVES, AS THE ASSESSEE HAS PAID INTEREST AT 12% OR 15%, WITHOUT ANY DISCRIMINA TION TO THE RELATIVES OR NON-RELATIVES. IN VIEW OF THIS, F INDINGS OF THE CIT(A) CANNOT BE UPHELD. ACCORDINGLY, GROUND OF AP PEAL OF THE ASSESSEE IS ALLOWED. 16. GROUND NO. 5 & 6 ARE GENERAL IN NATURE AND NEED NO SEPARATE ADJUDICATION. ACCORDINGLY, THE SAME ARE D ISMISSED. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH SEPT.,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25 TH SEPT.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH