Radhesham Totaram Narayani, Nandurbar V. Assistant Commissioner of Income-tax,

ITA 1491/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9125 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 12-03-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 16-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Business income; Deemed to accrue or arise in india
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NO.1491/PUN/2015 / ASSESSMENT YEAR : 2010-11 SHRI RADHESHAM TOTARAM NARAYANI, PROP. SATYANARAYAN AGENCIES, S.NO.364-A, NAGARPALIKA NO.1389/3, HAT DARWAJA, NANDURBAR 425 412 PAN : AAHPN7393L . /APPELLANT VS. ACIT, CIRCLE-3(1), JALGAON . / RESPONDENT / APPELLANT BY : SMT. DEEPA KHARE / RESPONDENT BY : DR. VIVEK AGGARWAL / DATE OF HEARING : 12.03.2018 / DATE OF PRONOUNCEMENT: 21 .03.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF C IT(A)-1, NASHIK, DATED 02-09-2015 FOR THE ASSESSMENT YEAR 2010-11. 2. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : 1. ON THE FACTS AND IN THE PREVAILING CIRCUMSTANCE S OF THE CASE AND THE LD. ASSESSING OFFICER AND CIT(A) HAS ERRED IN DRAWI NG, THE CONCLUSION AND INFERENCE THAT INCOME DECLARED DURING SURVEY ACTION , IS A DEEMED INCOME U/S.69A AND 69B OF THE I.T. ACT, INSTEAD OF BUSINES S INCOME AS CLAIMED BY THE APPELLANT, AS APPELLANT DO NOT ANY OTHER SOURCE OF INCOME. THE AFORESAID FINDING AND INFERENCE MAY PLEASE BE VACATED. 2. ON THE FACTS AND IN THE PREVAILING CIRCUMSTANCES OF THE CASE AND THE CIT(A) HAS ERRED IN NOT FOLLOWING THE BINDING PRINC IPLES LAID DOWN IN THE FOLLOWING DECISION OF THE HON. JURISDICTIONAL ITAT PUNE, WITHOUT ASSIGNING ANY REASONS. RADHA TRADERS, SANGLI V/S. ASST. CIT, SANGLI (ITA 1 93/PN/03 - A.Y. 1999-2000 DT. 31-08-2006) REPORTED IN PCAJ JOURNAL OF FEB, 2007 COPY ENCLOSED (ANN.A) 2 PRAKASH VASTU BHANDAR V/S. ITO REPORTED (ITA 602/P N/04-A.Y. 2000-2001 DT. 28-02-2006 REPORTED IN PCAJ JOURNAL O F JUNE/JULY- 2006 ..COPY ENCLOSED (ANN.B) MURLIDHAR ABHIMAN SARAF & CO. VS. ACIT (ITA 186/PN/ 2006-A.Y. 2003-04 DT.30-05-2008 (COPY ENCLOSED (ANN.C) THEREFORE, INCOME DECLARED IN SURVEY ACTION MAY PLE ASE TREATED AS BUSINESS INCOME AND ORDER OF CIT(A) MAY PLEASE BE VACATED. 3. ON THE FACTS AND IN THE PREVAILING CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN NOT ALLOWING SET OF F OF CURRENT YEARS LOSSES OF RS.2,65,595/- AND EARLIER YEARS CARRIED FORWARD LO SS OF RS.4,82,585/- AGAINST INCOME DECLARED IN SURVEY AND ACCOUNTED/SHO WN IN BOOKS OF ACCOUNTS, AS BUSINESS INCOME. THEREFORE, ORDER OF CIT(A) MAY PLEASE BE VACATED AND SET-OFF OF LOSSES AS CLAIMED BY THE APP ELLANT MAY PLEASE BE ALLOWED. 3. BACKGROUND FACTS OF THE CASE INCLUDE THAT THE ASSESS EE IS AN INDIVIDUAL AND IS A DEALER IN ITC PRODUCTS. HE FILED THE RETU RN OF INCOME DECLARING TOTAL INCOME OF RS.6,36,970/-. AS A RESULT OF THE P ROCEEDINGS U/S.143(3) R.W.S.133A OF THE ACT, THE ASSESSED INCOME OF THE ASSESSEE IS DETERMINED AT RS.13,74,542/. THIS IS A CASE WHERE THERE W AS ACTION U/S.133A OF THE ACT ON 08-09-2009 AND THE SAME RESULTE D IN DISCOVERY OF VARIOUS DISCREPANCIES. ASSESSEE DISCLOSED THE INCOME AGAIN ST EACH OF THE DISCREPANCY AND THE DETAILS OF WHICH ARE GIVEN AS UNDER : SR.NO. NATURE IN RESPECT OF WHICH DISCREPANCIES NOTICED AMOUNT DISCLOSED (RS.) 1 VIMAL PAN MASALA GP 6,700/- 2 EXCESS CASH 4,93,290/- 3 GP ON UNRECORDED SALES 34,652/- 4 UNRECORDED PURCHASE OF VIMAL PAN MASALA 4,39,900/ - 5 INVESTMENT IN HOUSE PROPERTY USS GALLI 5,00,000/- TOTAL 14,74,542/- IN THE RETURN, THE ASSESSEE DETERMINED THE CURRENT Y EAR BUSINESS LOSS OF RS.4,15,951/- AND BROUGHT FORWARD LOSSES OF RS.4,82,585/- FOR A.Y. 2009-10 AND REDUCED THE DISCLOSED INCOME BY THE SAID LOS SES. ASSESSEE REPORTED EARNING OF INCOME FROM OTHER SOURCES. 3 4. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE SUBMITTE D THAT THE ABOVE REFERRED ITEMS OF DISCLOSED INCOME OR DISCREPANCY AR E WHOLLY LINKED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. EXPLAINING THE SA ME, THE ASSESSEE SUBMITTED THAT THE VARIOUS GROSS PROFITS MENTIONED AT SL.N OS. 1, AND 3 OF THE TABLE OR THE UNACCOUNTED SALES OR THE EXCESS CASH AT SL.NO.2 AND UNRECORDED PURCHASES MENTIONED AT SL.NO.4 RELATES TO THE BUSINESS ACTIVITIES AND THEREFORE, SAID DISCLOSED INCOME OF RS.14.75 LAKHS (ROUNDED OFF) HAS CONNECTION TO THE BUSINESS ACTIVITIES OF THE ASSES SEE. HOWEVER, AO NOTICED THAT THE ASSESSEE DISCLOSED THE SAID INCOME ON A CCOUNT OF VARIOUS DISCREPANCIES AND PROCEEDED TO REDUCE THE SAME BY CLAIM ING SET OFF AGAINST THE BUSINESS LOSSES OF THE CURRENT YEAR AS WELL AS THE B ROUGHT FORWARD LOSSES OF THE ASSESSEE. CONTENTS OF PARA NO.5 OF THE ASS ESSMENT ORDER ARE RELEVANT. ASSESSEE CLAIMED THE CURRENT YEARS BUSINESS LOSS AMOUNTS TO RS.4,15,951/- AND THE BROUGHT FORWARD LOSSES FOR THE A.Y. 2 009-10 AMOUNTS TO RS.4,82,585/-. IN THE ASSESSMENT, AO DENIED T HE CLAIM OF SET OFF OF LOSSES AGAINST THE DISCLOSED DEEMED INCOME OF RS.14,74 ,542/-. HOWEVER, HE RESTRICTED THE SET OFF CLAIM TO THE EXTENT O F INCOME FROM OTHER SOURCES, I.E. RS.1,50,497/-. NET CURRENT YEARS LOSS CARRY FORWARD TO SUBSEQUENT YEARS IS RS.2,65,457/- (CURRENT YEAR LOSS OF RS .4,15,951 (-) INCOME FROM OTHER SOURCES OF RS.1,50,497/-). IN EFFECT, AO DENIED THE C LAIM OF SET OFF OF CURRENT YEAR BUSINESS LOSS OF RS.2,65,457/-AGA INST THE SAID DEEMED INCOME OF RS.14,74,542/- AND ALSO THE ENTIRE BROUGH T FORWARD LOSS OF RS.4,82,585/- FOR THE A.Y. 2009-10. THUS, AO PROCEEDED TO TAX THE DISCLOSED AMOUNT OF RS.14,74,542/-, THE DEEMED INCOME OFFERED IN THE SURVEY ACTION. THIS DECISION OF THE AO IN NOT GRANTING SET OFF OF THE SAID LOSSES AGAINST THE DEEMED BUSINESS INCOME OF RS.14,74,542/- WAS AGITATED BY THE ASSESSEE BEFORE THE CIT(A). 4 5. CIT(A) DISCUSSED EACH OF THE ITEMS OF DISCREPANCY-LINKED UNDISCLOSED INCOME AND ITS NEXUS TO THE BUSINESS ACTIVITIES OF THE ASS ESSEE IN HER ORDER. EVENTUALLY, THE CIT(A) RELIED ON THE DECISION IN THE CASE OF M/S. KIM PHARMA PVT. LTD., VS. CIT ITA NO.106 OF 2011, DATED 27-0 4-2011 AND LIBERTY PLYWOOD PVT. LTD. ITA NO.727/CHD/2012, DATED 0 1-05-2012 FOR THE PROPOSITION THAT SURRENDERED INCOME HAS TO BE ASSE SSED SEPARATELY AS DEEMED INCOME WITHOUT GRANTING THE BENEFIT OF SETTING OFF A GAINST THE LOSSES U/S.70 AND 71 OF THE ACT. 6. AGGRIEVED WITH THE SAME, THE ASSESSEE IS IN APPEAL BEFO RE US WITH THE GROUNDS RAISED ABOVE. 7. IN THE GROUND NO.1, ASSESSEE REASONED THAT THE DEE MED INCOME IS ALSO A BUSINESS INCOME AS THE ASSESSEE DID NOT CARRY OU T ANY OTHER ACTIVITY AS SOURCE OF INCOME. IN GROUND NO.2, ASSESSEE RELIED ON T HE JURISDICTIONAL DECISION OF THE TRIBUNAL IN THE CASE OF RADHA TRADERS, SAN GLI VS. ACIT, WHICH IS RELEVANT FOR THE LEGAL PROPOSITION THAT THE ADDITION AL INCOME OFFERED DURING SURVEY ACTION CONSTITUTES BUSINESS INCOME. IN GRO UND NO.3, ASSESSEE RAISED THE ISSUE OF ALLOWING OF SET OFF OF CURRENT YEAR LOSSES AS WELL AS EARLIER YEAR LOSSES AGAINST THE DEEMED INCOME DECLARED IN SURVEY . 8. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR A TTENTION TO THE LIST OF ITEMS DISCLOSED IN THE SURVEY ACTION AMOUNTING TO RS .14,74,542/-. BRINGING OUR ATTENTION TO ITEM NO.1, 3 AND 4, LD. COUNSEL SU BMITTED THAT THE ITEMS 1, 3 AND 4 AMOUNTING TO RS.4,81,252/- (I.E. RS.6,70 0/-, RS.34,652/- AND RS.4,39,900/- RESPECTIVELY) CONSTITUTES BU SINESS INCOME AND THEREFORE, THEY SHOULD BE AVAILABLE FOR SET OFF OF THE SAID LOSSES. 9. WE HEARD BOTH THE PARTIES ON THESE 3 ITEMS. ON GO ING THROUGH THE FACTS AND CONSIDERING THE DETAILS AVAILABLE ON RECORD, WE FIN D THE SAID ITEMS 5 AT SL.NOS.1, 3, AND 4 OF THE TABLE BEING GROSS PROFITS AND TH E UNRECORDED PURCHASES, WE ARE OF THE OPINION THAT THE SAME SHOULD CO NSTITUTE BUSINESS INCOME AND THEY SHOULD BE AVAILABLE FOR SET OFF OF THE LOSSES IN QUESTION. TO THAT EXTENT, THE ORDER OF CIT(A) AND THE AO ARE REQUIRED TO BE REVERSED AND THEREFORE, THE AO IS DIRECTED TO GRANT SET OFF OF BENEFIT ACCORDINGLY. 10. REGARDING THE EXCESS CASH OF RS.4,93,290/- MENTIONED AT SL.NO.2 OF THE TABLE, IT IS THE CASE OF THE ASSESSEE THAT THE SAME WAS FOUND AT THE BUSINESS PREMISES OF THE ASSESSEE, WHICH WAS SURVEYED BY THE REVENUE. THE SAID CASH WAS OFFERED BY THE ASSESSEE DURING THE SU RVEY ACTION AS THE BUSINESS INCOME OF THE ASSESSEE. THE SAME WAS SHOWN IN THE RETURN OF INCOME AS ADDITIONAL INCOME IN THE PROFIT AND LOSS ACCOUNT. HOWEVER, THE ASSESSEE COULD NOT DEMONSTRATE BY EXPLAINING THE SOURC ES AND THE MANNER OF EARNING OF THE SAME FROM THE BUSINESS ACTIVITIES OF THE A SSESSEE WHO DEALS WITH THE ITC PRODUCTS. HE MERELY STATED THAT TH E SAID INCOME CONSTITUTES BUSINESS INCOME AND SHOULD BE AVAILABLE FOR SET OFF AGAINST THE BUSINESS LOSSES OF THE ASSESSEE IN THE CURRENT YEAR AS WELL AS IN THE EARLIER ASSESSMENT YEARS. THEREFORE, THE AO DENIED THE BENEFIT O F SET OFF OF LOSSES AGAINST THE EXCESS CASH FOUND DURING THE SURVEY ACTION. 11. AFTER HEARING BOTH THE PARTIES, WE FIND THIS IS A CASE WHERE SURVEY ACTION U/S.133A OF THE ACT RESULTED IN THE DISCOVERY OF TH E SAID EXCESS CASH AND THERE IS NO DISPUTE ABOUT IT. FURTHER, IT IS ALSO UNDIS PUTED THAT THE ASSESSEE FAILED TO EXPLAIN THE MANNER OF EARNING OF THE SAID EXCESS CASH LINKED TO THE UNACCOUNTED SALES OF THE ITC PRODUCTS. AS SESSEE FAILED TO EXPLAIN THE MODUS-OPERANDI OF EARNING OF SUCH EXCESS CASH FROM BUSINESS SOURCES OF ANY KIND. THEREFORE, WE ARE OF THE OPINION THAT IT IS REASONABLE TO PRESUME THAT ASSESSEE FAILED TO DISCHARGE THE ONUS O N THIS ASPECT OF ESTABLISHING THE BUSINESS NATURE OF THE EXCESS CASH. THIS VIEW IS FORTIFIED 6 BY THE LEGAL PROPOSITION LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KIM PHARMA PVT. LTD. VS. CIT 35 TAX MANN.COM 456 (PUNJAB & HARYANA). THE SAID JUDGMENT IS RELEVANT FOR THE FOLLOWING RA TIO : WHERE AMOUNT SURRENDERED DURING SURVEY WAS NOT REF LECTED IN THE BOOKS OF ACCOUNT AND NO SOURCE FROM WHERE IT WAS DERIVED WAS DECLARED BY THE ASSESSEE, IT WAS ASSESSABLE AS DEEMED INCOME OF THE ASSESSEE U/S.69A AND NOT AS BUSINESS INCOME 12. FURTHER, WE FIND THE AGRA BENCH OF THE TRIBUNAL IN T HE CASE OF SATISH KUMAR GOYAL VS. JCIT 70 TAXMANN.COM 382 (AGRA-TRIB.) HAS ALS O LAID DOWN SIMILAR LEGAL PROPOSITION. THE CONCLUSION OF THE SAID TRIBUNAL R EADS AS UNDER : WHERE ASSESSEE RECEIVED CERTAIN AMOUNT IN CASH, SI NCE HE FAILED TO EXPLAIN NATURE AND SOURCE OF SAID RECEIPT, SAME WAS TO BE T REATED AS INCOME UNDER SECTION 68 ASSESSABLE UNDER HEAD INCOME FROM OTHER SOURCES AND AS PER PROVISIONS OF SECTION 71, BUSINESS LOSSES OF ASSESS EE COULD BE SET-OFF AGAINST SAID INCOME. THIS IS ALSO A CASE WHERE ASSESSEE FAILED TO EXPLAIN THE NA TURE AND SOURCE OF THE CASH RECEIVED BY THAT ASSESSEE AND THE SAME WAS TREATED AS INCOME U/S.68 OF THE ACT AND TAXED UNDER THE HEAD INCO ME FROM OTHER SOURCES. THE TRIBUNAL DID NOT ALLOW THE BENEFIT OF SET OFF AGAINST THE BUSINESS LOSSES OF THE ASSESSEE AGAINST THE SAID INCOME. CONSIDERING THE ABOVE LEGAL PROPOSITIONS, WE ARE OF THE OP INION THAT THE EXCESS CASH OF RS.4,93,290/- BEING DEEMED INCOME IS N OT TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. FURTHER, REGARDING THE INVESTMENT IN THE RESIDENTIAL HOUSE, WE FIND IT IS THE CASE O F APPROPRIATION OF INCOME EARNED BY THE ASSESSEE. THUS, THE CLAIM OF THE ASSESSEE IS UNSUSTAINABLE. THEREFORE, THESE PARTS OF THE CLAIM OF THE A SSESSEE ARE DISMISSED. 7 THUS, THE ONLY AMOUNT WHICH IS AVAILABLE FOR SET OFF AGAINST THE CURRENT YEAR IS BROUGHT FORWARD LOSS AMOUNTS TO RS.4,81,2 52/-, I.E. SUM OF 3 ITEMS OF INCOME MENTIONED AT SL.NOS. 1, 3 AND 4 OF THE TAB LE ABOVE. AO IS DIRECTED TO GRANT THE BENEFIT OF SET OFF OF THE BALANCE OF CURRENT YEAR LOSS OF RS.2,65,457/- AND THE BROUGHT FORWARD BUSINESS LOSSES TO THE EXTENT OF RS.2,15,795/- (I.E. RS.4,81,252 RS.2,65,457). THE BALANCE OF BROU GHT FORWARD BUSINESS LOSS IS ALLOWED TO BE CARRIED FORWARD TO THE SUBSEQUENT ASSESSMENT YEARS FOR SET OFF. ACCORDINGLY, THE GROUNDS R AISED BY THE ASSESSEE ARE PARTLY ALLOWED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 21 ST DAY OF MARCH, 2018. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKAR A RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 21 ST MARCH, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-1. NASHIK 4. / THE CIT-1, NASHIK 5. , , / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE