Sh. Rakesh Kumar Kaura, Ludhiana V. DCIT, Central Circle-1, Ludhiana

ITA 550/CHANDI/2022

AI Insights

The case revolves around an appeal by Shri Rakesh Kumar Kaura against the order of the CIT(A) which confirmed the assessment of Rs. 20,00,000 as income under section 69 r.w.s 115BBE of the Income Tax Act, 1961, following a survey at the assessee's business premises. The assessee argued that this amount, surrendered during the survey, was part of his business income and should not be subjected to the provisions of section 115BBE. The Tribunal examined the nature of the surrendered income, the circumstances under which it was surrendered, and relevant judicial precedents to arrive at its decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127568 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 05-02-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 11-07-2022
• Other Referred Cases: Gaurish Steels P. ltd. vs. ACIT, DCIT VS. Khurana Mills Pvt Ltd, Shri Harish Sharma vs. ITO, Renny Strips Pvt. Ltd vs. ACIT, Famina Knit Fabs vs. ACIT, Sham Jewellers vs. DCIT, Sham Fashion Mall vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Income from undisclosed sources; Deemed to accrue or arise in india; Set aside
• Section: 69; 69C; 142(1); 133A; 69B; 143(2); 43

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “एस.एम.सी” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCHES, “SMC” CHANDIGARH ी व म संह यादव, लेखा सद%य BEFORE: SHRI. VIKRAM SINGH YADAV, AM ITA No. 550/Chd/2022 Assessment Year : 2018-19 Shri Rakesh Kumar Kaura Grain Market, Raikot Ludhiana-141109 The DCIT Central Circle-1, Ludhiana PAN NO: ACYPK6378H Appellant Respondent ! " Assessee by : Shri Ashish Aggarwal, Advocate # ! " Revenue by : Smt. Tarundeep Kaur, Sr. D.R $ % ! & Date of Hearing : 06/02/2023 '()* ! & Date of Pronouncement : 03/03/2023 आदेश/Order PER VIKRAM SINGH YADAV, AM This is an appeal filed by the Assessee against the order of the Ld. Commissioner of Income Tax, (Appeals)-5, Ludhiana [hereinafter referred to as ‘CIT(A)’] passed under section 250(6) of the Income Tax Act, 1961 (in short ‘the Act’) dt. 13/06/2022 pertaining to A.Y. 2018-19 wherein the assessee has taken the following grounds of appeal: 1. That the Ld. CIT(A)-5, Ludhiana has erred in confirming the order of the AO ignoring the fact that the AO who passed the order did not have valid jurisdiction over the case. 2. The Ld. CIT(A) has erred in levying tax u/s 115BBE on the amount surrendered as business income by way of receivables. 3. That the CIT(A) has erred in ignoring the submissions in as much as the amount surrendered was part of the business of the assessee and the provisions of section 115BBE were not applicable to the facts the case. 4. That the Ld. CIT(A) has erred in ignoring the letter of surrender filed during the course of survey, which clearly stated that income surrendered was part of the business income.” 2. Briefly the facts of the case are that a survey action under section 133A was conducted at the business premises of the assessee on 15/05/2017. 2 Subsequently, the assessee filed his return of income declaring total income of Rs. 33,68,034/- which included an amount of Rs. 20,00,000/- surrendered during the course of survey. Thereafter, notices under section 143(2) and 142(1) were issued and necessary information was called for and examined by the AO. As per the AO, the income so surrendered is not taxable under the head “business income” and the same has to be taxed under section 69 r.w.s 115BBE of the Act. 3. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has sustained the said addition. Against the order and the findings of the Ld. CIT(A), the assessee is in appeal before us. 4. During the course of hearing, the Ld. AR submitted that the assessee is carrying on the business of resale of coal with head office in grain market Raikot, Ludhiana for the last number of years. There is no other source of income. The appellant is sole proprietor of his business, M/s K.K. Minerals and has filed his return of income for the impugned assessment year with the jurisdictional ITO, Ward-2, Jagraon. There was a survey operation u/s 133A of the Act at the business premises of the assessee on 15.05.2017 and during the course of survey, a sum of Rs. 20,00,000/- was surrendered on account of unrealized sundry receivables and was declared in the profit & Loss account for the financial year 2017-18. It was submitted that the surrender letter clearly mentions about the nature of surrender being sundry receivables and that the surrender was made to avoid litigation with department and to buy peace of mind and the surrendered income is part of normal business income and subject to no penal action of any kind including penalties and prosecutions. It was further requested that this offer may please be accepted. This letter of surrender - was filed with the JCIT, Moga Range, Moga. It was submitted that the survey report u/s 133A(1) of the Act mentions the fact that survey was conducted at business premises of the assessee and surrendered income is additional income of the assessee, 3 which depicts that surrendered income is certainly related to the business of the assessee which is in addition to the normal business income and declared in the return of income. The said surrendered sum of Rs. 20,00,000/- was duly debited to the receivables account for the year under consideration and credited to the Profit & Loss Account. The books of accounts of the assessee are duly audited by a Chartered Accountant. The copy of Audit Report in Form 3CD along with the copy of Profit & Loss Account evidencing the sum credited is being filed separately. The assessee filed its Income Tax Return for the year under consideration i.e., AY 2018-19 on 27.10.2018 at an income of Rs. 33,68,034/- which included the sum of 20,00,000/- as surrendered during the course of survey operations as part of business income. The copy of the return of income filed by the assessee along with computation of income is forming part of the paper book attached herewith. The assessment was made by the Ld. DCIT, CC- 1, Ludhiana vide order dated 20.04.2021 on income of Rs. 33,68,030/- (wrongly mentioned as 35,30,550/- in computation sheet attached with the assessment order) which included the surrendered amount by wrongly invoking the provisions of section 69 r/w section 115BBE of the Act. It was submitted that the ld AO has relied on the decision of ITAT Chandigarh Benches in case of Famina Knit Fab vs. ACIT 176 ITD 246 which in fact supports the case of the assessee. It was further submitted that the issue in the present appeal is squarely covered by the following decisions: 1. Gaurish Steels P. ltd. vs. ACIT (2015) 43 ITR (Trib) 0414 (Chd) 2. DCIT VS. Khurana Mills Pvt Ltd ITA NO. 745/2016 (Chd) 3. Shri Harish Sharma vs. ITO in ITA No. 327/2020 A.Y. 2017-18 dated 11.05.2021 (Chd) 4. Renny Strips Pvt. Ltd vs. ACIT in ITA No. 1018/2014 A.Y. 2011-12 dated 28.12.2015 (Chd) 5. Famina Knit Fabs, vs. ACIT in ITA No. 1494/Chd/2017 A.Y. 2014-15 dated 08.02.2019 (Chd). 6. Sham Jewellers vs. DCIT in ITA No. 375/2022 & Sham Fashion Mall vs. DCIT in ITA No. 315/2022 (Chd) 5. In view of the above submissions and the decisions relied upon, the appellant humbly prays that the order of Ld. CIT(A) be set aside and the income 4 surrendered by the assessee on account of receivables, amounting to Rs. 20 Lacs, be assessed under the head "Business Income" and not be subject to tax under the provisions of section 69 r/w section 115BBE of the Act. 6. Per contra, the Ld. DR has relied on the order of the lower authorities. 7. Heard the rival contentions and purused the material available on record. The limited issue under consideration relates to nature of income surrendered during the course of survey and the explanation so offered by the assessee. In this regard, reference is drawn to the surrender letter dated 15/05/2017 and the contents thereof read as under: “The business premises of Sh. Rakesh Kumar Kaura Prop. M/s K. K. Minerals, Ludhiana were surveyed u/s 1 3 3 -A of the Act on 15.05.2017. During the course of survey proceedings, unrealized sundry receivables at Rs. 20,00,000/- (Rs. Twenty lakhs only) were found which were generated out of discrepancies in sales i.e. under recording of sales (Sales of Rs.20 lacs not yet recorded in books of accounts) for FY 2017-18. As such in order to avoid litigation with the department and to buy peace of mind, I hereby offer to surrender a sum of Rs. 20,00,000/- (Rs. Twenty Lakhs only) as income of financial year 2017-18 relevant to assessment year 2018-19 as my business income subject to no penal action of any kind including penalties and prosecution. This amount will cover all possible discrepancies, if any, noticed during survey proceedings and no adverse inference of any kind will be taken by the department. It is requested that our aforesaid offer may, please, be accepted.” 8. The nature of surrendered income was therefore unrealized sundry receivables generated out of out of book sales undertaken by the assessee. The factum thereof has been accepted by the Survey team and where the AO dispute the nature of such surrender or the findings of department’s own survey team, the AO has to lead positive evidence to arrive at any contrary finding. Nothing has been brought on record in this regard. Therefore, the picture which is clearly emerging from the material available on record is the nature of surrender is amount of unrealized receivables from the sales undertaken by the assessee as part of his regular business dealings and which have not been recorded in the books of accounts. Where the assessee has subsequently recorded the same in his books of accounts as part of business income, it cannot be said that the said action on part of the assessee is not in accordance with accepted accounting methodology and the nature of such income is 5 other than business income. We find that the matter is squarely covered by the decision of the Coordinate Chandigarh Benches in case of Famina Knit Fab vs. ACIT (Supra) wherein it was held as under: “19. In the facts of the case in ITA No. 408/Chd/2018, the income surrendered was on account of unaccounted receivables of the business of the assessee amounting to Rs. 1.25 crores. The Ld. CIT (A) in para 9 of the order has outlined the facts relating to the surrender made by the assessee stating that during survey a pocket diary was found from the account section of the assessee-company which contained entry of receivables amounting to Rs. 1.25 crores on pages 27, 28, 31 and 33, which were not recorded in the regular books of the assessee and were subsequently surrendered stating that these entries were unaccounted sundry receivables being surrendered as income under the head business, to buy piece of mind and subjected to no penalty and further that the losses incurred by the assessee in the impugned year will be adjusted against this surrendered income. The relevant facts as stated by the CIT (A) in para 9 of his order and which are not disputed, are reproduced hereunder: "9. Adverting now to the facts of the instant case, it is seen that when survey proceedings were conducted at the business premises of the appellant company, a pocket diary was found from the accounts section which contained entries of receivables amounting to Rs. 1.25 crores on page Nos. 27, 28, 31 and 33, which were not recorded in the regular books of account. When these entries were confronted to the appellant company while recording the statement on 15/09/2012, it was stated: "that these entries are sundry receivables which has not been accounted for in the books of account and in order to buy peace of mind, the same is surrendered as income under the head business for RY. 2012-13 relevant to Asstt. Year 2013-14 subject to no penalty and prosecution under the I.T. Act, 1961. Since the company is incurring losses in current FY. 2012-13, the surrendered income will be adjusted against these losses." [Extracted from the impugned assessment order; pages 5 &6]." 20. Clearly, it is evident from the above that the surrender was on account of debtors/receivables relating to the business of the assessee only. The Revenue has accepted the surrender as such, as being on account of receivables. It follows that the debtors were generated from the sales made by the assessee during the course of carrying on the business of the assessee, which was not recorded in the books of the assessee. Though the said income was not recorded in the books of the assessee, the source of the same stood duly explained by the assessee as being from the business of the assessee. Even otherwise, no other source of income of the assessee is there on record, either disclosed by the assessee, or unearthed by the Revenue. The preponderance of probability, therefore, is that the debtors were sourced from the business of the assessee. Therefore, there is no question of treating it as deemed income from undisclosed sources u/ss. 69, 69 A, 69B and 69C of the Act and the same is held to be in the nature of Business Income of the assessee. Having held so, the same was assessable under the head “ business and profession” and as stated above, the benefit of set off of losses, both current and brought forward, was allowable to the assessee in accordance with law. 21. The contention of the Revenue, therefore, that the income be treated as deemed income u/s. 69,69A/B/C of the Act is, accordingly, rejected and, as a consequence thereto, the plea that no set off of losses be allowed against the same u/s. 115BBE of the Act, also is rejected." 6 9. In light of aforesaid and following the decision referred supra, the income so surrendered by way of account receivables cannot be brought to tax under the deeming provisions u/s 69 r/w section 115BBE and has been rightly offered by the assessee under the head “business income”. In the result, the matter is decided in favour of the assessee. 10. In the result, the appeal of the assessee is allowed. (Order pronounced in the open Court on 03/03/2023 ) Sd/- व म संह यादव (VIKRAM SINGH YADAV) लेखा सद%य / ACCOUNTANT MEMBER AG Date: 03/03/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File