DCIT, Mandi Gobindgarh V. M/s Arihant Pipes, Mandi Gobindgarh

ITA 82/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5316 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJEEV DUTTA
• Assessee Lawyers: JAI SHREE SHARMA
• Keywords: Unexplained investment; Business income; Onus to prove
• Section: 80HHC; 133A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL,B BENCH, CHA NDIGARH BEFORE SHRI D K SRIVASTAVA, AM AND MS. SUSHMA CHOWL A, JM ITA NO. 82/CHD/2011 ASSESSMENT YEAR: 2007-08 DCIT V. M/S ARIHANT PIPES CIRCLE MANDI GOBINDGARH G. T. ROAD, SIRHIND SIDE MANDI GOBINDGARH PAN: AAFFA-0387F AND C.O.22/CHD/2011 IN ITA 82/CHD/2011 M/S ARIHANT PIPES V. DCIT AND ITA NO. 83/CHD/2011 ASSESSMENT YEAR: 2007-08 DCIT V. M/S ARIHANTTUBES CICLE MANDI GOBINDGARH G. T. ROAD, SIRHIND SIDE MANDI GOBINDGARH PAN: AAEFA-4691F AND C.O.23/CHD/2011 IN ITA 83/CHD/2011 M/S ARIHANT TUBES V. DCIT ASSESSEE BY: SHRI RAJEEV DUTTA RESPONDENT BY: SMT. JAISHREE SHARMA ORDER D K SRIVASTAVA: THE APPEAL BEARING ITA NO. 82/CHD/2011 FILED BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PAS SED BY THE CIT(A) ON 22.11.2010 IN THE CASE OF M/S ARIHANT PIPES. THE MEMORANDUM OF CROSS-OBJECTIONS BEARING CO NO. 22/CHD / 2011 FILED BY M/S M/S ARIHANT PIPES IS ALSO DIRECTED AGAINST THE AFORESAID ORDER PASSED BY THE CIT(A). THE APPEAL BEARING ITA NO. 83/CHD/2011 FILE D BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 22.11.2010 IN THE CASE OF M/S ARIHANT TUBES. THE ME MORANDUM OF CROSS-OBJECTIONS BEARING CO NO. 23/CHD/2011 FILED B Y M/S ARIHANT TUBES IS ALSO DIRECTED AGAINST THE AFORESAID ORDER PASSED BY THE CIT(A). ISSUES IN THE PRESENT BUNCH OF APPEALS AND CROSS-OBJECTIONS ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 2 ARE COMMON. THEY ARE THEREFORE BEING DISPOSED OF BY A CONSOLIDATED ORDER. 2. IN ITA NO. 82/CHD/2011, THE DEPARTMENT HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE , WHETHER THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION OF RS.5, 00,000/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION C LAIMED U/S 80IB ON SURRENDERED AMOUNT WITHOUT APPRECIATING THE FACT THAT THE SUM OF RS.20,00,000/- SURRENDERED BY THE ASSESS EE DID NOT HAVE ANY DIRECT OR INDIRECT CONNECTION WITH THE MAN UFACTURING ACTIVITIES, DETECTED DURING THE COURSE OF SURVEY PR OCEEDINGS U/S 133A OF THE INCOME-TAX ACT,1961. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHET HER THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION OF RS.1, 00,000/- MADE BY THE AO ON ACCOUNT OF UNACCOUNTED INTEREST EARNED ON ADVANCES, WITHOUT APPRECIATING THE FACT THAT THE AD VANCES HAD BEEN MADE NOT TOWARDS PURCHASE OF RAW MATERIAL ETC. BUT FOR OTHER CONSIDERATIONS AND APPARENTLY FOR EARNING INT EREST INCOME. 3. IN ITA NO. 83/CHD/2011 FILED BY THE DEPARTMENT, THE DEPARTMENT HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE , WHETHER THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION OF R S.5,00,000/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEDUCT ION CLAIMED U/S 80IB ON SURRENDERED AMOUNT WITHOUT APPR ECIATING THE FACT THAT THE SUM OF RS.20,00,000/- SURRENDERED BY THE ASSESSEE DID NOT HAVE ANY DIRECT OR INDIRECT CONNEC TION WITH THE MANUFACTURING ACTIVITIES, DETECTED DURING THE COURS E OF SURVEY PROCEEDINGS U/S 133A OF THE INCOME-TAX ACT,1961. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION OF R S.1,00,000/- MADE BY THE AO ON ACCOUNT OF UNACCOUNTED INTEREST E ARNED ON ADVANCES, WITHOUT APPRECIATING THE FACT THAT THE AD VANCES HAD BEEN MADE NOT TOWARDS PURCHASE OF RAW MATERIAL ETC. BUT FOR OTHER CONSIDERATIONS AND APPARENTLY FOR EARNING INT EREST INCOME. ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 3 FACTS RELATING TO GROUND NO.1 IN THE CASE OF M/S AR IHANT PIPES 4. THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINES S OF MANUFACTURING OF ERW PIPES. SURVEY OPERATIONS U/S 133A OF THE INC OME-TAX ACT WERE CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSE E ON 09.01.2007 DURING THE COURSE OF WHICH THE ASSESSEE SURRENDERED A SUM OF RS.20,00,000/- IN ORDER TO COVER VARIOUS DISCREPANC IES. THE RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 WAS FILED BY THE ASSESSEE ON 30.10.2007 RETURNING ITS TOTAL INCOME AT RS.30,67,3 40/-. THE ASSESSEE WAS FOUND TO HAVE SURRENDERED THE SAID SUM IN ITS P ROFIT & LOSS ACCOUNT ALSO FILED ALONG WITH THE RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 AND WAS ACCORDINGLY TAXED BY THE ASSESSING OFFICER. IN THE SURRENDER APPLICATION FILED BY THE ASSESSEE BEFORE THE AO, THE ASSESSEE ITSELF ADMITTED THAT CERTAIN ADVANCES IN C ASH WERE MADE TO VARIOUS PERSONS WHICH WERE NOT RECORDED IN THE REGU LAR BOOKS OF ACCOUNT. THE ASSESSEE HOWEVER SOUGHT TO INCLUDE THE AMOUNT SO SURRENDERED IN PROFITS ELIGIBLE FOR SPECIAL RELIEF U/S 80IB, WHICH WAS REJECTED BY THE AO WITH THE FOLLOWING OBSERVATIONS: 3.6 THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERE D CAREFULLY. FOR CLAIMING DEDUCTION U/S 80IB, THE ONUS IS ON THE ASSESSEE TO PROVE THAT SUCH INCOME HAS BEEN DERIVED FROM THE MA NUFACTURING ACTIVITIES. IN THE PRESENT CASE, THE ASSESSEE HAS F AILED TO DISCHARGE THE ONUS THAT THE SURRENDERED INCOME WAS DERIVED FROM THE MANUFACTURING ACTIVITIES OF THE ASSESSEE FIRM A S THE LD. COUNSEL FOR THE ASSESSEE HIMSELF HAS ADMITTED IN HI S SUBMISSION REPRODUCED ABOVE THAT IT CANNOT BE EXPLAINED HOW TH IS INCOME WAS EARNED AS NO RECORD OF THIS INCOME IS AVAILABLE WITH THE ASSESSEE. 3.7 THE ASSESSEE'S PLEA THAT THE FIRM WAS NOT HA VING ANY OTHER SOURCE OF INCOME AND HENCE THE INCOME SURRENDERED W ILL BE INCOME FROM MANUFACTURING UNIT IS ALSO NOT ACCEPTAB LE. IN THE SURRENDER APPLICATION, THE ASSESSEE ITSELF HAS ADMI TTED THAT CERTAIN ADVANCES IN CASH WERE MADE TO VARIOUS PERSO NS WHICH WERE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNT. THE SURRENDERED INCOME WILL BE ACCOUNTED FOR IN THE BOO KS OF ACCOUNT ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 4 IN CASH AS AND WHEN THE SAME ARE REALIZED BACK FROM THE CONCERNED PARTIES. IT IS WORTH MENTIONING HERE THAT ASSESSEE ACCOUNTED FOR THIS SURRENDERED AMOUNT OF RS.20,00,0 00/- IN ITS BOOKS OF ACCOUNT AS UNDER : INCOME SURRENDERED ACCOUNT: DATE NARRATION (RS.) 10.1.2007 BY CASH 5,00,000/- 16.1.2007 -DO- 3,00,000/- 22.1.2007 -DO- 2,50,000/- 29.1.2007 -DO- 2,50,000/- 5.2.2007 -DO- 2,00,000/- 12.2.2007 -DO- 5,00,000/- T OTAL 20,00,000/- 3.8 THE ABOVE TABLE SHOWS THAT THE SO CALLED ADV ANCES MADE BY THE ASSESSEE WERE NOT FOR PURCHASE OF RAW MATERI AL ETC. RATHER THESE WERE GIVEN FOR SOME OTHER CONSIDERATION. THIS GOES TO PROVE THAT APART FROM MANUFACTURING OF ERW PIPES, T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF FINANCING WHICH WAS DETECTED DURING THE COURSE OF SURVEY U/S 133A. 3.9 THE CASE LAW RELIED UPON BY THE ASSESSEE IN THE CASE OF CIT V ALLIED INDS. (HIGH COURT OF HIMACHAL PRADESH (REPORTED AT 31 DTR (HP) 323 (2009) IS ALSO OF NO USE TO THE ASS ESSEE AS THE FACTS OF THAT CASE ARE ENTIRELY DIFFERENT FROM THE FACTS OF THE PRESENT CASE. RATHER IN THE CASE OF SUSHIL KUMAR JA LANI V ACIT REPORTED IN (2007) 108 TTJ (JD) 724, THE HON'BLE IT AT JODHPUR BENCH HELD THAT A BARE PERUSAL OF THIS SUB-SECTION REVEALS THAT IN ORDER TO BE ELIGIBLE FOR DEDUCTION UNDER THIS SE CTION, IT IS SINE QUA NON THAT THE PROFITS AND GAINS SHOULD BE DERIVE D FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAKING OR AN ENTERPR ISE REFERRED TO IN SUB-S.(4). IF THE PROFIT IS NOT DERIVED FROM THE ELIGIBLE BUSINESS THE SAME WOULD BECOME INELIGIBLE FOR DEDUCTION UNDE R THIS SECTION. THE ONUS TO PROVE THE DIRECT NEXUS OF THE INCOME WITH THE ELIGIBLE BUSINESS IS UPON THE ASSESSEE. IF THE VIEWPOINT OF THE LD. AR IS ACCEPTED AND THE BURDEN IS SHIFTED UPON T HE AO TO PROVE THE NEGATIVE TEST FOR THE ELIGIBILITY OF DEDUCTION, IT WOULD BE LIKE PUTTING A CART IN FRONT OF THE HORSE. WE, THEREFORE HOLD THAT THE ASSESSEE CANNOT BE RELIEVED FROM ESTABLISHING THE D IRECT AND LIVE LINK OF THE INCOME WITH THE ELIGIBLE BUSINESS OF TH E QUALIFYING INDUSTRIAL UNDERTAKING OR THE ENTERPRISE. ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 5 IN THE PRESENT CASE, THE ASSESSEE HAS FAILED TO EST ABLISH THE DIRECT LINK OF THE SURRENDERED INCOME WITH THE MANU FACTURING ACTIVITIES OF THE ASSESSEE. 3.10 IN THE LIGHT OF THE FACTS AND THE LEGAL POS ITION DISCUSSED ABOVE, IT IS DISCERNIBLE THAT A SUM OF RS.20,00,000 /- SURRENDERED BY THE ASSESSEE DID NOT HAVE ANY CONNECTION, DIRECT OR INDIRECT, WITH THE MANUFACTURING ACTIVITIES OF THE ASSESSEE F IRM. AS SUCH, DEDUCTION CLAIMED U/S 80IB @ 25% ON SURRENDERED AMO UNT I.E. RS.5,00,000/- IS DISALLOWED AND ADDED BACK TO THE R ETURNED INCOME OF THE ASSESSEE (ADDITION OF RS.5,00,000/-). PENALTY PROCEEDINGS U/S 271(1)(C) ARE INITIATED FOR CONCEALMENT OF INCOME AND FURNISHING INACCURATE PARTICULARS OF INCOME. FACTS RELATING TO GROUND NO.1 IN THE CASE OF ARIHAN T TUBES 5. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 31.10.2007 RETURNING ITS TOTAL INCOME AT RS.33,82,590/-. SURVE Y U/S 133A OF THE INCOME-TAX ACT WAS CARRIED OUT ON 09.01.2007 DURING THE COURSE OF WHICH THE ASSESSEE SURRENDERED A SUM OF RS.20,00,00 0/- OUT OF WHICH A SUM OF RS.5,00,000/- HAS BEEN TAXED IN THE YEAR U NDER APPEAL. THE AO HAS DISALLOWED SPECIAL RELIEF U/S 80IB ON THE AM OUNT SO SURRENDERED BY THE ASSESSEE AND TAXED BY THE AO FOR EXACTLY SIMILAR REASONS AS GIVEN BY HIM IN THE CASE OF M/S ARIHANT PIPES, WHICH HAVE ALREADY BEEN REPRODUCED ABOVE. ON APPEAL, THE LD. C IT(A) HAS DIRECTED THE AO TO ALLOW SPECIAL RELIEF U/S 80IB IN RESPECT OF THE AMOUNT SURRENDERED BY THE ASSESSEE. THE DEPARTMENT IS NOW IN APPEAL AGAINST THE AFORESAID ORDER PASSED BY THE CIT(A). 6. AGGRIEVED BY THE ORDERS PASSED BY THE ASSESSING OFFICER IN BOTH THE AFORESAID CASES, THE ASSESSEES FILED APPEAL BEF ORE THE CIT(A) UPON WHICH THE LD. CIT(A) DIRECTED THE AO TO INCLUDE THE SURRENDERED AMOUNT FOR WORKING OUT THE SPECIAL RELIEF U/S 80IB. 7. AGGRIEVED BY THE ORDERS PASSED BY THE CIT(A) ON BOTH THE CASES UNDER APPEAL, THE DEPARTMENT IS NOW IN APPEAL BEFOR E THIS TRIBUNAL. IN SUPPORT OF APPEAL, THE LD. DR INVITED OUR ATTENTION TO THE ORDER PASSED ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 6 BY THIS TRIBUNAL (I) ON 24.09.2008 IN DCIT V. M/S S ANGEETA TOOLS P. LTD., ITA NO.47/CHD/2006; AND (II) ON 28.04.2010 IN M/S VALLABH YARN P.LTD. V ADDL. CIT, ITA NO.79/CHD/2010. 8. IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDERS PASSED BY THE LD. CIT(A). HE S UBMITTED THAT THE AMOUNT SURRENDERED BY BOTH THE ASSESSEES HAS BEEN A SSESSED BY THE AO AS BUSINESS INCOME AND THEREFORE THE IMPUGNED IN COME BEING SURRENDERED INCOME HAS RIGHTLY BEEN DIRECTED BY THE CIT(A) FOR INCLUSION IN THE PROFITS ELIGIBLE THE SPECIAL RELIE F U/S 80IB. IN SUPPORT OF HIS CASE, HE RELIED UPON THE JUDGEMENTS IN CIT V . ALLIED INDUSTRIES, 229 CTR 462 (HP) AND 296 ITR 393 (P&H). 9. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. IT IS NOT IN DISPUTE THAT BOTH THE ASS ESSEES HAVE SURRENDERED THE IMPUGNED SUMS AS THEIR UNDISCLOSED INCOME WHICH HAS SINCE BEEN ASSESSED BY THE AO AS UNEXPLAINED INVEST MENTS. IT IS CLAIMED BY BOTH THE ASSESSEES THAT THE AO HAS ASSES SED IT AS BUSINESS INCOME. WE HAVE ALREADY EXTRACTED THE RELEVANT PORT IONS FROM THE ASSESSMENT ORDER AND REPRODUCED THE SAME EARLIER IN THIS ORDER. WE HAVE ALSO PERUSED THE COMPUTATION OF TOTAL INCOME A S GIVEN AT THE LAST PAGE OF THE ASSESSMENT ORDER. WE HOWEVER DO NOT FIN D THAT THE AO HAS ASSESSED THE INCOME SURRENDERED BY BOTH THE ASS ESSEES AS BUSINESS INCOME. HE HAS ASSESSED THE SAME AS UNEXPL AINED INVESTMENTS, I.E., UNEXPLAINED ADVANCES GIVEN TO VA RIOUS PERSONS WITHOUT RECORDING THEM IN THE BOOKS. MERE ASSESSMEN T OF SURRENDERED AMOUNT AS TAXABLE INCOME DOES NOT AUTOMATICALLY CON VERT SUCH INCOME INTO PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING, WHICH ALONE IS ELIGIBLE FOR RELIEF U/S 80IB. THIS ASPECT OF THE MA TTER HAS BEEN ELABORATELY CONSIDERED BY THIS TRIBUNAL IN ITS ORDE R DATED 24.09.2008 IN DCIT V. SANGEETA TOOLS PVT. LTD., ITA NO.47/CHD/ 2006 AS UNDER: ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 7 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAR EFULLY. BROADLY SPEAKING, THE DISPUTE IN THE INSTANT PROCEE DINGS, RELATES TO THE PROVISIONS OF SECTION 80IB OF THE AC T. SECTION 80IB RELATES TO DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKING. IT IS A WELL S ETTLED PROPOSITION THAT THE INCOMES THAT ARE ELIGIBLE FOR THE CLAIM OF DEDUCTION U/S 80IB ARE ONLY SUCH PROFITS AND GAI NS OF BUSINESS AS CAN BE SAID TO HAVE BEEN DERIVED FROM S UCH ELIGIBLE INDUSTRIAL UNDERTAKING. A GAINFUL REFERENC E IN THIS REGARD CAN BE MADE TO THE JUDGEMENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V STERLING FOODS, 237 ITR 579 AS ALSO VELLORE ELECTRIC CORPORATION LTD. V CIT , 227 ITR 557. THE ASSESSEE IS INDEED ELIGIBLE FOR CLAIM OF D EDUCTION U/S 80IB WITH RESPECT TO ITS INCOME DERIVED FROM TH E INDUSTRIAL UNDERTAKING MANUFACTURING HAND TOOLS. TH E DISPUTE IS IN RELATION TO INCOME SURRENDERED BY THE ASSESSE E AS ADDITIONAL INCOME IN THE COURSE OF SURVEY ON 13.3.2 003. THE RELEVANT DETAILS IN THIS REGARD HAVE ALREADY BEEN N OTED BY US IN PARAGRAPHS 4 & 5 OF THE ORDER AND THEREFORE, THE SAME ARE NOT REPEATED FOR THE SAKE OF BREVITY. THE CASE MADE OUT BY THE ASSESSING OFFICER TO DENY THE ASSESSEE'S CLA IM OF DEDUCTION U/S 80IB WITH RESPECT TO SUCH SURRENDERED INCOME HAS ALSO BEEN NOTICED BY US IN PARA 6 AND 7 OF OUR ORDER. IT WOULD BE SUFFICIENT TO NOTICE HERE THAT THE ASSESSI NG OFFICER HAS DENIED THE CLAIM ON TWO GROUNDS. FIRSTLY THE AS SESSING OFFICER HAS OBSERVED THAT THERE WAS NO MATERIAL TO ESTABLISH THAT THE SOURCE OF UN-ACCOUNTED INCOME INVESTED IN STOCKS, TRADE RECEIVABLE AND DIFFERENCE IN CASH HAD ANY NEX US WITH THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. SECONDL Y, THE ASSESSING OFFICER HELD THAT THE BURDEN WAS ON THE A SSESSEE TO ESTABLISH THAT THE INCOME IN QUESTION HAD INDEED BEEN DERIVED FROM INDUSTRIAL UNDERTAKING AND SUCH BURDEN HAS NOT BEEN DISCHARGED BY THE ASSESSEE. THE STAND OF THE A SSESSEE BEFORE THE LOWER AUTHORITIES AS ALSO BEFORE US IS T O THE CONTRARY. ACCORDING TO THE ASSESSEE, THE FACT THAT IT HAD NO OTHER SOURCE OF INCOME AND THE FACT THAT THE ASSESS ING OFFICER HAS NOT BROUGHT ON RECORD ANYTHING CONTRARY , THE SAME SHOULD BE UNDERSTOOD TO MEAN THAT THE INCOME I N QUESTION IS ENTITLED FOR THE DEDUCTION U/S 80IB OF THE ACT. THIS VIEW OF THE ASSESSEE HAS FOUND FAVOUR WITH THE CIT(A). ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 8 13. IN OUR CONSIDERED OPINION, THE ENTIRE CASE OF T HE ASSESSEE IS BUILT ON A PRESUMPTION THAT THE INCOME IN QUESTION IS DERIVED FROM THE INDUSTRIAL UNDERTAKING . THE ASSESSEE SEEKS TO ARGUE THAT SINCE NO OTHER BUSINES S HAS BEEN FOUND TO BE EXISTING AND THAT THERE IS NO MATE RIAL LED BY THE ASSESSING OFFICER TO THE CONTRARY AND THEREF ORE, IT SHOULD BE DEDUCED THAT THE INCOME IN QUESTION IS DE RIVED FROM INDUSTRIAL UNDERTAKING. IN OUR VIEW, THIS REAS ONING MILITATES AGAINST THE REASONING PREVAILING WITH THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF NATIONAL LEGGUARD WORKS (SUPRA). THE ISSUE BEFORE THE HON'BL E HIGH COURT WAS THE ALLOWABILITY OF DEDUCTION U/S 80HHC O F THE ACT WITH REGARD TO THE INCOME SURRENDERED DURING SURVEY ON ACCOUNT OF UNEXPLAINED STOCKS. ON THIS ASPECT, THE HON'BLE HIGH COURT OBSERVED THAT THE DEDUCTION U/S 80HHC OF THE ACT IS AVAILABLE ON SHOWING FULFILLMENT OF CONDITIO NS PRESCRIBED AND THAT THERE COULD BE NO PRESUMPTION T HAT THE SURRENDERED INCOME ON ACCOUNT OF UNEXPLAINED STOCKS REPRESENTED EXPORT INCOME. THE FOLLOWING DISCUSSION BY THE HON'BLE HIGH COURT IS WORTHY OF NOTICE: WE ARE UNABLE TO ACCEPT THIS SUBMISSION. DEDUCTION UNDER SECTION 80HHC OF THE ACT IS AVAILABLE ONLY ON SHOWING FULFILLMENT OF THE CONDITIONS SPECIFIED THE REIN AND THERE COULD BE NO PRESUMPTION THAT SURRENDER MADE ON ACCOUNT OF UNEXPLAINED STOCKS REPRESENTED EXPORT INCOME. THE ASSESSEE WAS UNABLE TO GIVE ANY EXPLANATION. THERE COULD BE NO PRESUMPTION THAT THE ADDITIONAL AMOUNT SURRENDERED REPRESENTED INCOME FROM EXPORTS. DEDUCTION UNDER SECTION 80HHC OF THE ACT CAN BE CLAIMED ONLY ON SHOWING FACTS WHICH MAKE THE ASSESSEE ELIGIBLE FOR THE DEDUCTION. THE BURDEN TO PROVE THESE FACTS WAS ON THE ASSESSEE AND NOT ON TH E REVENUE. FROM THE ABOVE, IT CLEARLY EMERGES THAT IT IS THE D UTY OF THE ASSESSEE TO ESTABLISH THAT THE INCOME SURRENDERED D URING THE SURVEY IS ELIGIBLE FOR THE BENEFITS U/S 80IB OF THE ACT. WE ARE CONSCIOUS THAT THE CASE BEFORE THE HON'BLE HIGH COURT RELATED TO THE PROVISIONS OF SECTION 80HHC AND THE CASE BEFORE US IS WITH RESPECT TO SECTION 80IB. HOWEVER, BOTH ARE SECTIONS IN CHAPTER VI-A WHICH RELATE TO ALLOWING O F ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 9 DEDUCTIONS WITH RESPECT TO SPECIFIED INCOMES. THE P ARITY OF REASONING LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT, WITH RESPECT TO SECTION 80HHC, IN OUR VIEW I S CLEARLY APPLICABLE IN THE INSTANT CASE TOO, ALTHOUGH THE CL AIM IN THE PRESENT CASE RELATES TO SECTION 80IB. A COMMON POIN T IS THAT IN BOTH THE CASES THE INCOME THAT IS SOUGHT TO BE C LAIMED AS ELIGIBLE FOR THE BENEFIT IS THE INCOME SURRENDERED DURING THE COURSE OF SURVEY OPERATION. 14. FROM THE AFORESAID PARITY OF REASONING, IT FLOW S THAT MERELY BECAUSE ADDITIONAL INCOME SURRENDERED DURING THE SURVEY IS ON ACCOUNT OF BUSINESS INCOME, THE SAME W OULD NOT BE ENOUGH TO ESTABLISH THE CONDITIONS LAID DOWN U/S 80IB. AS NOTED EARLIER, SECTION 80IB REQUIRES THAT THE ELIGI BLE PROFITS & GAINS SHOULD BE DERIVED FROM THE INDUSTRIAL UNDER TAKING. THE ASSESSEE, EITHER BEFORE THE ASSESSING OFFICER O R BEFORE THE CIT(APPEALS), HAS NOT LED ANY EVIDENCE OR MATER IAL TO EXPLAIN THAT THE INCOME INVESTED IN THE SURRENDER M ADE ON ACCOUNT OF STOCKS, TRADE RECEIVABLES AND CASH REPRE SENTED INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE COUNSEL FOR THE ASSESSEE HAD TAKEN US THROUGH THE PAPER BOO K TO POINT OUT THAT THE ADDITIONAL INCOME HAS BEEN DULY CREDITED IN THE PROFIT & LOSS ACCOUNT AND EVEN THE STOCKS AR E DULY REFLECTED IN THE FINANCIAL STATEMENTS. IN OUR VIEW, THE SAME DOES NOT HELP THE ASSESSEE TO ESTABLISH THAT THE IN COME FOUND INVESTED IN SUCH STOCKS, TRADE RECEIVABLES AN D CASH HAS BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING. F URTHER, IN VIEW OF THE JUDGEMENT OF THE HON'BLE HIGH COURT IN THE CASE OF NATIONAL LEGGUARD WORKS (SUPRA), THE BURDEN ON T HIS ASPECT IS CLEARLY ON THE ASSESSEE AND CANNOT BE SHI FTED TO THE ASSESSING OFFICER, AS OBSERVED BY THE CIT(APPEA LS). THUS, IN OUR CONSIDERED OPINION, THE CIT(APPEALS) C LEARLY FELL IN ERROR WHILE HOLDING THAT THE SURRENDERED IN COME ON ACCOUNT OF STOCKS AND TRADE RECEIVABLES HAD A DIREC T NEXUS WITH THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. HE NCE, THE ORDER OF THE CIT(APPEALS) ON THIS ASPECT IS SET ASI DE AND THAT OF THE ASSESSING OFFICER IS RESTORED. THE PLEA OF THE ASSESSEE FOR DEDUCTION U/S 80IB WITH RESPECT TO THE INCOME SURRENDERED ON ACCOUNT OF CASH IS ALSO UN-SUSTAINAB LE IN VIEW OF ABOVE DISCUSSION. ON THIS LIMB, THE ORDERS OF THE LOWER AUTHORITIES ARE SUSTAINED. ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 10 10. THIS VERY ISSUE HAS AGAIN BEEN CONSIDERED AND D ISPOSED OFF BY THIS TRIBUNAL IN ITS ORDER DATED 28.04.2010 IN M/S VALLABH YARN P.LTD. V. ACIT, ITA NO. 79/CHD/2010 WITH THE FOLLOWING OBS ERVATIONS: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. AT THE OUTSET, IT IS TO BE NOTED THAT EVERY BUSINESS INCOM E EARNED IS NOT ENTITLED TO THE BENEFITS OF SECTION 80IB OF THE ACT . ONLY PROFITS AND GAINS WHICH ARE DERIVED FROM THE ELIGIBLE INDUS TRIAL UNDERTAKING ARE ELIGIBLE FOR SECTION 80IB BENEFITS. THE AFORESAID PROPOSITION IS WELL FOUNDED AND IS BECAUSE OF THE E XPRESSION DERIVED FROM APPEARING IN SECTION 80IB OF THE ACT . THE MANNER AND IMPORT OF THE SAID EXPRESSION HAS BEEN EXPLAINE D IN THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS, 237 ITR 579 (S.C), WHICH IS IN LINE WITH THE AFORESAID PROPOSITION. AS PER THE HON'BLE SUPREME C OURT, THE EXPRESSION DERIVED FROM OBLIGATES THAT THERE SHOU LD BE A DIRECT NEXUS BETWEEN THE INCOME AND THE INDUSTRIAL UNDERTA KING BEFORE AN INCOME CAN BE SAID TO BE QUALIFYING FOR EXEMPTIO N. CONSIDERED IN THIS BACKGROUND, WHEN THE CLAIM OF THE ASSESSEE IS TO BE EXAMINED, IT IS TO BE SEEN AS TO WHETHER THE INCOME IN QUESTION CAN BE SAID TO HAVE BEEN DERIVED FROM THE INDUSTRIA L UNDERTAKING OF THE ASSESSEE, WHICH IS ELIGIBLE FOR BENEFIT U/S 80IB OF THE ACT. AT THIS POINT, IT WOULD ALSO BE PERTINENT TO NOTE T HAT THE BURDEN IS ON THE ASSESSEE TO ESTABLISH THAT SUCH INCOME FULFI LLS THE CONDITIONS PRESCRIBED FOR THE CLAIM OF EXEMPTION PR OVIDED UNDER SECTION 80IB OF THE ACT. 6. IN THIS CONNECTION, WE MAY MAKE A REFEREN CE TO THE JUDGEMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF NATIONAL LEGGUARD WORKS (SUPRA). IN THE SAI D CASE, THE ASSESSEE WAS AN EXPORT ORIENTED UNIT. CONSEQUENCE T O A SURVEY U/S 133A OF THE ACT, AN ADDITIONAL INCOME WAS OFFER ED OVER AND ABOVE THE NORMAL BUSINESS INCOME IN ORDER TO COVER THE DISCREPANCY IN STOCKS PHYSICALLY AVAILABLE AT THE P REMISES OF THE ASSESSEE. THE ADDITIONAL INCOME WAS DULY REFLECTED IN THE PROFIT & LOSS ACCOUNT AND THE SAME WAS ALSO CONSIDERED BY TH E ASSESSEE WHILE WORKING OUT THE DEDUCTION U/S 80HHC OF THE AC T AS PROFITS OF THE BUSINESS. THE ASSESSING OFFICER DID NOT ACCE PT THE CLAIM OF DEDUCTION U/S 80HHC OF THE ACT IN RESPECT TO SUCH A DDITIONAL INCOME. THE HON'BLE HIGH COURT UPHELD THE STAND OF THE REVENUE AND NEGATED THE PLEA OF THE ASSESSEE THAT ONCE THE AMOUNT HAS ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 11 BEEN SURRENDERED AS BUSINESS INCOME, THE BURDEN OF PROVING THAT SUCH INCOME WAS NOT ELIGIBLE FOR 80HHC BENEFITS, WA S ON THE REVENUE. THE ASSESSEE HAD CONTENDED THAT IT SHOULD BE PRESUMED THAT THE INCOME REPRESENTED EXPORT INCOME AS THE AS SESSEE WAS AN EXPORT ORIENTED UNIT. THE HON'BLE HIGH COURT, WH ILE NEGATING THE PLEA OF THE ASSESSEE HELD AS UNDER: WE ARE UNABLE TO ACCEPT THIS SUBMISSION. DEDUCTION UNDER SECTION 80HHC OF THE ACT IS AVAILABLE ONLY ON SHOWI NG FULFILLMENT OF THE CONDITIONS SPECIFIED THEREIN AND THERE COULD BE NO PRESUMPTION THAT SURRENDER MADE ON ACCO UNT OF UNEXPLAINED STOCKS REPRESENTED EXPORT INCOME. TH E ASSESSEE WAS UNABLE TO GIVE ANY EXPLANATION. THERE COULD BE NO PRESUMPTION THAT THE ADDITIONAL AMOUNT SURREN DERED REPRESENTED INCOME FROM EXPORTS. DEDUCTION UNDER SE CTION 80HHC OF THE ACT CAN BE CLAIMED ONLY ON SHOWING FAC TS WHICH MAKE THE ASSESSEE ELIGIBLE FOR THE DEDUCTION. THE BURDEN TO PROVE THESE FACTS WAS ON THE ASSESSEE AND NOT ON THE REVENUE. 7. A PERUSAL OF THE AFORESAID DISCUSSION SHOW S THAT AS PER THE HON'BLE HIGH COURT, THERE COULD BE NO PRESUMPTION T HAT THE SURRENDERED INCOME REPRESENTED EXPORT INCOME ELIGIB LE FOR THE BENEFITS U/S 80HHC OF THE ACT. IT IS FURTHER OBSERV ED THAT TO PROVE THAT THE INCOME WAS ELIGIBLE FOR THE CLAIM OF EXEMPTION, THE BURDEN WAS ON THE ASSESSEE AND NOT ON THE REVENUE. IN OUR CONSIDERED OPINION, THE PARITY OF REASONING LAID DO WN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF NATIONAL LEGGUARD (SUPRA) IS ALSO CLEARLY ATTRACTED TO A CLA IM OF DEDUCTION U/S 80IB ON AN INCOME SURRENDERED DURING THE SURVEY OPERATION. FIRSTLY, IT IS TO BE OBSERVED THAT THE DEDUCTION U/ S 80HHC IS ALSO PRESCRIBED UNDER CHAPTER VI-A DEDUCTIONS IN RESP ECT OF CERTAIN INCOMES AS IS THE CASE OF A DEDUCTION U/S 80IB OF THE ACT. FURTHER, SECTION 80HHC AS WELL AS SECTION 80IB OF T HE ACT PROVIDE FOR DEDUCTION IN RESPECT OF SPECIFIED PROFITS AND G AINS, SUBJECT TO CONDITIONS PRESCRIBED THEREIN. SECTION 80HHC PROVID ES FOR EXEMPTION IN RELATION TO PROFITS EARNED FROM EXPORT S WHILE SECTION 80IB PROVIDES EXEMPTION FROM INCOMES DERIVED FROM T HE ELIGIBLE UNDERTAKINGS MENTIONED IN THE SAID SECTION. THEREFO RE, IN BOTH THE PROVISIONS, THE SPECIFIED CONDITIONS HAVE TO BE FULFILLED BEFORE AN ASSESSEE IS ALLOWED THE PRESCRIBED BENEFITS. FOL LOWING THE ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 12 RATIO OF THE DECISION OF THE HON'BLE PUNJAB & HARYA NA HIGH COURT IN THE CASE OF NATIONAL LEGGUARD WORKS (SUPRA) EVEN IN CONTEXT OF SECTION 80IB, THERE CANNOT BE A PRESUMPTION THAT TH E ADDITIONAL INCOME SURRENDERED CONSEQUENT TO A SURVEY U/S 133A, REPRESENTED INCOME DERIVED FROM THE ELIGIBLE INDUST RIAL UNDERTAKING OF THE ASSESSEE. IN THIS REGARD, THE AS SESSEE HAS SET UP A PLEA THAT THE ADDITIONAL INCOME SURRENDERED IS ON ACCOUNT OF REALIZATION OF SUNDRY DEBTORS AND THEREFORE, THE SA ME IS TO BE TREATED AS BUSINESS INCOME, AS A CONSEQUENCE OF WHI CH IT CAN BE SAID TO HAVE BEEN DERIVED FROM INDUSTRIAL UNDERTAKI NG AS THE ASSESSEE HAS NO OTHER BUSINESS ACTIVITY. IN OUR VIE W, THE AFORESAID PLEA OF THE ASSESSEE HAS TO FAIL BECAUSE IT TANTAMOUNTS TO MAKING A PRESUMPTION THAT THE ADDITIONAL INCOME SURRENDERED REPRESENTED AN INCOME DERIVED FROM THE ELIGIBLE IND USTRIAL UNDERTAKING OF THE ASSESSEE. QUITE CLEARLY, THE PAR ITY OF REASONING LAID DOWN IN THE CASE OF NATIONAL LEGGUAR D WORKS (SUPRA) DOES NOT PERMIT A PRESUMPTION THAT THE SURR ENDERED INCOME IS ELIGIBLE FOR BENEFITS U/S 80IB OF THE ACT . 8. ALTHOUGH, THE ASSESSEE HAS PLEADED THAT THE ADDITIONAL INCOME IS ON ACCOUNT OF REALIZATION OF SUNDRY DEBTO RS AND THIS TO OUR MIND IS ALSO SUSPECT. IN THIS CONNECTION, WE MA Y REFER TO THE LETTER OF SURRENDER DATED 10.11.2005, WHICH HAS BEE N ADVERTED TO BY THE LEARNED COUNSEL DURING THE COURSE OF HEARING , TO SUPPORT THE SUBMISSIONS. THE CONTENTS OF THE SURRENDER LETT ER READ AS UNDER: PLEASE REFER TO THE SURVEY PROCEEDINGS CONDUCTED U /S 133A OF THE INCOME TAX ACT TODAY AT OUR BUSINESS PREMISES A T RAHON ROAD AND SUNDER NAGAR, LUDHIANA. DURING SURVEY PROCEEDINGS, SOME DISCREPANCIES AND CERTAIN PAPER SHEET ENTRIES WERE FOUND WHICH COULD NOT BE E XPLAINED AT THAT MOMENT. HOWEVER, IN ORDER TO BUY PEACE AND TO AVOID ANY LITIGATION WITH THE DEPARTMENT WITH RESPECT TO THE EXPLANATION OF SUCH DISCREPANCIES AND PAPER SHEET ENTRIES, WE H EREBY OFFER FOR TAXATION AN ADDITIONAL INCOME OF RS.44 LACS FRO M BUSINESS IN THE HANDS OF THE COMPANY FOR THE ASSESSMENT YEAR 20 06-07 SUBJECT TO NO PENALTY OR PROSECUTION UNDER ANY PROV ISIONS OF THE INCOME TAX ACT TO COVER ALL DISCREPANCIES OR UN EXPLAINED ENTRIES. ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 13 THE INCOME TAX DUE ON THE ABOVE AMOUNT SHALL BE PAI D ON OR BEFORE THE DUE DATE OF PAYMENT OF ADVANCE TAX FOR T HE ASSESSMENT YEAR 2006-07. A PERUSAL OF THE AFORESAID DEMONSTRATES THAT ALL WH AT THE ASSESSEE HAD OFFERED AS ADDITIONAL INCOME IS STATED TO BE EARNED FROM BUSINESS. APART FROM THE AFORESAID, THERE IS NO MATERIAL OR EVIDENCE LED BY THE ASSESSEE TO DEMONSTRATE THE NAT URE OF INCOME SURRENDERED. IN ANY CASE, THE PLEA OF THE AS SESSEE THAT THE SURRENDERED INCOME IS BY WAY OF REALIZATION OF DEBTORS IS UNSUBSTANTIATED. EVEN IF IT IS ACCEPTED THAT THE AD DITIONAL INCOME SURRENDERED IS TO BE REGARDED AS BUSINESS INCOME, T HERE CANNOT BE ANY PRESUMPTION THAT THE SAME IS ELIGIBLE FOR TH E BENEFITS U/S 80IB OF THE ACT BECAUSE IT IS FURTHER REQUIRED TO B E ESTABLISHED THAT SUCH BUSINESS INCOME IS DERIVED FROM THE ELIGI BLE INDUSTRIAL UNDERTAKING FOLLOWING THE PARITY OF REASONING IN TH E CASE OF M/S STERLING FOODS (SUPRA). QUITE CLEARLY, THERE IS NO MATERIAL TO ESTABLISH THE SAME AND THEREFORE, WE FIND NO ERROR IN THE APPROACH OF THE INCOME TAX AUTHORITIES IN DENYING D EDUCTION U/S 80IB OF THE ACT ON AN AMOUNT OF RS.44 LACS SURRENDE RED BY THE ASSESSEE AS ADDITIONAL INCOME CONSEQUENT TO SURVEY U/S 133A OF THE ACT. 9. BEFORE PARTING, IT WOULD BE APPROPRIATE TO REFER TO THE PLEA OF THE ASSESSEE SET UP ON THE BASIS OF THE JUDGEMENT O F THE HON'BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF ALLIED I NDUSTRIES (SUPRA). NO DOUBT, THE SAID PRONOUNCEMENT SUPPORTS THE PLEA SET UP BY THE ASSESSEE. SO HOWEVER, IT IS TO BE NOTED T HAT THE SAID JUDGEMENT IS CONTRARY TO THE PARITY OF REASONING UP HELD BY THE HON'BLE PUNJAB & HARYANA HIGH COURT. IN THE CASE BE FORE THE HON'BLE HIMACHAL PRADESH HIGH COURT, THE ASSESSEE H AD SURRENDERED CERTAIN INCOMES TO COVER UP CERTAIN DIS CREPANCIES NOTICED BY THE REVENUE. ON SUCH INCOME, THE ASSESSE E SOUGHT DEDUCTION U/S 80IB OF THE ACT. AS PER HON'BLE HIGH COURT, SUCH INCOME WAS ELIGIBLE FOR 80IB BENEFITS SINCE THE SAM E WAS CONSIDERED WHILE WORKING OUT THE BUSINESS INCOME AN D IN THE ABSENCE OF ANY FINDING OF THE REVENUE AUTHORITIES T HAT THE SAID INCOME WAS DERIVED FROM ANY UNDISCLOSED SOURCES. TH E HON'BLE HIGH COURT NOTED THAT THERE HAS TO BE A FINDING BY THE AUTHORITIES THAT THE INCOME WAS FROM UNDISCLOSED SOURCES AND ON LY IN SUCH A SITUATION, THE SAME WOULD BE TREATED AS NOT ELIGIBL E FOR SECTION ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 14 80IB BENEFITS. THE AFORESAID DISCUSSION CLEARLY SHO WS THAT, AS PER HON'BLE HIMACHAL PRADESH HIGH COURT, THE ONUS WAS O N THE REVENUE TO PROVE THAT THE INCOME WAS DERIVED NOT FR OM THE BUSINESS BUT FROM SOME OTHER SOURCES AND ONLY THEN THE DEDUCTION U/S 80IB BE NOT ALLOWED. THE AFORESAID DI SCUSSION CLEARLY SHOWS THAT THE SAID DECISION HAS BEEN RENDE RED ON ITS OWN FACTS. FURTHER, IT IS ALSO EVIDENT THAT THE REASONI NG UPHELD BY THE HON'BLE HIMACHAL PRADESH IS QUITE CONTRARY TO THE P ARITY OF REASONING LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF NATIONAL LEGGUARD WORKS (SUPRA). AS PER HON'BLE PUNJAB & HARYANA HIGH COURT, THE ONUS IS ON THE ASS ESSEE TO ESTABLISH THAT SURRENDERED AMOUNT IS ELIGIBLE FOR A PARTICULAR BENEFIT AND THERE COULD BE NO PRESUMPTION IN THAT R EGARD, WHEREAS AS PER THE HON'BLE HIMACHAL PRADESH HIGH CO URT, THE ONUS WAS ON THE DEPARTMENT TO PROVE THAT SUCH INCOM E WAS NOT ELIGIBLE FOR THE PRESCRIBED BENEFITS. IN THE FACE O F SUCH CONTRADICTION, WE ARE BOUND TO FOLLOW THE LAW AS PR OPOUNDED BY THE JURISDICTIONAL HIGH COURT I.E. HON'BLE PUNJAB & HARYANA HIGH COURT. THEREFORE, OUR DECISION TO FOLLOW THE PARITY OF REASONING LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF NATIONAL LEGGUARD WORKS (SUPRA) AND ACCORDI NGLY WE UPHOLD THE ACTION OF THE ASSESSING OFFICER. 11. WE ARE IN RESPECTFUL AGREEMENT WITH THE AFORESA ID DECISIONS. SECTION 80B ALLOWS SPECIAL RELIEF IN RESPECT OF PRO FITS DERIVED FROM INDUSTRIAL UNDERTAKING AND NOT THE MERE BUSINESS IN COME OR INCOME ASSESSED AS UNEXPLAINED INVESTMENTS OR INCOMES INDE PENDENT OF THE PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING. THE OBJECT OF SECTION 80IB IS TO ALLOW RELIEF FROM TAXATION IN RESPECT OF PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING AND NOT TO EXEMPT OTHER INCO MES FROM TAXATION. IN THE CASES BEFORE US, BOTH THE ASSESSESS HAVE SUR RENDERED INCOME WITHOUT LOCATING ITS SOURCE TO THE SALES/TURNOVER O F THE INDUSTRIAL UNDERTAKING. PERUSAL OF THE ASSESSMENT ORDERS PASSE D BY THE AO IN THE CASES UNDER APPEAL SHOWS THAT THE IMPUGNED SUMS SUR RENDERED BY BOTH THE ASSESSEES WERE UNEXPLAINED ADVANCES GIVEN BY THEM TO VARIOUS PERSONS WITHOUT RECORDING THEM IN THE BOOKS AND THEREFORE TAXED BY THE AO AS UNEXPLAINED INVESTMENTS, BEING U NEXPLAINED ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 15 ADVANCES GIVEN BY BOTH THE ASSESSEES TO VARIOUS PER SONS WITHOUT RECORDING THEM IN THEIR BOOKS, AND NOT AS BUSINESS INCOME U/S 28. THE CLAIM OF BOTH THE ASSESSEES THAT THE AO HAS ASSESSE D THE INCOME SURRENDERED BY THEM AS BUSINESS INCOME IS NOT SUPPO RTED BY THE FINDINGS RECORDED IN THE ASSESSMENT ORDERS. IT IS F URTHER STATED IN BOTH THE ASSESSMENT ORDERS THAT BOTH THE ASSESSEES HAVE FAILED TO ESTABLISH THAT THE INCOME SURRENDERED BY THEM WAS IN THE NATU RE OF PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING. BESIDES, BOTH THE ASSESSEES HAVE ALSO FAILED TO EXPLAIN BEFORE THE AO AS TO HOW THE SURRENDERED INCOME WAS EARNED BY THEM. THE LD. AUTHORIZED REPRESENTATI VE FOR THE ASSESSEES COULD NOT REBUT THE AFORESAID FINDINGS RE CORDED BY THE AO IN THE ASSESSMENT ORDERS. IN THIS VIEW OF THE MATTER, THE PLEA OF THE ASSESSEES THAT THE AO HAS ASSESSED THE SURRENDERED INCOME AS BUSINESS INCOME IS REJECTED. 12. WITHOUT PREJUDICE TO THE AFORESAID, EVEN IF SOM E ITEM OF INCOME IS ASSESSED AS INDEPENDENT INCOME INCLUDING INDEPEN DENT BUSINESS INCOME FORMING PART OF GROSS TOTAL INCOME, IT WOULD NOT BE ENTITLED TO SPECIAL RELIEF U/S 80IB. SECTION 80IB ALLOWS RELIEF IN RESPECT OF THE PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING HAVING ELEMENT OF TURNOVER OF THE INDUSTRIAL UNDERTAKING. INCOME MAY BE EITHER PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING IN TERMS OF SECTION 80IB OR MAY BE INDEPENDENT INCOME INCLUDING INDEPENDENT BUSINESS I NCOME FORMING PART OF GROSS TOTAL INCOME, I.E., THE PROFITS OTHER THAN THOSE DERIVED FROM THE INDUSTRIAL UNDERTAKING, LIKE BROKERAGE, CO MMISSION, INTEREST, RENT, ETC. THIS ASPECT OF THE MATTER HAS BEEN WELL BROUGHT OUT IN THE JUDGMENT OF THE HONBLE SUPREME COURT IN CIT V. K R AVINDRANATHAN NAIR, 295 ITR 228 (SC) RENDERED IN THE CONTEXT OF T HE PHRASE PROFITS DERIVED FROM EXPORT IN SECTION 80HHC. IN THAT JUD GMENT, THE HONBLE SUPREME COURT HAS HELD: THAT, PROFIT INCENTIVES AND ITEMS LIKE RENT, COMMISSION, BROKERAGE, CHARGES, ETC., THOUGH FORMED PART OF GROSS ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 16 TOTAL INCOME HAD TO BE EXCLUDED AS THEY WERE INDEP ENDENT INCOMES WHICH HAD NO ELEMENT OF EXPORT TURNOVER. THAT THE S AID ITEMS DISTORTED THE FIGURE OF EXPORT PROFITS. THE AFORESAID JUDGMENT RENDERED IN THE CONTEXT OF PROFITS DERIVED FROM E XPORTS U/S 80HHC GUIDES US TO FIND OUT AS TO WHAT IS INDEPENDENT IN COME THOUGH ASSESSED AS BUSINESS INCOME OR INCLUDED IN GROSS TO TAL INCOME AND WHAT IS THE PROFITS DERIVED FROM INDUSTRIAL UNDER TAKING IN TERMS OF SECTION 80IB. IT ALSO GUIDES US TO KEEP IN MIND THA T ALL INCOMES INCLUDING BUSINESS INCOME MAY NOT BE PROFITS DERIV ED FROM EXPORT U/S 80HHC OR INDUSTRIAL UNDERTAKING U/S 80IB AND TH AT THE INCOME INCLUDING BUSINESS INCOME MAY BE INDEPENDENT OF THE PROFITS DERIVED FROM EXPORT/INDUSTRIAL UNDERTAKING. IN ORDER TO CON STITUTE PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING, SUCH PROFITS MUST BE SHOWN TO HAVE THE ELEMENT OF TURNOVER OF INDUSTRIAL UNDERTAK ING ELSE IT WOULD BE INDEPENDENT INCOME EVEN IF IT FORMS PART OF GROSS T OTAL INCOME OR ASSESSED AS BUSINESS INCOME. PROFITS CANNOT BE DERI VED FROM INDUSTRIAL UNDERTAKING UNLESS THEY ARE SHOWN TO HAVE THE ELEME NT OF TURNOVER OF THE INDUSTRIAL UNDERTAKING. SURRENDERED INCOME WHIC H IS NEITHER RECORDED IN THE BOOKS OF ACCOUNT NOR SHOWN TO HAVE THE ELEMENT OF TURNOVER OF THE INDUSTRIAL UNDERTAKING CANNOT BE SA ID TO BE THE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING SO AS TO BE ELIGIBLE FOR RELIEF U/S 80IB. IT IS INDEPENDENT INCOME FORMING PART O F GROSS TOTAL INCOME AND NOT THE PROFITS DERIVED FROM INDUSTRIA L UNDERTAKING AND THEREFORE NOT ELIGIBLE FOR RELIEF U/S 80IB. 13. WHAT HAS BEEN SURRENDERED BY BOTH THE ASSESSEES BEFORE US IS THE AMOUNT OF UNEXPLAINED ADVANCES GIVEN BY THEM TO VARIOUS PARTIES WITHOUT RECORDING THEM IN THE BOOKS AND NOT THE PRO FITS DERIVED FROM INDUSTRIAL UNDERTAKING. PERUSAL OF THE ASSESSMENT O RDERS PASSED BY THE AO SHOWS THAT THE IMPUGNED SUMS SURRENDERED BY BOTH THE ASSESSEES HAVE BEEN TAXED BY THE AO AS UNEXPLAINED INVESTMENT S BEING THE ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 17 ADVANCES GIVEN TO VARIOUS PARTIES WITHOUT RECORDING THEM IN THE BOOKS AND NOT EVEN AS BUSINESS INCOME U/S 28. THE CLAIM O F BOTH THE ASSESSEES THAT THE AO HAS ASSESSED THE INCOME SURRE NDERED BY THEM AS BUSINESS INCOME IS NOT SUPPORTED BY THE FINDINGS RECORDED IN THE ASSESSMENT ORDERS. EVEN IF THE IMPUGNED SURRENDERED INCOME HAD BEEN ASSESSED AS BUSINESS INCOME U/S 28, STILL IT W OULD NOT HAVE BEEN ELIGIBLE FOR RELIEF U/S 80IB AS IT WAS NOT THE PROF ITS DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE REASON THAT IT HAD N EITHER THE ELEMENT OF TURNOVER OF THE INDUSTRIAL UNDERTAKING NOR RECORDED AS SUCH IN THE BOOKS OF THE ASSESSEE. AFTER TAKING INTO ACCOUNT AL L THE FACTS PLACED BEFORE US, WE HOLD THAT BOTH THE ASSESSEES HAVE SQU ARELY FAILED TO ESTABLISH THAT THE IMPUGNED SUMS SURRENDERED BY THE M WERE THE PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING. MERE I NCLUSION OF SURRENDERED INCOME IN GROSS TOTAL INCOME BY THE AO ON THE FACTS OF THE CASE BEFORE US DOES NOT AUTOMATICALLY ESTABLISH THAT IT HAS BEEN DERIVED FROM INDUSTRIAL UNDERTAKING. SUCH SURREND ERED INCOME WOULD THEREFORE BE OUTSIDE THE AMBIT OF RELIEF US 80IB. B OTH THE AFORESAID DECISIONS OF THIS TRIBUNAL ARE SQUARELY APPLICABLE ON THE FACTS OF THE CASE BEFORE US. FOLLOWING THEM AND FOR THE REASONS GIVEN ABOVE, GROUND NO.1 TAKEN BY THE DEPARTMENT IN BOTH THE APP EALS IS ALLOWED. 14. BEFORE PARTING WITH THE ISSUE UNDER APPEAL, IT MAY BE MENTIONED THAT THE DECISIONS REFERRED TO BY THE LD. AUTHORIZE D REPRESENTATIVE FOR THE ASSESSEES IN SUPPORT OF THE ORDERS OF CIT(A) AR E INAPPLICABLE ON THE FACTS OF THE CASE BEFORE US. 15. APROPOS GROUND NO.2 IN BOTH THE APPEALS, THE AO HAS ADDED A SUM OF RS.1,00,000/- AS INTEREST ON THE ADVANCES MA DE BY BOTH THE ASSESSEES. THE LD. CIT(A) HAS DELETED THE IMPUGNED ADDITIONS ON THE GROUND THAT THERE WAS NO MATERIAL TO ESTABLISH THAT THE ASSESSEES HAD RECEIVED OR WERE EVEN ENTITLED TO RECEIVE INTEREST ON THE AMOUNT OF ADVANCES SURRENDERED BY THEM. THE FINDINGS RECORDED BY THE CIT(A) ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 18 HAVE NOT BEEN REBUTTED BEFORE US. IN THIS VIEW OF T HE MATTER, GROUND NO.2 TAKEN BY THE DEPARTMENT IN BOTH THE APPEALS IS DISMISSED. 16. BOTH THE APPEALS FILED BY THE REVENUE ARE PARTL Y ALLOWED. CO NOS. 22 AND 23/CHD/2011 FILED BY THE ASSESSEES 17. MEMORANDUM OF CROSS-OBJECTIONS BEARING CO NO.22 /CHD/2011 HAS BEEN FILED BY M/S ARIHANT PIPES WHILE CO NO.23/ CHD/2011 HAS BEEN FILED BY M/S ARIHANT TUBES. 18. GROUND NO. 1 TAKEN IN CO NO.22/CHD/2011 READS A S UNDER: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.94256/- ON ACCOUNT OF ALLEGED SALE OF SCRAP. 19. GROUND NO. 1 TAKEN IN CO NO.23/CHD/2011 READS A S UNDER: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.67615/- ON ACCOUNT OF ALLEGED SALE OF SCRAP. 20. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT BOTH THE ASSESSEES HAD LEASED OUT THEIR FACTORY PREMISES TO M/S ARIHAN T STEEL ROLLING MILLS, A SISTER CONCERN W.E.F. 01.04.2007. THE AO P ERUSED THE ACCOUNTS AND NOTICED THAT BOTH THE ASSESSEES HAVE NOT SHOWN ANY CLOSING STOCK AT THEIR PREMISES. HE, THEREFORE, INFERRED THAT THE ASSESSEES MUST HAVE DISPOSED OF SCRAP GENERATED IN THE PROCESS OUT SIDE THE BOOKS AND ACCORDINGLY ADDED THE IMPUGNED SUMS TO THE RETURNED INCOME SHOWN BY THEM. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED TH E IMPUGNED ADDITIONS. 21. IN SUPPORT OF THE AFORESAID GROUNDS, THE LD. AU THORIZED REPRESENTATIVE FOR THE ASSESSEES SUBMITTED THAT THE MANUFACTURING PROCESS WAS SUCH THAT NO SCRAP WAS GENERATED. ACCOR DING TO HIM, ROLLS WERE PART OF MACHINERY AND THEREFORE THEY WERE CONS UMED IN THE PRODUCTION PROCESS. ITA 82&83/CHD/2011 & CO 22 & 23/CHD/2011 19 22. IN REPLY, LD. DR SUPPORTED THE ORDER PASSED BY THE CIT(A). 23. WE HAVE HEARD BOTH THE PARTIES. SUBMISSIONS MAD E BY THE ASSESSEES BEFORE THE AO AND CIT(A) HAVE NOT BEEN RE BUTTED. THERE IS NO MATERIAL ON RECORD TO HOLD THAT ANY SCRAP WAS GE NERATED IN THE PROCESS AS EXPLAINED BY THE ASSESSEES BEFORE THE AO AND CIT(A). IN THIS VIEW OF THE MATTER, THE ADDITIONS MADE BY THE AO AND CONFIRMED BY THE CIT(A) IN THE CASES OF BOTH THE ASSESSEES AR E DELETED. 24. GROUND NO.2 TAKEN BY BOTH THE ASSESSEES IS GENE RAL IN NATURE AND THEREFORE DOES NOT REQUIRE SPECIFIC ADJUDICATIO N. 25. IN THE RESULT, BOTH THE MEMORANDA OF CROSS-OBJE CTIONS ARE ALLOWED IN TERMS OF THE AFORESAID DIRECTIONS. ORDER PRONOUNCED ON 27 TH JULY 2011. SD/- SD/- (SUSHMA CHOWLA) (D K SRIV ASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH JULY 2011 POONAM COPY TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT(A), 4. THE CIT 5. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH