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2015 (11) TMI 1375 - ITAT AMRITSAR

2015 (11) TMI 1375 - ITAT AMRITSAR - TMI - Revision u/s 263 - taxation of surrendered income u/s 69A - whether the surrender made by assessee can be considered as business income or can be taxed as deemed income under section 69A - Held that:- As regards surrendered income, the assessee has clearly credited the same to the Profit & Loss account over and above the normal profits of the concern. Therefore, in our opinion the Assessing Officer has taken a plausible view as the assessee had surrende .....

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r (C.A) For the Respondent : Shri Tarsem Lal (DR) ORDER Per T. S. Kapoor ( AM ) This is assessee's appeal for Asst. Year 2010-11, against the order dated 20.03.2014, passed by the learned CIT, Bathinda under section 263 of the Act. The assessee has taken two grounds of appeal; however, the crux of grounds of appeal is the grievance of the assessee against the order passed by CIT, Bathinda under section 263 of the Act. The case was earlier heard on 2.2.2015, but it was re-fixed for certain cl .....

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led its return of income on 26.07.2010 and declared income of ₹ 63,02,570/-. The case of the assessee was selected for scrutiny. During the assessment proceedings, the assessee was asked to justify the low returned income as compared to the surrendered income. The assessee was asked to file with the documentary evidences in the farm of breakup of various expenses before and after the survey, as well as a comparison chart showing the breakup and comparison with reasons. The Assessing Office .....

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see had credited the surrendered income to the Profit and Loss account and had debited various expenses against the surrendered income. He observed that Assessing Officer had completely ignored this factor while completing the assessment and therefore, a notice under section 263 was issued to the assessee. In reply the assessee filed detailed reply to the show cause notice, however, the learned CIT was not satisfied with the reply, therefore, he passed order under section 263 and directed the As .....

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uring the course of survey is business income or not. The assessee has contended that the entire surrender of income made by them during survey was nothing but the business income only. Perusal of the surrendered letter submitted by the assessee during survey reveals that the assessee had made disclosures of additional income of ₹ 1.25 cores under the following heads- i) Excess cash found Rs.9,50,700/- ii) Stock found excess Rs.15,90,000/- iii) Directors 'imprest account Rs.85,60,000/- .....

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ioned above. However, the assessee has not been able to give any satisfactory reply and explanations in this regard. The assessee had merely repeated that these items are business income without supporting the claim with any cogent reasons or verifiable evidence. 4.3 I had also asked the assessee to explain the nature of these entires from their books of accounts. The assessee has submitted relevant photocopies of ledger account. However, the said entry in the ledger account are nothing but the .....

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(O & M) dated 27.04.2011 is not applicable in their case because the facts of the assessee are entirely different. The learned Counsel has highlighted these difference in his submission dated 05.03.2014, as under. "The point for determination in this appeal is, whether ₹ 5,00,000/- which was surrendered by the assessee during the course of survey under section 133A of the Act would form part of business income or was assessable under section 69A of the Act. The Assessing Officer, .....

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income was derived by the assessee" had been explained by the assessee in the said case of Kim Pharma mentioned above. In the present case of the assessee, the assessee has made the said entries in the books of accounts admittedly as consequence of survey but the source for the generation of income surrendered by assessee has never been explained by the assessee at any stage. In fact, on my repeated query on this issue, the learned Counsel merely repeated that the above items are out of bu .....

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acquisitions, or the explanations offered by the assessee is not satisfactory, are hit by the deeming provision of section 69A of the I.T. Act, 1961. The fact of the case of the assessee squarely fall under the said provisions. 4.6 Since the income surrendered by the assessee falls under the section 69 of the I.T. Act, 1961, the same has to be taxed separately without the adjustment of any losses or deductions available to the assessee under the normal computation of income under the head " .....

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see in any manner since this issue is directly and squarely covered by the jurisdictional High Court in the case of Kim Pharma (supra). To give an example, the assessee has relied heavily on the judgment of Hon'ble Karnatka High Court in the case of CIT vs. S.K. Srigiri and Bros., 298 ITR 13 (Kar). In this case, there was a clear finding of facts by lower appellate authorities that additional income received by the assessee was from business and from no other sources and therefore the salary .....

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ratio of the said case is not applicable on the facts of this assessee. As result, all other contentions of the assessee w.r.t. reliance placed on various others case laws stand discussed and disposed off against the assessee. 4.7 From the above facts and discussion, it is apparent that the Assessing Officer had not correctly examined the facts of the case and he had accepted the books of accounts of the assessee without due examination of the relevant entries and also he had totally ignored th .....

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s, I modify the assessment for enhancing the taxable income of the assessee and direct the Assessing Officer to recomputed the taxable income of the assessee by considering the income of ₹ 1,25,00,700/- separately u/s 69A of the I.T. Act, 1961 without allowing any adjustment of business losses/depreciation etc computed under the head 'income from business and profession". The A.O is directed to pass the necessary assessment order giving effect to this order u/s 263 after giving a .....

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as the surrendered income was made over and above the normal profits of the concern of the assessee. He further took us to page 35 where a copy of letter written by Assessing Officer on 15.07.2011 was placed. Our specific attention was invited to Para-11 of the said letter where Assessing Officer had specifically required the assessee to explain net income disclosed in the return of income viz-a viz surrendered income. Therefore, the learned AR submitted that during the course of assessment pro .....

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query raised by Assessing Officer vide para-11 of his letter dated 15.07.2011. It was submitted that again Assessing Officer vide latter dated 22.2.2013 raised this issue and assessee again reiterated its reply which was placed at paper book page-44. In view of the above examination by Assessing Officer and explanation by assessee the Assessing Officer was satisfied with the reply and therefore, had passed reasoned order and therefore, it cannot be said that Assessing Officer had not applied his .....

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did not include the discussion in this respect in the assessment order. The Commissioner had passed order under section 263 on the ground that such expenditure was capital expenditure and as such the order of ITO was erroneous and prejudicial to the interest of revenue. The Hon'ble Tribunal ruled in favour of the assessee and on appeal by revenue, the Hon'ble High Court observed that it was clear that I.T.O had raised a query about nature of the expenditure and the assessee had offered .....

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vs. Deepak Mittal 324 ITR 411 (P&H) (iii) Khushi Ram & Sons Foods Pvt. Ltd. vs. CIT 40 ITR (Trib) 92 (Chd.) Explaining the facts of the case law of Anil Kumar Shamra, the learned AR submitted that the Hon'ble Delhi High Court had held that there was distinction between lack of enquiry and inadequate enquiry and if there was any enquiry even inadequate that would not by itself give action to the Commissioner to pass order under section 263 of the Income tax Act, merely because he had .....

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ection 263. It was further submitted that in the case law of CIT vs. Deepak Mittal (supra) the Hon'ble Court held that change of opinion by reappraising the evidence by Commissioner is not within parameters of revisional jurisdiction to Commissioner under section 263 of the Act. The learned AR further submitted that the case law decided by Chandigarh Tribunal is squarely applicable to the facts and circumstances of the case as in this case similar surrender was made by assessee and the same .....

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ined. He submitted that in the present case, the source of surrendered was duly explained in the letter of surrender itself wherein the assessee mentioned that the surrender was over and above the normal profits of the concern and in this respect the learned AR took us to paper book page 38 and invited our attention to the contents of surrender letter wherein the assessee had stated that the surrendered income was over and above normal profits of the concern. It was argued that in accordance wit .....

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ection 263. The learned DR submitted that it was mandatory as per CBDT guidelines that in the case of an assessee who had surrendered income during survey the taxable income cannot fall below the surrendered income and in this respect, learned DR read para 2 of assessment order and argued that Assessing Officer himself had held that assessee had violated the provisions by understating its return of income. It was submitted that after recording this fact the Assessing Officer escaped making addit .....

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t Assessing Officer had skipped the additions on account of surrendered income and has not made any fishing enquiries. Similarly, he argued that the facts of the case laws of CIT vs. Deepak Mittal 324 ITR 411 are not para material. As regards the Tribunal Order in the case of Khushi Ram & Sons (Pvt.). Ltd. vs. CIT (supra). The learned DR submitted that such order has no precedential value in view of judgment of Punjab & Haryana High Court in the case of Kim Pharma (Pvt.) Ltd.(supra), whe .....

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ng Officer had ignored. In view of the above arguments the learned DR submitted that order of Commissioner needs to be upheld. 6. The learned AR in his rejoinder submitted that the observations made by Assessing Officer vide para 2 of his order are for guidelines for selection of scrutiny cases and in this respect he read the entire para 2 of assessment order and argued that since returned income was lower than the surrendered income, therefore, as per CBDT guidelines the assessee's case was .....

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restored. 7. We have heard the rival parties and have gone through the material placed on record. The only question to be answered by us in the present appeal is as to whether the surrender made by assessee can be considered as business income or can be taxed as deemed income under section 69A of the Act. In this respect, let us examine the surrender letter which is placed at paper book page 46. From the above surrender letter it is apparent that assessee had made a surrender as additional incom .....

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para-11. The assessee filed a detailed reply under the heading justification of taxable income wherein it explained as to why the taxable income had decreased as compared to surrendered income. As per paper book page-39, the main reason for decrease in taxable profits was due to increase in depreciation and increase in bank interest. The Assessing Officer ter considering this explanation had passed the assessment order, however, he did not mention the fact of considering this explanation in the .....

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tion of the assessee, the decision of Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in this regard. In the present case, the Assessing Officer raised an enquiry and assessee filed detailed reply and thereafter, Assessing Officer accepted the explanation and did not make any addition on that account. The order of Assessing Officer cannot be said to be erroneous as he has taken a plausible view, keeping in view the facts and .....

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would not be one of "lack of inquiry" even if the inquiry was termed inadequate. The Tribunal found that complete details were filed before the Assessing Officer and that he applied his mind to the relevant material and facts, although such application of mind was not discernible from the assessment order. The Tribunal held that the Commissioner in proceedings under section 263 also had all these details and material available before him, but had not been able to point out defects con .....

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63 of the Income tax Act, 1961. The relevant findings of Hon'ble Punjab & Haryana High Court are reproduced as under: "Held, dismissing the appeal, that the Tribunal had found that the Assessing Officer had given a categorical finding that the assessee was engaged in the process of manufacturing of products and accordingly he had granted concession under section 80-IB. The claim of the assessee had been found to be genuine. The Assessing Officer had also examined the various workers .....

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ables and claimed set off of unabsorbed losses for the assessment years 2007-08 and 2006-07 and Assessing Officer allowed the same. The learned Commissioner invoked jurisdiction under section 263 of the Act, on the ground that the Assessing Officer had failed to make enquiries in respect of claim of set off on unabsorbed losses, fall in gross profit rate and depreciation and wrongly allowed the claim against the surrendered income which was erroneous and prejudicial to the interest of the Revenu .....

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ssessing Officer and there was no infirmity in the replies of the assessee. The nature of business of the assessee revealed that it might not be possible to give the exact details of manufacturing large number of sweets of different quantities or of the closing stock. Hence, the assessee submitted complete details before the Assessing Officer at the assessment stage regarding all the issues which had been raised by the Commissioner in the order under section 263 of the Act. The Assessing Officer .....

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the proceedings under section 263 of the Act." In the present case the Assessing Officer had made enquiries and assessee had explained the taxable income viz-a-viz surrendered income and Assessing Officer found the explanation as satisfactory. We find that assessee vide letter dated 18.01.2013 placed at paper book 37 to 40 vide Para "Justification of Taxable Income" has demonstrated the reasons for lower returned income as compared to surrendered income which was primarily for ex .....

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Paper Book page-44. In the same letter the assessee had conveyed that for purchase of machinery the assessee had increased its bank borrowings and therefore there was an increase in interest costs and further the reasons for increase in the electricity charges was also explained in the same letter. Therefore, the assessee had submitted all details and the Assessing Officer had examined all factors leading to decrease in normal profits as compared to earlier year. As regards surrendered income, t .....

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9;ble Court had reproduced the findings of Tribunal that assessee during the course of survey had surrendered the income as income from other sources. Whereas in the present case the assessee had surrendered income over and above the normal profits of the concern and not as income from other sources. The findings of Tribunal as recorded by Hon'ble Punjab & Haryana High Court are reproduced as under: "In the facts of the present case, we find that assessee during the course of survey .....

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ess. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared by the assessee and in the absence of nature of source of cash being proved; the same is not assessable as income 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 business losses determined against the said deemed income. The grounds of appeal r .....

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