TMI Blog2019 (8) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... In the facts of the present case, it is not disputed that the surrender had been made on account of undisclosed debtors. Since the facts are identical to that in the case of Famina Knit Fabs (supra) and no distinguishing facts have been brought to our notice by the Ld.DR, the decision rendered in that case will also apply to the present case, following which we hold that the Ld.CIT(A) had rightly treated the surrendered income as in the nature of business income of the assessee and accordingly, allowed the benefit of set off of losses against the same. The order of the Ld.CIT(A) is accordingly, upheld. The ground raised by the Revenue is dismissed. Disallowance u/s 36(l)(iii) on investment made in the sister concern - HELD THAT:- We have gone through the order in the case of Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT] and we find that it is now settled law that where sufficient own funds are available, the presumption is that the same were used for the purpose of making the investment calling for no disallowance of interest u/s 36(1)(iii)- CIT(A) in the present case, we find, has given factual findings of there being sufficient own interest free funds with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is finally disposed off. 3. As is evident from the above, the sole issue involved in the present appeal relates to treatment of income surrendered during the survey whether in the nature of Business Income or deemed income and whether eligible to set off of losses against the same. 4. Brief facts relating to the issue are that during the F.Y. 2011-12, a survey u/s 133A was conducted on the premise of the assessee on 13.10.2011. The assessee surrendered an amount of ₹ 1,00,00,000/- on account of some paper slips found during the course of survey. During the course of assessment proceedings, the assessee was asked to show cause as to why the surrendered income be not assessed separately u/s 68, 69, 69A, 69B and 69C of the Act and no adjustment/setoff be given of business losses against the same. The asssessee filed a detailed reply stating that the same could not be treated as deemed income since the survey team could not find any investment made by the assessee company which were not recorded in the books of accounts, any documents/information/records which showed that the assessee company was found to be the owner of any money, bullion, jew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business losses were not allowed to be set off against the surrendered income. The AR contended that the appellant is maintaining all the statutory records required under the provisions of the Central Excise Act, VAT Act and Companies Act and that there is no finding during the course of the survey operations or the assessment proceedings to the effect that the appellant is engaged in any activity outside the books of accounts. The AR further contended that all the books of accounts upto the date of the survey along with the relevant purchase bills, sales bills, expenditure vouchers, capital expenditure and other supporting documents and details were verified during the course of the survey but no discrepancy was found therein. Further, the stock was verified with the excise and stock records showing details of purchase of raw material, consumable stores, raw material used for production, sale of finished goods, wastage and closing stock of raw materials and no discrepancy was found during the course of the survey operations. No discrepancy was found in the cash in hand verified with the books of accounts. Therefore, there is force in the appellant's contention that it was main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held, after considering the case of the Hon'ble Gujarat High Court in the case of Fakir Mohamad Haji Hasan, that income cannot fall beyond the five heads made under the act. Further, reliance has been placed on the decision of the Hon'ble Apex court reported in CIT vs. D.P. Sandhu Bros. 273 ITR 1 wherein it has been held that section 56 provides for chargeability of income of every kind which has not been excluded from the total income under the act only if it is not chargeable to income tax under any heads specified in sec 14 and if the income is included under any one of the heads it cannot be taxed u/s 56. Further, reliance has been placed on the case of DCIT vs. Radhe Developers India Ltd. Anr. (Guj) 329 ITR 1 wherein the judgment of Fakir Mohamad Haji Hasan has been considered and the judgment of the Hon'ble Apex Court in the case of D.P Sandhu Bros. P. Ltd. Supra have been referred to and it has been held that the act does not envisage taxing income under any head not specified u/s 14 of the Act. The Department did not find any other source of income except the business of manufacture of steel items and, according to the AR, the same is clear as per the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant has manipulated its books of accounts to bring down its total income. No such evidence has been brought on record to show that the assessee has booked any bogus expenditure and there is therefore no reason to doubt the veracity of the books of accounts and the expenditure therein. The heads under which the surrender has been made has not been challenged by the survey team or the Assessing Officer. In the case of Kim Pharma Vs. CIT in ITA no. 106 of 2011(P H) supra the Hon'ble High Court has upheld the treatment of additional income on account of sundry credits, repairs to building, and advances to staff to be treated under the head 'income from business and profession' and only in respect of cash found where no clear source could be established by the appellant the same was treated under the head ' income from other sources'. The Assessing Officer has not appreciated the decision in the case of Kim Pharma (supra) properly and has misapplied it. The AR has placed reliance on the case of M/s Gaurish Steels Pvt. Ltd. reported in 43 ITR 414 dated 17.09.2015 of the Hon'ble Chandigarh Bench, wherein the Assessing Officer did not dispute the business l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of any other transaction legal or otherwise. That merely because the assessee is carrying on certain business, it does not necessarily follow that the amounts surrendered are on account of the business transaction and that it is for the assessee to establish the source of such surrendered income. 7. The assessee, on the other hand, relied upon the order of the Ld.CIT(A) and further pointed out that the ITAT Chandigarh Bench in a recent decision in the case of Famina Knit Fabs Vs. ACIT, reported in 104 Taxmann.com 306 had analyzed the issue of treatment of surrendered income and had held that the income surrendered on account of debtors not disclosed in the books of the assessee tantamounted to business income and was exigible to benefit of set off of business losses against the same. The Ld.Counsel for the asssessee pointed out that in the present case also since the surrender was on account of debtors not disclosed in the books of the assessee, and the issue was squarely covered in favour of the assessee by the decision of the I.T.A.T. in the case of Famina Knit Fabs (supra). Copy of the order was placed before us. 8. We have heard the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, whether from disclosed or undisclosed sources, and the allowability of claim of set off of osses, both current and brought forward, against the same. 13. The controversy arises on account of the scheme of the Act which mandates incomes to be categorized under specific heads depending on their nature/source, for computation purposes under chapter IV and thereafter provides for setting off of losses in a specific manner under chapter VI of the Act. If it is from any of the sources as specified in the heads for taxation under Chapter-IV of the Act, the income therefrom it is to be computed as per the provisions provided thereunder. Therefore, if the source/nature of the income is from business and profession, the income to be subjected to tax is to be assessed as provided u/s 28 to 44DB of the Act and the set off of current/ brought forward losses is to be allowed as per the provisions of sections 70 to 80 of the Act, which allows set off of business losses against current year business losses subject to fulfillment of certain conditions. There is no dispute about the above position of law. 14. Further the Act also provides for treating certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the [2021][Assessing Officer], satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.] SECTION 69C [2022][Unexplained expenditure, etc. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the [2023][Assessing Officer], satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year:] [2024][Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f April, 2014 by Finance (No. 2) Act, 2014 (w.e.f. 1-4-2015). Ins. by Finance Act, 2016 (w.e.f. 1-04-2017). [3052a] Ins. by Finance Act, 2018 (w.e.f. 1-042017). 15. As is evident from a bare reading of the above sections any investments, moneys and expenditure which are not disclosed in the books of the assessee, if any, maintained by it and the source of which has also been not explained satisfactorily by the assessee are treated as deemed incomes of the assessees. Thus, the amounts to be treated as deemed incomes are investments, moneys, or expenditure fulfilling the twin criteria of: a) not being recorded in the books if any maintained and, b) the source of which the assessee is unable to explain satisfactorily. 16. In other words, to put it simply, the unrecorded investments/assets/expenditures made out of unexplained sources are treated as deemed incomes of the assessee. The onus is on the assessee to establish the source of the surrendered income failing which it is to be categorized as deemed income u/s 69/69A/B/C of the Act. And establishing the source of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the accounts section which contained entries of receivables amounting to ₹ 1.25 crores on page nos. 27, 28, 31 and 33, which were not recorded in the regular books of accounts. 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 accounts and in order to buy peace of mind, the same is surrendered as income under the head business for F.Y.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 F.Y.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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame disclosed. Therefore, the same is to be assessed as deemed income u/s 69 of the Act. The same applies to the surrender of ₹ 10 lacs made to cover the miscellaneous discrepancies in loose paper of ₹ 10 lacs. Neither the nature of the discrepancies, nor any source relating to the same has been disclosed and, therefore, the same is also to be assessed as deemed income u/ss 69, 69A, 69B and 69C of the Act. 25. As far as the surrender of ₹ 132 lacs made on account of sundry creditors and advances received from customers and ₹ 198 lacs on account of gross profit on sale out of the books, both of them clearly are in relation to the business carried on by the assessee and are thus in the nature of business income. Therefore, the set off of business losses, both current and brought forward are to be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act. 26. Now the next question whether the set off of losses is to be allowed against the same, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer for treated the surrendered income as deemed income u/s 69 69B of the I.T. Act,1961 and treating the same as business income and allowed the same to be set off against business loss/depreciation loss or any other expenses? 12. It was common ground between the parties that the above ground is identical to ground No.1 raised by the Revenue in ITA No.745/Chd/2016 and the facts also are identical .Our decision rendered therein at para Nos.8 to 10 of our order above will apply mutatis mutandis to this ground also. Following the same we dismiss the ground no.1 raised by the Revenue 13. Ground No.2 raised by the Revenue reads as under: 2. Whether upon facts and circumstances of the case, the Ld. CIT(A) justified in deleting the disallowance made u/s 36(l)(iii) of the Income-tax Act, 1961, on investment made in the sister concern? 14. The facts relevant to the issue are that during the course of assessment proceedings, the A.O. noticed that the assessee had made investment to the tune of ₹ 10 lacs in the sister concern, M/s Noble Steel Pvt. Ltd. The assessee was asked to show cause as to why not proportionate interest be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o any nexus between interest bearing loans and the interest free advances. In view of the said facts and circumstances, the said disallowance made u/s 36(l)(iii) is not held to be justified and the same is hereby ordered to be deleted. 16. Before us at the outset itself, the Ld.Counsel for the asssessee pointed out that the proposition of law relied upon by the Ld.CIT(A) vis- -vis the presumption of usage of own funds where sufficient own funds are available, has been settled by the Hon'ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd., reported in 410 ITR 466 (SC). The copy of the order was placed before us. 17. The Ld. DR, on the other hand, relied upon the order of the A.O. 18. We have heard the rival contentions. The issue before us relates to disallowance of interest u/s 36(1)(iii) of the Act. We have gone through the order of the Hon'ble Supreme Court in the case of Reliance Industries Ltd. (supra) and we find that it is now settled law that where sufficient own funds are available, the presumption is that the same were used for the purpose of making the investment calling for no disallowance of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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