TMI Blog2018 (6) TMI 1705X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account of the assessee. Having held so, the taxability of the same under the head business or income from other sources is the next issue for adjudication. Considering the existence of business nexus, we are of the opinion that there is no reason why such income is taxed as income from other sources when the source for the same from the business activity, is already demonstrated by the assessee during the proceedings before the assessment/appellate authorities. Unaccounted receipts/expenditure constitutes business receipts/expenditure. As such, the judgment of jurisdictional High Court in the case of CIT Vs. Sheth Developers Pvt. Ltd. [ 2012 (8) TMI 159 - BOMBAY HIGH COURT] affirms that the income from business is required to be taxed as business income . We have also examined the allowability of statutory deductions out of such additional income disclosed during search and seizure/survey actions. There are binding decisions to support the claim of deduction qua the deductions u/s.80IB, 40B of the Act etc. Therefore, in principle, granting statutory deductions out of such additional income arising out of business activities is sustainable. Linking the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds for the A.Y. 2005-06 are extracted here as under : 1. On facts and circumstances prevailing in the case and as per provisions scheme of the Act it be held that, the Learned Assessing Officer as well as the first appellate authority erred in taxing the additional income of ₹ 58,00,000/-, declared by the appellant in the course of survey u/s.133A of the Act and returned by it as business income, as deemed income u/s.69A of the Act. It further be held that all the consequential provisions available for business income should have been allowed to the Appellant. The Appellant be granted just and proper relief in this respect. 2. The Appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing. 3. Background facts on Additional income of M/s. CPPL M/s. GDPL : The facts include that the assessee is a company and is engaged in the development of properties. There was survey action u/s.133A of the Act on the assessee on 24-01-2007. The said action resulted in the discovery of incriminating information as well as the papers/ documents relating to the assessee under consideration and the same were impound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee constitutes deemed income and not the eligible business income for such set off. After giving reasonable opportunity and also after considering the reply of the assessee, the AO extracted the relevant questions and answers from the sworn statement of Mr. K.P. Gera, MD, disposed during the said survey action. As per the discussion given in Para Nos.2.1 to 2.3 of the assessment order, the AO held that the said additional income offered by the assessee over and above the regular income and was treated as unexplained money and the same was taxed as income from other sources . As per the AO, such deemed income is not available for set off of the brought forward losses as claimed by the assessee in the revised return of income. For the sake of completeness, Para No.2.2 is reproduced herein below : 2.2 In the light of the above, the income, which the assessee has disclosed during the survey over and above the regular income, is treated as assessee s unexplained money and is taxed under the head income from other sources without allowing the set off of brought forward business losses as claimed by the assessee in the revised return of income. Similarly, the AO made ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, it is only either unexplained expenditure or undisclosed receipts which were brought to tax and not receipts as well as expenditure and therefore there is no double addition in respect of the same amount. Further, in this case, as discussed earlier, the expenditure far exceeded the receipts shown in the impounded documents. In such circumstances, the said decision of ITAT, Pune has no application to the facts of the present case. 4.3.6 The other contention of the appellant is that overall declaration was made by the MD of the company for the entire group and the declaration of such additional income has been considered assessed as business income in the hands of GDPL while framing the assessment order. But, for the A.Y. 2005-06, as already mentioned, additional amount declared during the survey was brought to tax under sec.69C of the I.T. Act in the hands of GDPL. For the A.Y. 2006-07, the additional income was separately considered and added to the total income by the Assessing Officer in the final computation of total income. Further, it is also noticed that in case of GDPL, there was no brought forward business loss for set off against the income admitted during the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of the Appellant company had made an overall declaration for the entire group. As such, in the case of the sister company of the Appellant, the AO had accepted the declared income as business income. Thus, there is no reason that the closing stock declared by the Appellant for the assessment year under consideration should be assessed as deemed income u/s. 69A of the Act. 2.4. Once it has been established that the income declared by the Appellant is its business income, there would not be any reason for disallowing the set-off of unabsorbed depreciation pertaining to A.Y. 2000-01 and A. Y. 2001-02 against such income. 2.5. Without prejudice to the above, even if the income is held to be deemed income, section 32(2) of the Act was amended by Finance Act, 2001 w.e.f. 1st April, 2002, whereby the old position (as it stood until A.Y. 1996-97) that un absorbed depreciation becomes the current depreciation under section 32(2) of the Act was restored. 2.6. Thus, w.e.f. 1st April, 2002, the unabsorbed depreciation is brought forward and treated as a part of the current year allowance for depreciation. That being so, in case where the business profits are lesser than the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the additional income as deemed income of the assessee or if the said income is evidenced to have been earned out of business activities of the assessee and of course, outside the books of account. We also need to adjudicate whether the same can be considered as business income of the assessee and consequential deductions or set off as per the provisions of section 70, 71 and 72 of the I.T. Act can be allowed or not. As discussed in the preceding paragraphs of this order, ₹ 58 lakhs and ₹ 73 lakhs was offered as additional income of the assessee for the A.Yrs. 2005-06 and 2006-07 respectively. These amounts were offered on the basis of the impounded documents collected during the survey action conducted on 24-01-2007 on the assessee. These documents clearly reflect the unexplained expenditure and unexplained receipts relates to sale of flats to the parties. Assessee is a Builder and his business is to construct the flats and sell the same to the customers. All these details clearly indicate the business nexus of the receipts/expenditure to the core business activities of the assessee. It is not the case that there was any cash impounded or seized in this case to deny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income offered u/s.133A of the Act and find barring the additional income by virtue of excess cash, other items relatable to the business activities of the assessee are found eligible for set off of the brought forward losses against the said business activities/additional income. For the sake of completeness, the operational paragraphs are extracted here as under : 9. We heard both the parties on these 3 items. On going through the facts and considering the details available on record, we find the said items at Sl.Nos.1, 3, and 4 of the table being gross profits and the unrecorded purchases, we are of the opinion that the same should constitute 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 ₹ 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 survey action as the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by that assessee and the same was treated as income u/s.68 of the Act and taxed under the head income 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 opinion that the excess cash of ₹ 4,93,290/- being deemed income is not to be treated as business income of the assessee. Further, regarding the investment in the residential house, we find it is the case of appropriation of income earned by the assessee. Thus, the claim of the assessee is unsustainable. Therefore, these parts of the claim of the assessee are dismissed. Thus, the only amount which is available for set off against the current year is brought forward loss amounts to ₹ 4,81,252/-, i.e. sum of 3 items of income mentioned at Sl.Nos. 1, 3 and 4 of the table above. AO is directed to grant the benefit of set off of the balance of current year loss of ₹ 2,65,457/- and the brought forward business losses to the extent of ₹ 2,15,795/- (i.e. ₹ 4,81,252 ₹ 2,65,457). The balance of brought forward business loss is allowed to be carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the AO that the said unaccounted income of ₹ 53 lakhs and ₹ 78 lakhs cannot be classified to any other head of income. In fact, section 56(1) of the Act provides for bringing such items of income under the scope of section 56 of the Act. Therefore, the decision of the AO in treating the same as chargeable to tax under the head income from other sources is not valid as the source for such additional income is clearly determinable as chargeable u/s.28 of the Act. Further, there is no law to automatically tax each and every unaccounted income disclosed during search/survey actions as income from other sources . In our view, such income needs to be treated as the business income of the assessee and consequently, the benefit of set off/carry forward should be granted to the assessee against such additional business income of the assessee in both assessment years. Accordingly, the decision of CIT(A) stands reversed on this issue. Amended grounds raised by the assessee are allowed. 12. In the result, the appeal of the assessee is allowed. ITA No.1608/PUN/2014 A.Y. 2006-07 13. Since the facts, issues, decision of the AO/CIT(A), arguments and co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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