2015 (12) TMI 1801 - AT - Income Tax

Taxability of surrendered income - deemed income u/s 69A - HELD THAT - In the present case we see that the AO has nowhere disputed the business losses incurred by the assessee. The books have not been rejected. As stated at the Bar that even at the time of survey in the trading account prepared by the survey team there were losses incurred by the assessee. All these facts have not been disputed by the AO. The surrender made by the assessee was on account of cash found during the course of survey discrepancy in the cost of construction of building discrepancy in stock and discrepancy in advances and receivables. By no stretch of imagination any of these incomes apart from cash can be considered as income under any head other that the business income . Nowhere in his order the AO has been able to bring on record the fact that the income surrendered during the course of survey was not out of the business of the assessee. Also nowhere he has objected to the heads under which the assessee had surrendered these amounts i.e. cash construction of building discrepancy in stock and discrepancy in advances and receivable. Even the survey team has not found any source of income except the business income. Now following the judgment of Jurisdictional High Court in the background of the facts of the present case we can safely infer that apart from cash all other income surrendered may be brought to tax under the head business income while the cash has to be taxed under the head deemed income u/s 69A. As regards the business losses incurred by the assessee during the year these can be set off against the income surrendered during the course of survey except for the amount of cash surrendered as per the mandate of section 71. No loss can be set off against the cash surrendered as the same has already been held to be taxed under a different head. AO is hereby directed to set off business losses suffered by the assessee out of the surrendered income except the element of cash surrendered. Allow business losses suffered by the assessee out of surrendered income on account of sundry receivables only and not out of surrendered cash. Amount surrendered on account of sundry receivables is to be assessed under the head business income AO is hereby directed to allow the benefit of current year depreciation to the assessee out of the same as per law - Appeal of the assessee is partly allowed.

Summary

Issues: Taxability of surrendered income, Set off of business losses, Adjustment against unabsorbed depreciation.

Taxability of Surrendered Income:
The appeal pertains to the taxability of surrendered income by the assessee during a survey conducted at their premises. The Assessing Officer treated the surrendered income as "deemed income" as it was not recorded in the books of accounts, leading to disallowance of setting off losses against it. The assessee contended that the surrendered amount pertained to their business and should be treated as business income. The CIT (Appeals) dismissed the appeal, prompting the assessee to approach the ITAT. The ITAT considered various judgments and facts, including the nature of the surrendered amount (cash and receivables), and directed the Assessing Officer to set off business losses against the surrendered income, except for the cash component, which was to be taxed separately.

Set Off of Business Losses:
The ITAT analyzed the business losses incurred by the assessee during the year and the permissibility of setting them off against the surrendered income. It noted that the Assessing Officer did not dispute the business losses or reject the books of accounts. The ITAT directed that business losses could be set off against the surrendered income, except for the cash component, in accordance with Section 71 of the Income Tax Act.

Adjustment Against Unabsorbed Depreciation:
The ITAT considered an additional ground raised by the assessee regarding the adjustment of deemed income against unabsorbed depreciation. Citing precedents and legal provisions, the ITAT directed the Assessing Officer to allow the benefit of current year depreciation to the assessee out of the surrendered income assessed as business income. The ITAT admitted the ground as it was purely legal in nature and based on facts on record.

In conclusion, the ITAT partly allowed the appeal of the assessee, directing specific actions by the Assessing Officer regarding the taxability of surrendered income, set off of business losses, and adjustment against unabsorbed depreciation. The judgment provides a detailed analysis of the legal principles and factual circumstances surrounding the issues raised by the assessee, ensuring a fair and reasoned decision.