2018 (3) TMI 1872 - AT - Income Tax

Income declared during survey action - deemed income u/s.69A and 69B or business income as claimed by the appellant - appellant submitted do not any other source of income - HELD THAT - The 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. Excess cash - we find this is a case where survey action u/s.133A of the Act resulted in the discovery of the said excess cash and there is no dispute about it. Further, it is also undisputed that the assessee failed to explain the manner of earning of the said excess cash linked to the unaccounted sales of the ITC products. Assessee failed to explain the modus-operandi of earning of such excess cash from business sources of any kind. We are of the opinion that it is reasonable to presume that assessee failed to discharge the onus on this aspect of establishing the business nature of the excess cash. This view is fortified by the legal proposition laid down in the case of Kim Pharma Pvt. Ltd. 2013 (1) TMI 495 - PUNJAB AND HARYANA HIGH COURT . Where assessee failed to explain the nature and source of the cash received 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. 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. 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 carried forward to the subsequent assessment years for set off. Accordingly, the grounds raised by the assessee are partly allowed.

Summary

Issues:
1. Whether the income declared during survey action should be treated as deemed income under sections 69A and 69B of the Income Tax Act or as business income.
2. Whether set off of current year's losses and earlier year's carried forward losses against the income declared in survey should be allowed.

Analysis:

Issue 1:
The appellant contested the conclusion that the income declared during the survey action should be deemed income under sections 69A and 69B, instead of being considered as business income. The appellant argued that the disclosed income was linked to business activities and should be treated as business income. The Assessing Officer (AO) denied the set off of losses against the deemed income, taxing the disclosed amount. The CIT(A) relied on precedents to support the separate assessment of surrendered income as deemed income without allowing set off against losses. However, the Tribunal reversed this decision, holding that certain disclosed items were indeed business income and should be available for set off against the losses claimed by the appellant.

Issue 2:
Regarding the excess cash disclosed during the survey, the appellant claimed it was business income and should be set off against losses. However, the AO denied this benefit as the appellant failed to explain the sources and manner of earning the excess cash. The Tribunal, considering legal precedents, concluded that the excess cash should be treated as deemed income under section 68, assessable as "income from other sources" and not as business income. The Tribunal also dismissed the claim related to investment in residential property, stating it was an appropriation of income. Ultimately, the Tribunal directed the AO to allow set off of certain disclosed items against losses but denied set off for excess cash and investment in residential property.

In conclusion, the Tribunal partly allowed the appeal, granting set off of specific disclosed items against losses while dismissing the claim related to excess cash and investment in residential property.