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TMI Blog2019 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... e generated from the sales made by the assessee during the course of carrying on the business of the assessee, which was not recorded in the books of the assessee. Though the said income was not recorded in the books of the assessee but the source of the same stood duly explained by the assessee as being from the business of the assessee. Even otherwise no other source of income of the assessee is there on record either disclosed by the assessee or unearthed by the Revenue. The preponderance of probability therefore is that the debtors were sourced from the business of the assessee. Therefore, there is no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B and 69C and the same is held to be in the nature of Business Income of the assessee. Having held so, the same was assessable under the head business and profession and as stated above, the benefit of set off of losses both current and brought forward was allowable to the assessee in accordance with law. Contention of the Revenue therefore that the income be treated as deemed income u/s 69,69A/B/C is accordingly rejected and as a consequence thereto the plea that no set off of losses be allowed again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals by the assessee and the Revenue respectively. Both the appeals were therefore taken up together for hearing. 3. Taking us through the facts of the case in ITA No.408/Chd/2018 it was pointed out that the assessee in this case was deriving income from manufacturing and sale of different types and sizes of auto parts. That during the impugned assessment year the assessee's premises was surveyed under the provisions of section 133A of the Act on 14.9.2012, whereupon it was noticed that there were unaccounted receivables of ₹ 1.25 crores. The same was surrendered by the assessee. However, at the time of finalization of the accounts, as at the close of the year, though the additional income surrendered during survey proceedings was credited as income, the same was offset by debit entries resulting in net profit of ₹ 49,12,262/-. This amount was entirely set off with the brought forward business losses amounting to ₹ 52,66,385/- from the preceding assessment year i.e. A.Y 2012-13, resulting in the return of nil income for the impugned assessment year, and claim of carry forward of losses of the balance i.e. ₹ 3,54,123/-. In the assessment proceedings the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surrendered the additional income of ₹ 4 crores during survey operations carried out on the assessee u/s 133A of the Act on 02-01-14 on account of the following: i) investment of ₹ 60 lacs in Kothi at Sukhmani Enclave in the name of Smt.Rekha Miglani; ii) Sundry creditors and advances received from customers amounting to ₹ 132 lacs; iii) Gross profit on sale out of books amounting to ₹ 198 lacs and; iv) Surrender to cover miscellaneous discrepancies in loose papers etc. amounting to ₹ 10 lacs. 6. In this case also, the assessee had set off debit entries against the aforesaid surrender showing net profit of ₹ 96,31,647/- and also set off business loss of ₹ 3,39,85,902/-. The A.O. in this case also had assessed the entire surrendered income to tax and denied the set off of losses. The Ld.CIT(A) treated the entire surrendered income as deemed income as per the provisions of sections 69, 69A, 69B and 69C of the Act and further held that the same was to be taxed as per the applicable provisions of section 115BBE of the Act. The Ld.CIT(A) thereafter held that the amendment to section 115BBE of the Act, denying the set off of losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Sainjay Bairathi [ITA No. 157/JP/17, dated 08.08.2017], whereas, the decision of the jurisdictional High Court in the case of Kim Pharma Ltd., Vs. CIT, in ITA No. 106 of 2011, has held that the "deemed income covered under the scheme of section 69, 69-B and 69 -C of the Act is to be treated separately and it is not income from salary, house property, profit and gains from business or capital gain, nor it is income from other sources. No setoff is allowable against this income? 3. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored. 4. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off." 8. The arguments and contentions made by both the parties in both the appeals were identical. 9. Briefly stated, the contentions of the Ld. counsel for assessee were that the income surrendered was in the nature of business income of the assessee relating to the business of the assessee and set off of losses, therefore, was to be Allowed against the same as per the provisions of law. Reliance was placed on the decision of the ITAT Chandigarh Bench in the case of Gaurish Steels Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 certain credits, investments, expenses from undisclosed sources, as deemed incomes u/s 68,69,69A/B/C of the Act, which is also dealt with in chapter VI of the Act. Such deemed incomes are subjected to tax at a special rate without allowing set off of expenses or losses against the same, as provided under section 115BBE of the Act, introduced vide Finance Act 2012, w.e.f. 01-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 a deduction under any head of income.] SECTION 115BBE [3052][Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. [3052]["(1) Where the total income of an assessee,- (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a) [30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablish 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 income is a factual matter. The Ld.DR ,had drawn our attention to the decision of the Hon'ble jurisdictional High Court in the case of Pr.CIT vs Khushi Ram & Sons Foods (P) Ltd in ITA No.126 of 2015 dated 29-07 16,wherein the assessee had set off unabsorbed losses u/s 70 & 71 against income surrendered on account of building renovation, office equipment and sundry receivable, to which ,the Hon'ble High Court had held that it is for the assessee to establish that the source of the surrendered income was from business to claim it as such and set off business losses against the same. Our view therefore is fortified by the aforesaid judgement of the Hon'ble High Court. 17. Further the legislature requires such type of deemed incomes to be taxed on the gross amount so determined without setting off any expenditure or allowances against the same, u/s 115BBE of the Act. Subsequently the section was amended w.e.f 1.4.2017 by the Finance Act, 2016, prohibiting set off of losses also against the said deemed income. 18. Having explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee during the course of carrying on the business of the assessee, which was not recorded in the books of the assessee. Though the said income was not recorded in the books of the assessee but the source of the same stood duly explained by the assessee as being from the business of the assessee. Even otherwise no other source of income of the assessee is there on record either disclosed by the assessee or unearthed by the Revenue. The preponderance of probability therefore is that the debtors were sourced from the business of the assessee. Therefore, there is no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B and 69C of the Act and the same is held to be in the nature of Business Income of the assessee. Having held so, the same was assessable under the head 'business and profession' and as stated above, the benefit of set off of losses both current and brought forward was allowable to the assessee in accordance with law. 21. The contention of the Revenue therefore that the income be treated as deemed income u/s 69,69A/B/C of the Act is accordingly rejected and as a consequence thereto the plea that no set off of losses be allowed again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which was made by the Finance Act, 2016 w.e.f. 1.4.2017 was clarificatory in nature and was retrospective, thus entitling the assessee to claim set off of losses against the income so surrendered. The assessee, on the other hand, has drawn our attention to several decisions of the I.T.A.T., which have held the amendment to be prospective in nature. No contrary decision either of the I.T.A.T. or of any higher judicial authority has been brought to our notice by the Revenue. The decisions rendered by the I.T.A.T. will, therefore, apply, following which, we hold that in the impugned year the assessee was entitled to claim set off of losses against the income assessed as deemed income u/ss 68, 69, 69A, 69B and 69C of the Act as per the provisions of section 115BBE of the Act as it stood prior to amendment by Finance Act, 2016. 27. Thus, we hold that the income surrendered by the assessee is partly assessable as business income and partly assessable as deemed income and against both of them, the assessee was entitled to claim set off of business losses, both the current and brought forward. We, therefore, set aside the order of the Ld.CIT(A) and allow the appeal of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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