Income on account of undisclosed sundry debtors surrendered during survey is business income and AO cannot treat it as deemed income under sections 69, 69A/B/C

short overview :  Since no evidence was found to show that surrendered income represented any undisclosed income/investment/expenditure, the source of which had not been disclosed by assessee, it could not be regarded as deemed income under sections 68, 69, 69A, 69B and 69C. Surrender offered by assessee on account of undisclosed sundry debtors was purely related to business carried out by the assessee and no undisclosed business activity had been found during survey. Therefore, same had to be assessed as business income and assessee was entitled to claim set-off of losses against the income assessed as per provisions of section 115BBE.

During the course of survery, assessee surrendered undisclosed sundry debtors. AO treated the same as deemed income under sections 69,69A/B/C and accordingly held that no set-off of losses could be allowed against the same under section 115BBE.

it is held that  Since no evidence was found to show that surrendered income represented any undisclosed income/investment/expenditure, the source of which had not been disclosed by assessee, it could not be regarded as deemed income under sections 68, 69, 69A, 69B and 69C. Surrender offered by assessee on account of undisclosed sundry debtors was purely related to business carried out by the assessee and no undisclosed business activity had been found during survey. Therefore, same had to be assessed as business income and assessee was entitled to claim set-off of losses against the income assessed as per provisions of section 115BBE.

Decision: In assessee’s favour.

Followed: Famina Knit Fabs & M/s. Mehta Engineers v.  Asstt. CIT, Circle-3 & The D.C.I.T., Circle-1, Ludhiana in [ITA No. 1494/Chd/2017 and ITA No. 408/Chd/2018, dt. 8-2-2019) : 2019 TaxPub(DT) 2552 (Chd-Trib).

IN THE ITAT, CHANDIGARH BENCH

SANJAY GARG, J.M. & ANNAPURNA GUPTA, A.M.

Dy. CIT v. Khurana Rolling Mills (P) Ltd.

ITA No. 745 & 1134/Chd/2016

1 July, 2019

Assessee by: Harjinder Singh, Sr. Departmental Representative

Revenue by: Sudhir Sehgal, Advocate

Annapurna Gupta, A.M.

Both the above appeals relating to different assessees have been preferred by the Revenue against separate orders of the Commissioner (Appeals)-I, Ludhiana ((in short ‘Commissioner (Appeals)’), dated 31-3-2016 and 19-8-2016 respectively, passed under section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’), relating to assessment year 2012-13.

At the outset itself, it was pointed out that the issue involved involved in both the appeals was common, therefore,, these were heard together and are being disposed off by this consolidated order for the sake of convenience.

We shall first be dealing with the Revenue’s appeal in ITA No. 745/Chd/2016.

ITA No. 745/Chd/2016: assessment year 2012-13

2. The grounds of appeal raised by the Revenue read as under :–

1. Whether upon facts and circumstances of the case, the learned Commissioner (Appeals) was justified in reversing the action of assessing officer for treating the income surrendered as deemed income under section 69 & 69B of the Act, and treating the same as Business income and allowing the same to be set off against business loss/depreciation loss or any other expenses?

2. That the order of the learned Commissioner (Appeals) be set aside and that of the assessing officer be restored.

3. That the appellant craves leave to add or amend any ground of appeal before it 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 financial year 2011-12, a survey under section 133A was conducted on the premise of the assessee on 13-10-2011. The assessee surrendered an amount of Rs. 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 under section 68, 69, 69A, 69B and 69C of the Act and no adjustment/setoff be given of business losses against the same. The assessee 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, jewellery or other valuable article which were not recorded in the books of account, or which showed that the assessee-company had incurred any expenditure for which it had offered no explanation about the source of such expenditure of part thereof. The assessing officer was not satisfied with the reply of the assessee and relying on the decision of the Hon’ble Punjab & Haryana High Court in the case of Kim Pharma (P) Ltd. (ITA No. 106 of 2011) and Hon’ble Gujrat High Court in the case of Fakir Mohamed Haji Hasan v. CIT (2001) 247 ITR 290 (Guj) : 2001 TaxPub(DT) 551 (Guj-HC) treated the surrendered income as deemed income under section 69 & 69B of the Act. No set off of business loss/depreciation loss or any other expenses was consequently allowed against the same.

5. The learned Commissioner (Appeals) set aside the order of the assessing officer, allowing the appeal of the assessee, holding that since no evidence was found to show that the surrendered income represented any undisclosed income/investment/expenditure, the source of which had not been disclosed by the assessee, it could not be regarded as deemed income under the provisions of section 68, 69, 69A, 69B and 69C of the Act. Further the learned Commissioner (Appeals) found that the surrender having been made on account of advances receivables, which were considered under the head “business income” and the assessing officer having accepted the same and having not established in his order that the income surrendered was not out of the business of the assessee, the surrendered income had to be brought to tax under the head “business income” and set off of losses be allowed against the same. The learned Commissioner (Appeals) relied upon the decision of the ITAT Chandigarh Bench in the case of M/s. Gaurish Steels (P) Ltd. v. ACIT, reported in (2015) 43 ITR (Trib) 414 (ITAT (Chand)) : 2015 TaxPub(DT) 4351 (Chd-Trib), dated 17-9-2015 in this regard. The relevant findings of the learned Commissioner (Appeals) at para 2.4 of the order are as under :–

“2.4 I have carefully considered the facts of the case, the basis of the addition made and the argument of the Authorised Representatives. During the course of the survey operations conducted at its business premises, the appellant surrendered an amount of Rs. 1 crore. The said income has been shown in the profit & loss account by the appellant. The assessing officer assessed the surrendered income as deemed income under section 69 and 69B by relying on the judgment of M/s. Kim Pharma (P) Ltd. ITA No. 106 of 2011 (P&H) & Fakir Mohamad Haji Hasan in (2001) 247 ITR 290 (Guj) : 2001 TaxPub(DT) 551 (Guj-HC). Thus, the business losses were not allowed to be set off against the surrendered income. The Authorised Representatives 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 Authorised Representatives 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 maintaining complete books of accounts with proper records on the date of the survey and no incriminating evidence or record not in consonance with the books of accounts was found/There was no cash credit found during the survey which the appellant could not explain. No investment was found which was not recorded in the books of accounts. Further, no document, information, records showing ownership of any money, bullion Jewellery or other valuable article was found and neither any evidence showing that the appellant was the owner of any bullion jewellery or other valuable article where it was found that amount invested in the same exceeded the amount recorded in the books of accounts. No evidence was found showing that the appellant had incurred any expenditure for which no explanation could be offered regarding the source of the said expenditure. Thus, the Authorised Representatives contended that section 68, 69, 69A, 69B and 69C are not applicable in its case. The appellant surrendered Rs. 1 crore as business income in the form of sundry debtors during the survey operations. The Authorised Representatives has contended that the surrender offered by appellant on account of undisclosed sundry debtors is purely related to the business carried out by the appellant. No undisclosed business activity has been found during the survey. The Authorised Representatives pointed out that as per the statement of Sh. Baljihder Singh s/o Sh. Charan Singh recorded during the survey operations, the amount of Rs. 1 crore was surrendered as income of the company over and above the normal business income. The Authorised Representatives has rightly pointed out that in the case of Kim Pharma Ltd. v. ITO, ITAT Chandigarh bench, the amount surrendered on account of cash was not allowed to be assessed as business income since the source has not been explained and the same was assessed under section 69A of the Act whereas in the appellant’s case mode and manner has been applied to the surrendered income as applied to the income earned during the regular course of the business. No evidence has been found during the survey operations and the discrepancies found were related to the assessee’s business and not to any other source of income. The said submissions of the Authorised Representatives were not controverted in the remand report. Reliance has been placed by the Authorised Representatives on the decision of Sh. Kuldeep Kumar v. CIT, Hon’ble ITAT Chandigarh Bench in ITA 1015/CHD/2009 for assessment year 2006-07 wherein it has been 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 v. D.P. Sandhu & Bros. (2005) 273 ITR 1 (SC) : 2005 TaxPub(DT) 1286 (SC) 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 section 14 and if the income is included under any one of the heads it cannot be taxed under section 56. Further, reliance has been placed on the case of Dy. CIT v. Radhe Developers India Ltd. & Anr. (2010) 329 ITR 1 (Guj) : 2010 TaxPub(DT) 448 (Guj-HC) 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 under section 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 Authorised Representatives, the same is clear as per the offer letter of surrender also wherein it is stated that the surrender amount is over and above the book version which shows that the income offered is a part and parcel of its existing business activities. Reliance has also been placed by the Authorised Representatives on the judgment of Hon’ble Gujarat High Court in the case of Shilpa Dyeing and Printing Mills in (Tax Appeal No. 290 of 2013, dt. 4-4-2013) : 2014 TaxPub(DT) 164 (Guj-HC) wherein, after considering its earlier judgment of Radhe Developers India Ltd. and of D.P Sandhu & Bros.(SC), the issue was decided in favour of the assessee and the judgment in the case of Kim Pharma Ltd. (P&H) was considered and distinguished. The surrender made by the appellant was on account of advances and receivables which are considered under the head ‘business income’. The assessing officer has not been able to establish in the assessment order with supporting evidence that the income surrendered was not out of business of the appellant.

Further, there is force in the appellant’s contention that the assessing officer has nowhere objected to the heads under which the appellant has surrendered these amounts. In the case of M/s. Kim Pharma (P) Ltd. (P&H) supra reliance has been placed on the ratio laid down Fakir Mohamad Haji Hasan v. CIT (2001) 247 ITR 290 (Guj) : 2001 TaxPub(DT) 551 (Guj-HC) wherein it has been held that only where the nature and source of investment made or the nature and source of acquisition of money, bullion etc. owned by the assessee or the source of expenditure incurred by the assessee are not explained, then the value of such investments or money and the value of articles not recorded in the books or the unexplained expenditure may be deemed to be the income of such assessee and that the moment a satisfactory explanation is given about the nature and source by assessee, the income would be treated under the appropriate head of income.

However, in the appellant’s case, the assessing officer could not established that payments received as per the slips were from sources other than the business of the appellant. Therefore, apart from the cash, all other income surrendered is to be brought to tax under the head business income while the cash is to be taxed under the head deemed income under section 69A of the Act. Moreover, the assessing officer has not disputed the business losses of the appellant. The assessing officer has not found any disallowable expenditure to show that the 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 v. 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 Authorised Representatives has placed reliance on the case of M/s. Gaurish Steels (P) Ltd. reported in (2015) 43 ITR (Trib) 414 (ITAT (Chand)) : 2015 TaxPub(DT) 4351 (Chd-Trib), dated 17-9-2015 of the Hon’ble Chandigarh Bench, wherein the assessing officer did not dispute the business losses incurred by the assessee and did not reject the books of accounts. Relying on the case of Kim Pharma (P) Ltd. v. CIT (P&H) (supra) and referring to the case of Fakir Mohamad Haji Hasan v. CIT (Guj) (supra), it was held in the said case that the income apart from cash, in the shape of discrepancies in the cost of construction of building, in stock and in advances and receivables was to be treated as ‘business income’ as the assessing officer and the survey team failed to find other source of income except for business income. Therefore, in the said case only the cash found was treated as income from other sources and it was held that all other income surrendered could be brought to tax under the head ‘business income’ and the business losses incurred by the assessee during the year were allowed to be set-off against the income surrendered during the survey except the amount of cash surrendered. The appellant’s case is covered by the said decision of the Hon’ble Jurisdictional ITAT in the case of M/s. Gaurish Steels (P) Ltd. (supra).

Respectfully following the above decision of the Hon’ble ITAT, Jurisdictional Bench it is held that the income surrendered under the head ‘Debtors’ is to be brought to tax under the head ‘business income’ and benefit of set-off of business loss is to be given against the same.”

6. Aggrieved by the same the Revenue has come up in appeal before us. During the course of hearing, the learned Departmental Representative vehemently supported the order of the assessing officer in treating the income from undisclosed sources under sections 69 and 69B of the Act contending that the assessee could not offer any explanation, nor produce any evidence to prove the source of the income was from business of the assessee. The learned Departmental Representative relied upon the decision of the Hon’ble Jurisdictional High Court in the case of Pr. CIT v. Khushi Ram & Sons Foods (P) Ltd. in ITA No. 126 of 2015, dated 29-7-2016 for the proposition that the onus to establish the source of the surrendered income lay entirely on the assessee. The learned Departmental Representative further relied upon the decision of the Hon’ble Jurisdictional High Court in the case of M/s. Kim Pharma (P) Ltd. v. CIT in ITA No. 106 of 2011 (O&M), dated 27-4-2011 for the proposition that the surrendered income is not necessarily to be treated as in the nature of business income and could be on account 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 learned Commissioner (Appeals) and further pointed out that the ITAT Chandigarh Bench in a recent decision in the case of Famina Knit Fabs v. ACIT, reported in 104 Taxmann.com 306 (Chd) : 2019 TaxPub(DT) 2552 (Chd-Trib) 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 learned Counsel for the assessee 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 contentions carefully, have also gone through the orders of the authorities below and the decisions referred to before us. On going through the judgment of the I.T.A.T. in the case of Famina Knit Fabs (supra) we find that the I.T.A.T. had threadbare discussed and adjudicated the issue of determination of the nature of surrendered income and the allowability of set off of losses against the same in the said decision. The I.T.A.T., we find, has explained that all incomes returned for taxation are to be categorized under various heads specified under the Act for the said purpose and the quantum to be subjected to tax, is to be calculated as provided for the relevant head in the Act itself. The I.T.A.T. has further held that besides the above nature of income, the Act also recognizes certain incomes which are deemed to be so on account of fact that any investment asset, income or expenditure incurred by the assessee is not disclosed in its books and the source of which is also not explained. These deemed incomes are subjected to tax under sections 69, 69A, 69B, 69C & 69D of the Act and the I.T.A.T. further held that such incomes are subjected to tax at a special rate as per the provisions of section 115BBE of the Act without allowing set off of expenses or any allowance against the same and with effect from 1-4-2017 without allowing set off of losses also against the same. The I.T.A.T. held this amendment to section 115BBE of the Act as prospective in nature and not applicable to earlier years. Thereafter, after discussing the position of law as above and with regard to the nature of the surrendered income and the benefit of set off of losses against the same, the I.T.A.T. dealt with the merits of the cases involved and held the income surrendered on account of hitherto undisclosed debtors, to be in the nature of business income and not in the nature of deemed income under sections 69, 69A, 69C & 69D of the Act. The I.T.A.T., we find, also dealt with and took note of the decision of the Hon’ble Jurisdictional High Court in the case of M/s. Khushi Ram & Sons Foods (P) Ltd. (supra) while adjudicating the issue. The relevant findings of the I.T.A.T. at para No. 12 to 27 of the order are as under :–

“12. The issues to be addressed in the present case can be summarized as relating to the categorization/characterization of income surrendered by the assessee during survey proceedings, whether from disclosed or undisclosed sources, and the allowability of claim of set off of losses, 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 under section 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 under section 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, with effect from 1-4-2013. Since both the appeals before us relate to assessment year 2013-14 & 2014-15, the provisions of section 115BBE are applicable to both of them and to this effect there is no dispute also before us. The provisions of sections 69 to 69C of the Act & section 115BBE of the Act are reproduced hereunder for clarity :–

Section 69

Unexplained investments.

Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the (2016)(assessing officer), satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

Section 69A

(2017)(Unexplained money, etc.

Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the (2018)(assessing officer), satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee of such financial year.)

Section 69B

(2019)(Amount of investments, etc., not fully disclosed in books of account.

Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery, or other valuable article, and the (2020)(assessing officer) finds that the amount expended on making 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 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) (3052a)(and clause (b)), the income-tax payable shall be the aggregate of–

(i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent.; and

(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).”

(3052) Subs. by The Taxation Laws (Second Amendment) Act, 2016. The Clause before subs. read as under. (with effect from 1-4-2017)

(1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of–

(a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent.; and

(b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance (3052a)(“or set off of any loss”)shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1).)

(3052) Omitted the words, figures and letters “for the previous year relevant to the assessment year beginning on the 1-4-2012 or beginning on the 1-4-2013 or beginning on the 1-4-2014” by Finance (No. 2) Act, 2014 (with effect from 1-4-2015).

Ins. by Finance Act, 2016 (with effect from 1-4-2017).

(3052a) Ins. by Finance Act, 2018 (with effect from 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 under section 69/69A/B/C of the Act. And establishing the source of income is a factual matter. The learned Departmental Representative, had drawn our attention to the decision of the Hon’ble jurisdictional High Court in the case of Pr. CIT v. Khushi Ram & Sons Foods (P) Ltd. in ITA No. 126 of 2015, dated 29-7-2016,wherein the assessee had set off unabsorbed losses under section 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 judgment 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, under section 115BBE of the Act. Subsequently the section was amended with effect from 1-4-2017 by the Finance Act, 2016, prohibiting set off of losses also against the said deemed income.

18. Having explained the provisions of law as above, we now proceed to apply the same to the facts of both the cases before us.

19. In the facts of the case in ITA No. 408/Chd/2018, the income surrendered was on account of unaccounted receivables of the business of the assessee amounting to Rs. 1.25 crores. The learned Commissioner (Appeals) in para 9 of the order has outlined the facts relating to the surrender made by the assessee stating that during survey a pocket diary was found from the account section of the assessee-company which contained entry of receivables amounting to Rs. 1.25 crores on pages 27, 28, 31 and 33, which were not recorded in the regular books of the assessee and were subsequently surrendered stating that these entries were unaccounted sundry receivables being surrendered as income under the head business, to buy piece of mind and subjected to no penalty and further that the losses incurred by the assessee in the impugned year will be adjusted against this surrendered income. The relevant facts as stated by the Commissioner (Appeals) in para 9 of his order and which are not disputed, are reproduced hereunder :–

“9. Adverting now to the facts of the instant case, it is seen that when survey proceedings were conducted at the business premises of the appellant company, a pocket diary was found from the accounts section which contained entries of receivables amounting to Rs. 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 15-9-2012, 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 financial year 2012-13 relevant to assessment year 2013-14 subject to no penalty and prosecution under the Income Tax Act, 1961. Since the company is incurring losses in current financial year 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 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 under section 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 under section 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 against the same under section 115BBE of the Act also is rejected.

22. Therefore, as per the facts of the case in ITA No. 408/Chd/2018 and as per the provisions of law relating to the issue, the surrendered income, we hold, was assessable as business income of the assessee and set off of losses was to be allowed against the same as rightly claimed by the assessee.

The appeal of the Revenue, therefore, in ITA No. 408/Chd/2018 is dismissed.

23. Now coming to the facts of the case in ITA No/1494/Chd/2017, the income surrendered was on account of the following as narrated above in earlier part of our order :–

(i) investment of Rs. 60 lacs in Kothi at Sukhmani Enclave in the name of Smt.Rekha Miglani;

(ii) Sundry creditors and advances received from customers amounting to Rs. 132 lacs;

(iii) Gross profit on sale out of books amounting to Rs. 198 lacs and;

(iv) surrender to cover miscellaneous discrepancies in loose papers etc. amounting to Rs. 10 lacs.

24. As far as the surrender made on account of investment in Kothi of Rs. 60 lacs, neither is the same disclosed in the books of the assessee nor source of the same disclosed. Therefore, the same is to be assessed as deemed income under section 69 of the Act. The same applies to the surrender of Rs. 10 lacs made to cover the miscellaneous discrepancies in loose paper of Rs. 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 under sections 69, 69A, 69B and 69C of the Act.

25. As far as the surrender of Rs. 132 lacs made on account of sundry creditors and advances received from customers and Rs. 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 under section 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, which the Revenue has vehemently contested saying that the amendment denying the set off of losses which was made by the Finance Act, 2016 with effect from 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 under sections 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 learned Commissioner (Appeals) and allow the appeal of the assessee.”

9. 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 learned Departmental Representative, the decision rendered in that case will also apply to the present case, following which we hold that the learned Commissioner (Appeals) 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 learned Commissioner (Appeals) is accordingly, upheld. The ground raised by the Revenue is dismissed.

10. The appeal filed by the Revenue therefore stands dismissed.

We now take up the appeal of the Revenue in ITA No. 1134/Chd/2016.

ITA No. 1134/Chd/2016 :–

11. Ground No. 1 raised by the Revenue reads as under :–

1. Whether upon facts and circumstances of the case, the learned Commissioner (Appeals) justified in reversing the action of assessing officer for treated the surrendered income as deemed income under section 69 & 69B of the Income Tax 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 learned Commissioner (Appeals) justified in deleting the disallowance made under section 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 assessing officer noticed that the assessee had made investment to the tune of Rs. 10 lacs in the sister concern, M/s. Noble Steel (P) Ltd. The assessee was asked to show cause as to why not proportionate interest be disallowed under section 36(1)(iii) of the Act on the investments made in the sister concern in assessment year under consideration. The learned Counsel for the assessee also submitted its detailed reply with which the assessing officer was not satisfied and disallowed a sum of Rs. 1,20,000 and added back to the income of the assessee.

15. On appeal, the learned Commissioner (Appeals) deleted the disallowance noting that the assessee had sufficient own interest free funds for the purpose of making the impugned investment and following various decisions of the Hon’ble Supreme Court and other High Courts for the proposition that where sufficient own funds are available, the presumption is that the same have been used for making the investment calling for no disallowance of interest under section 36(1)(iii) of the Act. The relevant findings of the learned Commissioner (Appeals) at para 4.2 of the order are as under :–

“4.2 I have carefully considered the facts of the case, the basis of the disallowance made and the arguments of the Authorised Representatives.

The assessing officer has made the disallowance merely by relying on the judgment in the case of Abhishek Industries v. CIT (2006) 286 ITR 1 (P&H) : 2006 TaxPub(DT) 1778 (P&H-HC). The investment in the sister concern is not an investment made during the year under consideration. It appears as a opening balance in this year’s balance sheet. Further, the assessing officer has not given any justification or reasons as to why the said investment is not treated as being for business purposes. The Authorised Representatives has explained that the investment in shares cannot be equated with an interest-free loan for non-business purposes. The same is made with the purpose of growth in the value of shares and not to earn any interest. The increase in the value of shares is the return on investment. Moreover, the appellant had sufficient interest free funds of its own in the year of investment in the shape of share capital, reserves and surplus amounting to Rs. 1,49,61,650. The Authorised Representatives has placed reliance on the judgment of the Hon’ble Supreme court in the case of Munjal Sales Corp. v. CIT, CIT v. Hotel Savera (Mad), CIT v. Gopal Krishna Murlidhar (AP), Sh. Digvijay Cement Ltd. v. CIT (Guj) High Court and CIT v. Phil Corp. Ltd. (Bom) in support of its contention that where loans have been given to sister concern out of its own funds and the own funds are sufficient to cover the loan, there cannot be set to any nexus between interest bearing loans and the interest free advances. In view of the said facts and circumstances, the said disallowance made under section 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 learned Counsel for the assessee pointed out that the proposition of law relied upon by the learned Commissioner (Appeals) vis-a-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 v. Reliance Industries Ltd., reported in (2019) 410 ITR 466 (SC) : 2019 TaxPub(DT) 659 (SC). The copy of the order was placed before us.

17. The learned Departmental Representative, on the other hand, relied upon the order of the assessing officer.

18. We have heard the rival contentions. The issue before us relates to disallowance of interest under section 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 interest under section 36(1)(iii) of the Act. The learned Commissioner (Appeals) in the present case, we find, has given factual findings of there being sufficient own interest free funds with the assessee in the form of share capital and reserves amounting to Rs. 1.49 crores against the investment of Rs. 10 lacs in relation to which disallowance of interest expenses was made. The factual findings of the Commissioner (Appeals) have not been controverted by the learned Departmental Representative before us. Therefore, in view of the settled position of law as above and the uncontroverted factual findings of the learned Commissioner (Appeals) regarding the sufficiency of own funds available with the assessee, we find no reason to interfere in the order of the Commissioner (Appeals) in deleting the disallowance of interest made under section 36(1)(iii) of the Act, amounting to Rs. 1,20,000. The ground of appeal No. 2 raised by the Revenue is, therefore, dismissed.

In effect, the appeal of the Revenue is dismissed.

19. In the result, both the appeals filed by the Revenue are dismissed.