Kim Pharma (P) Ltd. vs Commissioner of Income Tax and Another

Ajay Kumar Mittal, J.—This appeal has been preferred by the assessee under s. 260A of the IT Act, 1961 (in short "the Act") against the order dt. 30th April, 2010 passed by the income tax Appellate Tribunal, Chandigarh Bench "SMC", Chandigarh (hereinafter referred to as "the Tribunal") in ITA No. 189/Chd/2010, for the asst. yr. 2006-07, claiming the following substantial questions of law :

A. Whether the impugned orders passed by the learned authorities below are legally sustainable in the eyes of law ?

B. Whether the action on the part of the learned authorities below to segregate the surrendered income from business income and treat it as deemed income and taxing the same after refusing set off under ss. 70 and 71 of the Act is legally sustainable in the eyes of law ?

C. Whether the action on the part of the learned authorities below not to treat the income surrendered during survey as ''income from business'' and adjustable against the business losses determined for the year, is legally sustainable in the eyes of law ?

Briefly stated, the facts necessary for adjudication as narrated in the appeal are that a survey was conducted under s. 133A of the Act at the business premises of the assessee on 1st Sept., 2005. During the course of search, a cash amount of Rs. 5,00,000 was found and the books of accounts for the year under consideration were not found to be complete up-to-date. The assessee surrendered additional income of Rs. 10,00,000 relating to the asst. yr. 2005-06 and Rs. 5,00,000 for the asst. yr. 2006-07. The AO vide order dt. 26th Dec, 2008 made additions on account of certain disallowances and the total loss declared by the assessee at Rs. 5,37,300 was reduced to Rs. 2,22,765. The said loss was assessed as ''income from business'' and the surrendered income was assessed as an income under s. 69A of the Act. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who vide order dt. 16th Dec, 2009 dismissed the appeal. On further appeal by the assessee, the Tribunal vide order dt. 30th April, 2010 upheld the order of the CIT(A) and dismissed the appeal which gave rise to the assessee to approach this Court by way of the instant appeal.

We have heard learned counsel for the assessee.

Learned counsel for the assessee submitted that the amount surrendered by the assessee was business income and assessable as such. He relied upon a decision of the Karnataka High Court in Commissioner of Income Tax and Another Vs. S.K. Srigiri and Bros.,

The point for determination in this appeal is, whether Rs. 5,00,000 which was surrendered by the assessee during the course of survey under s. 133A of the Act would form part of business income or was assessable under s. 69A of the Act. The AO, the CIT(A) and the Tribunal after considering the factual aspect noticed that the amount surrendered during the survey was not reflected in the books of account and no source from where it was derived was declared by the assessee and, therefore, it was deemed income of the assessee under s. 69A of the Act. The findings recorded by the Tribunal in this regard are as under :

In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered additional income of Rs. 10 lacs in asst. yr. 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by assessee was included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared by the assessee and in the absence of nature of source of cash being proved, the same is not assessable as income from business. In the circumstances, we uphold the order of the CIT(A) in including the additional income as deemed income under s. 69A of the Act and not allowing the benefit of the business losses determined against the said deemed income. The grounds of appeal raised by the assessee are dismissed.

The Tribunal had relied upon a decision of the Gujarat High Court in Fakir Mohmed Haji Hasan Vs. Commissioner of Income Tax, In that case, interpreting the scope and describing the scheme of ss. 69, 69A, 69B and 69C of the Act, it was observed :

The scheme of ss. 69, 69A, 69B and 69C of the IT Act, 1961, would show that in cases where the nature and source of investments made by the assessee 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 at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under s. 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from ''other sources'' which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under s. 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of ss. 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions etc. applicable to the relevant head of income under which such income falls will automatically be attracted.

The opening words of s. 14 ''save as otherwise provided by this Act'' clearly leave scope for ''deemed income'' of the nature covered under the scheme of ss. 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from ''other sources'' because the provisions of ss. 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head ''Income from other sources''. Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of ss. 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions.

The said decision fully applies to the facts of the present case.

In S.K. Srigiri & Bros, case (supra) before the Karnataka High Court, a finding of fact was recorded that the assessee received additional income from business only and, therefore, it was entitled to deduction on account of remuneration paid to the partners. Such is not the situation here. In view of the above, no substantial question of law arises in this appeal. The appeal is accordingly dismissed.