ACIT Vs A One Enclave (ITAT Indore)
At any stage revenue has not disputed the fact that the alleged amount surrendered during the survey was unaccounted business income of the assessee and not from any other sources. Section 11 5BBE of the Act was inserted by Finance Act, 2012 w.e.f. 1.4.2013 which restricts the claim of deduction in respect of any expenditure or allowance or set off of any loss against the income shown by the assessee or assessed u/s 68, 69, 69A,69B, 69C & 69D of the Act. The instant appeal relates to Assessment Year 2012-13 and therefore the assessee’s case will not be hit by provisions of Section 115BBE(2) of the Act.
FULL TEXT OF THE ITAT JUDGEMENT
The above captioned appeal of revenue pertaining to Assessment Year 2012- 13 is directed against the orders of Ld. Commissioner of Income Tax (Appeals), Ujjain (in short ‘CIT(A)’), dated 04.07.2018, which is arising out of order u/s 143(3) r.w.s. 263 of the Income Tax Act (In short the ‘Act’) dated 28.12.17 framed by ACIT-1(1), Ujjain.
2. Brief facts of the case as culled out from the records are that the assessee is a partnership firm engaged in the business of letting out garden for various programs and running hotel and restaurant. Assessee filed its return declaring total income of Rs.33,78,890/- on 3 1.7.2012. Assessment u/s 143(3) was completed on 05.03.2015 assessing total income at Rs.39,78,890/-. Subsequently Ld. Pr. CIT exercised his powers u/s 263 of the Act for revision of orders prejudicial to the revenue and set aside the assessment order directing it to be framed afresh as per the directions given in the order u/s 263 of the Act. In compliance thereto Ld. A.O initiated the assessment proceedings afresh by serving u/s 143(2) and 142(1) of the Act to the assessee.
3. During the year under appeal on 12.7.2011 survey u/s 133A of the Act was conducted at the business premises of the assessee. During the survey proceedings it was found that unaccounted investment was made out of books in the construction of hotel. Assessee agreed to declare the unaccounted investment as income at Rs.1,25,01,135/- in the Income Tax return. In the Income Tax return filed by the assessee as per audited profit and loss account, net profit was shown at Rs.8 1,91,990/- which was arrived at after considering income declared during the income tax survey at Rs. 1,25,0 1, 135/-. Apart from showing the income from regular business operations, assessee also claimed the expenses towards interest, remuneration to partners and deprecation. The income declared during Income Tax survey was shown as business income and after claiming necessary expenses including the set off of brought forwarded depreciation and losses, balance income was offered for taxation. Ld. A.O was however not convinced with this claim and was of the view that the assessee is not eligible for any deduction from the income surrendered during the course of survey. He accordingly treated the unaccounted investment in hotel building at Rs. 1,25,0 1, 135/- as income from undisclosed sources. Ld. A.O also made disallowance for deduction of donation expenses of Rs.53,000/- and assessed income at Rs. 1,25,54,135/-. Ld. A.O also worked out the loss for the year at Rs.25,64,726/- on estimate basis taking the figures of gross profit and expenses shown by the assessee in the financial statements.
4. Aggrieved assessee preferred appeal before Ld. CIT(A) challenging the disallowances claimed on the expenses including the depreciation, interest and remuneration to partners totaling to Rs.9 1,75,248/-. Ld. CIT(A) allowed the assessee’s appeal thereby giving detailed finding of fact and placing reliance on various judgments and also taking note that the amendment in the statue by way of inserting Section 115BBE of the Act was brought into effect from 1.4.20 13 by the Finance Act 2012 which provides that no deduction in respect of any expenditure or allowance or set off of any loss is to be allowed against the income declared or assessed u/s 68, 69, 69A,69B, 69C & 69D. Ld. CIT(A) also held that before the amendment came into effect, the assessee is eligible for claiming the expenses against the income surrendered during the course of survey which was offered as business income.
5. Now the Revenue is in appeal raising following grounds of appeal;
1. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is justified in allowing claim of deduction of Rs. 91,75,248/- on account of depreciation, interest, remuneration to the partners, expenses and carry forward depreciation out of the additional income of Rs. 1,25,01,135/- surrendered as unexplained investment in hotel building during the course of survey u/s 133A.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is justified in allowing claim of deductions on account of depreciation, interest, remuneration to the partners. expenses and carry forward depreciation out of additional unexplained income surrendered during the survey u/s. 133A as unexplained investment in hotel building, without considering the evidentiary value of the partner of the assesses firm during the course of survey u/s 133A.
The appellant reserves his right to add, amend or alter the grounds of appeal on or before the date the appeal is finally heard for disposal.
6. Departmental Representative vehemently argued supporting the order of Ld. A.O.
7. Per contra Ld. Counsel for the assessee relied on the submissions made before the lower authorities and findings of Ld. CIT(A). Reliance was also placed on the recent decision of Coordinate Bench of ITAT, Jaipur Bench in the case of ACIT V/s Sanjay Bairathi Gems Ltd, Jaipur ITA No. 157/JP/ 17.
8. We have heard rival contentions and perused the records placed before us. Though the revenue has raised two grounds of appeal but the sole issue is against the finding of Ld. CIT(A) allowing the claim of deduction of Rs.9 1,75,248/- being the expenses on account of depreciation, interest, remuneration and other expenses claimed against the income of Rs. 1,25,01,135 / – surrendered by the assessee as unaccounted investment in hotel building during the course of survey u/s 133A of the Act conducted on 12.7.2011.
9. We observe that during the course of survey proceedings u/s 133A of the Act on 12.7.2011 assessee agreed to offer income of 1,25,0 1, 135/- towards unexplained investment in hotel building being business income earned from undisclosed source. However when the Income Tax return was filed along with the audited balance sheet the assessee included the alleged surrendered income as part of business income and after claiming necessary expenses including depreciation, interest, remuneration paid to partners and other incidental expenses offered net income of Rs.33,78,890/- for tax. Ld. A.O did not allow the claim of any expenditure against the surrendered income which in his view was taxable u/s 69 as unexplained investment and assessee was liable to tax on the amount of Rs.1,25,01,135/-.
10. We observe that when the issue came up before the Ld. CIT(A) the claim of expenses made by the assessee were allowed observing as follows:-
“4.2 Ground No. 2, 5 & 6:- Through these grounds of appeal the appellant has challenged for not allowing the remuneration, interest, depreciation and expenses out of the additional income declared by the appellant amounting to Rs.1,25,01,135/_. The appellant declared a sum of Rs. 1,25,01,135/- during the survey on account of difference in investment in the construction/interior of hotel premises as represented by undeclared business income. The same is undisclosed business income assessable under the head business.
The appellant also relied upon the following judgments;
– Hon’ble Calcutta High Court in the case of Md. Serajuddin & Brothers, Vs. CIT ‘(2012) 80 DTR 46.
– Kamataka’ High Court in the. case of Commissioner of IncomeTax Vs S.K. Srigiri & Bros. (2008)298 ITR 13KAR.
The Hon’ble Pune bench while delivering the judgment on 28/1 1/-014 in the case of Venktesh Textile Mills, Sangli Vs. Joint Commissioner of Income Tax Range – 2, Sangli, decided in the favour of assessee. The relevant portion is reproduced hereunder:-,
………….. At the outset, it is to be observed that whether or not additional income surrendered during the course of survey is feasible as income from business or not is essentially a question, which has to be decided having regard to the particular facts and circumstances of each case. Ostensibly, there cannot be an absolute proposition that any income surrendered during the survey is a business income or vice versa. Even before the Hon’ble Punjab & Haryana High court in the case of Kim Pharma (P) Ltd. (supra), assessee was found to have failed to explain the source of the cash found during the course of survey, which was offered as an additional income, and, therefore in the absence of the nature of source of cash being proved it was held not to be assessable as income from business. We may also refer to ajudgement of the Hon’ble Karnataka High Court in the case of CIT vs. S. K. Srigiri and Bros. (2008) 298 1 1R 13 (Kar), which has been rendered in the context of section 40(b )(iii) of the Act. In the case before the Hon’ble Karnataka High Court, the Tribunal had come to a factual finding that the additional income declared in the course of survey was from business and’ therefore the remuneration paid to the partners was held liable to be deducted.”..
Hon’ble Supreme Court has laid down a principle that “if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee: must be adopted”. This principle has been consistently followed by. the various authorities as also by the Hon’ble Supreme Court itself. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors, (1988) 75 CTR (SC) 20 (1989) 175 ITR 52-(SC)
The provision of taxing income of the nature referred to in the specified Sections at the normal rate / applicable rate of income-tax applicable on total income of the assessee has been changed w.e.f. 1.4.2013 by the Finance Act, 2(H2 as a result of introduction of section 11 5BBE dealing with a special rate of tax applicable to Income of the nature referred to in sections 68, 69, 69A, 69B, 69C & 69D.
It is also provided that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing. deemed income under the said sections. This amendment will take effect from lst April, 2013 and will, accordingly, apply in relation to the assessment year 2013 -14 and .subsequent assessment years.”
The section has since its introduction by the FA, 2012 w.e.f. AY, 2013-14 been amended twice – once vide -A, 2016 w. e.f. 1.4.17 when sub-section (2) was amended to prohibit setting off of any loss against income of the nature referred .to in specified sections and second time by the Taxation Laws (Second Amendment) Act, 2016 w.ef 1.4.2017;
The provision of section 1 15BBE reproduced’ as under.-
