Brief of the Case
ITAT Amritsar held In the case of M/s Dev Raj Hi-Tech Machines Ltd. vs. DCIT that it is apparent that assessee had made a surrender as additional income over and above the normal profits of the concern and since the income has been declared as business income, the same has to be assessed under the head business income and not as deemed income under the provisions of section 69A. Further, the assessee had submitted all details and the Assessing Officer had examined all factors leading to decrease in normal profits as compared to earlier year. As regards surrendered income, the assessee has clearly credited the same to the Profit & Loss account over and above the normal profits of the concern. Therefore, in our opinion the Assessing Officer has taken a plausible view as the assessee had surrendered the income as business income and the power exercised by CIT is not as per settled law.
Facts of the Case
The assessee is a Manufacturer of Rice Sheller Machineries and its parts. A survey was carried out on the premises of the assessee on 14.09.2009 u/s 133A. During the course of survey, the assessee surrendered an additional income of Rs.1,25,00,700/- over and above the normal income for the year under consideration. The assessee filed its return of income on 26.07.2010 and declared income of Rs.63,02,570/-. The case of the assessee was selected for scrutiny. During the assessment proceedings, the assessee was asked to justify the low returned income as compared to the surrendered income. The Assessing Officer after examination of the reply of assessee completed the assessment and made disallowances of Rs.2,02,690/- and Rs.7,68,019/- on account of expenses and Gross Profit rate respectfully.
The learned CIT after examination of assessment records of the assessee observed that during the survey u/s 133 A of the Act, the Assessee had surrendered an income of Rs.1,25,00,700/- and such surrendered income was to be taxed under the provisions of Section 69A and whereas, the assessee had credited the surrendered income to the Profit and Loss account and had debited various expenses against the surrendered income. He observed that Assessing Officer had completely ignored this factor while completing the assessment and therefore, a notice under section 263 was issued to the assessee. Finally, the learned CIT was not satisfied with the reply of the assessee, therefore, he passed order under section 263 and directed the Assessing Officer to pass necessary assessment order after giving effect to the order under section 263.
Contention of the Assessee
The ld counsel of the assessee submitted that the surrendered income was duly credited to the Profit and Loss account as the surrendered income was made over and above the normal profits of the concern of the assessee. The learned AR submitted that during the course of assessment proceedings, the Assessing Officer has specifically raised this issue and assessee had filed a detailed reply. The learned AR submitted that the assessee during the assessment proceedings had explained each and every item of expenditure and specific attention was invited to reply in response to query raised by Assessing Officer.
In view of the above examination by Assessing Officer and explanation by assessee the Assessing Officer was satisfied with the reply and therefore, had passed reasoned order and therefore, it cannot be said that Assessing Officer had not applied his mind and therefore, CIT was not justified in passing the order under section 263. Reliance in this respect was placed on the case laws of CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom). The learned AR further placed his reliance on the following judicial pronouncements. (i) CIT vs. Anil Kumar Sharma 335 ITR 83 (P&H), (ii) CIT vs. Deepak Mittal 324 ITR 411 (P&H) (iii) Khushi Ram & Sons Foods Pvt. Ltd. vs. CIT 40 ITR (Trib) 92 (Chd.).
Contention of the Revenue
The ld counsel of the revenue submitted that that Assessing Officer had escaped making of addition on account of surrendered income and therefore, the Assessing Officer had taken erroneous view which was prejudicial to the interest of revenue and therefore, the learned Commissioner has rightly passed the order under section 263. The learned DR submitted that it was mandatory as per CBDT guidelines that in the case of an assessee who had surrendered income during survey the taxable income cannot fall below the surrendered income.
As regards the case laws relied upon by the learned AR, he submitted that none of the cases relied upon by the learned AR are applicable to the facts and circumstances of the case as in the case of Gabriel India Ltd. (supra), the Hon’ble Court had held that learned CIT is not empowered to make fishing enquires whereas in the present case the Commissioner had just observed that Assessing Officer had skipped the additions on account of surrendered income and has not made any fishing enquiries. Similarly, he argued that the facts of the case laws of CIT vs. Deepak Mittal 324 ITR 411 are not para material. As regards the Tribunal Order in the case of Khushi Ram & Sons (Pvt.). Ltd. vs. CIT 40 ITR (Trib) 92 (Chd.), the learned DR submitted that such order has no precedential value in view of judgment of Punjab & Haryana High Court in the case of Kim Pharma (Pvt.) Ltd. ITA No.106 of 2011 (O & M) dated 27.04.2011, wherein the Hon’ble Court has decided the issue of allowance of expenses against the surrendered income in favour of revenue.
Held by ITAT
Whether the surrender made by assessee can be considered as business income or can be taxed as deemed income under section 69A
From the surrender letter it is apparent that assessee had made a surrender as additional income over and above the normal profits of the concern and since the income has been declared as business income, the same has to be assessed under the head business income and not as deemed income under the provisions of section 69A.
We find that the assessee filed a detailed reply under the heading justification of taxable income wherein it explained as to why the taxable income had decreased as compared to surrendered income. As per paper book, the main reason for decrease in taxable profits was due to increase in depreciation and increase in bank interest. The Assessing Office rafter considering this explanation had passed the assessment order; however, he did not mention the fact of considering this explanation in the assessment order. The only none mentioning of certain enquiries and explanations thereof. in the assessment order in itself does not give a right to Commissioner to pass order under section 263. The Hon’ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom) has held that where the Assessing Officer had made enquiries in regard to nature of expenditure incurred by assessee and assessee had given detailed explanation in that regard and Assessing Officer had accepted the explanation of the assessee, the decision of Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in this regard.
The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Deepak Mittal 324 ITR 411 has held that change of opinion by reappraising the evidence is not within the parameters of revisional jurisdiction of the Commissioner under section 263 of the Income tax Act, 1961.
In this case, the assessee had submitted all details and the Assessing Officer had examined all factors leading to decrease in normal profits as compared to earlier year. As regards surrendered income, the assessee has clearly credited the same to the Profit & Loss account over and above the normal profits of the concern. Therefore, in our opinion the Assessing Officer has taken a plausible view as the assessee had surrendered the income as business income which was separately credited to Profit and Loss account.
In the present case, the income surrendered was due to renovation of building, stock and advance and imprest account with Directors and due to cash in hand which clearly related to the business of assessee and moreover, the assessee had declared such surrender over and above, the normal profits of the concern. From this it is clear the surrender income is business income not income from other sources. We are of the considered opinion that Assessing Officer had taken a plausible view and the power exercised by learned Commissioner of Income Tax is not as per settled law.
Accordingly appeal of the assessee allowed.