Home Tex v. Commissioner Of Income Taxkarnal

Income Tax Appeal No. 125 of 2011 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 125 of 2011Date of decision: 24.5.2011 Home Tex through its partnerRajan Mehra --- Appellant Versus Commissioner of Income TaxKarnal --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELACTING CHIEF JUSTICEACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Pankaj Jain, Advocatefor the appellant-assessee. --- AJAY KUMAR MITTAL, J. This is assessee’s appeal filed under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) against the order dated6.11.2009, passed by the Income Tax Appellate Tribunal, Delhi “C”Bench (in short “the Tribunal”) in ITA No. 3272/DEL/2008, relating tothe assessment year 2005-06. 2.The following substantial questions of law have beenclaimed for determination of this Court: “(i)Whether on the true and correct interpretation of the`provisions of section 145 the findings are sustainable forcharging the income from undisclosed sources under`provisions of section 145 the findings are sustainable forcharging the income from undisclosed sources under Chapter VI without discharging the departmental onus to prove the source of such other income? (ii)Whether the Tribunal’s order is sustainable for theadditions made to the income of the assessee as incomefrom other undisclosed sources can be considered asincome from the business which is eligible for deductionu/s 80 IB of the Act, 1961?additions made to the income of the assessee as incomefrom other undisclosed sources can be considered asincome from the business which is eligible for deductionu/s 80 IB of the Act, 1961? 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the assessee-firm that came to be formed inthe year 1992 is exclusively engaged in manufacturing and export oftextiles goods and all the partners of the firm are not carrying on anyother business except that being partners in the firm. The assesseefiled return for the assessment year 2005-06 declaring an income ofRs. 66,61,927/-. On 9.3.2005, a survey was carried out at thepremises of the assessee-firm. The return was processed underSection 143(1) of the Act on 30.11.2005 and after the scrutinyproceedings were completed under Section 143(3) on 6.12.2007, theassessing officer finalised the assessment at an amount of Rs.88,31,400/- by order dated 6.12.2007. The Commissioner of Income-tax (Appeals) {in short “the CIT(A)”}, dismissed the appeal of theassessee, vide order dated 16.9.2008. 4.The assessee took the matter in further appeal before theTribunal. The Tribunal also did not take any exception to the findingsrecorded by the assessing officer and affirmed by the CIT(A), videorder dated 6.11.2009 and it is how the present appeal at theinstance of the assessee. 5.Learned counsel for the assessee submitted that theundisclosed income was on account of surrender of additional stockfound during the course of survey and, therefore, the same was to beconsidered for calculating deduction under Section 80 IB of the Act.According to the learned counsel, the surrendered amount was in thenature of business income and, therefore, the assessee was entitledto deduction under Section 80 IB on the surrendered amount.Support was drawn by the learned counsel from the judgments ofRajasthan High Court in Commissioner of Income Tax vs. MehtaGwar Gum and Company High court of Rajasthan (Raj.) (2008)12 DTR (Raj.) 219; Gujarat High Courtin Commissioner of IncomeTax vs. Suman Paper and Boards Ltd. (2009) 18 DTR (Guj.) 297and of Himachal Pradesh High Court in Commissioner of IncomeTax vs. Allied Industries, (2009) 31 DTR (HP) 323. 6.We have given our thoughtful consideration to thesubmissions made by the counsel for the assessee but are notimpressed with the same. A similar argument raised before theTribunal was repelled with the following observations: “11. We have considered the rival contentions,deliberated upon the various case laws cited by learnedAR and towards which our attention was diverted withreference to the factual matrix of instant case. From therecord, we found that during the course of survey, excessstock was found on physical verification, whilesurrendering Rs. 40 lakhs, the assessee has furnished aletter which reads as under:-deliberated upon the various case laws cited by learnedAR and towards which our attention was diverted withreference to the factual matrix of instant case. From therecord, we found that during the course of survey, excessstock was found on physical verification, whilesurrendering Rs. 40 lakhs, the assessee has furnished aletter which reads as under:- “Survey u/s 133A(1) was conducted by the Income-tax Department on our business premises today i.e.9.3.2005. Inventory of stocks in the premises wasprepared and the same was valued with our help.The stock as per books of accounts and as perinventory is as under:- We hereby surrender Rs. 40,00,000.00 on accountof excess stock as per physical verificationvoluntarily and without any pressure or force. Thesurrender of additional income is being madesubject to no penalty and prosecution. Noadjustment will be made against the surrenderedincome. The surrender of additional income is overand above the regular income as per books ofaccounts. Advance tax on the additional income willbe deposited by 15.3.2005. Post dated chequeNo. 1181332 dated 15.3.2005 for Rs. 15,00,000.00of the Bank of India, G.T. Road, Panipat Branch isbeing given in lieu of advance tax. The surrender ofadditional income is for F.Y. 2004-2005 relevant toA.Y. 2005-2006.” 12.It is quite evident from the above letter submitted byassessee that Rs. 40 lakhs income was surrendered onlyon account of excess stock found as per physical verification. It was also stated in the letter that noadjustment will be made against the surrendered incomeand such surrendered income is over and above theregular income as per books of account. Advance tax onthe additional income was also proposed to be depositedvide post dated cheques. Since in the letter itself theassessee has accepted that this additional income wasover and above the regular income as per books ofaccount, the regular income which is arising out ofindustrial undertaking can only be subject to deductionu/s 80 IB and no other income surrendered on account ofadditional stock found during the course of survey can beconsidered for deduction u/s 80 IB. More particularly, inview of the decision of Hon’ble Supreme Court in thecase of Liberty India (supra) wherein even the incomefrom DEPB and duty drawback which are received by theindustrial undertaking as an incentive in the course oftheir business were held to be not eligible for claim ofdeduction u/s 80 IB, nothing is left for granting deductionin respect of such income surrendered during the courseof survey which is attributable to the excess stock foundduring the survey. Nothing was brought on record by thelearned AR to show that amounts so invested in theexcess stock was derived from industrial undertaking. Itis not only the income of the business which can beclaimed for deduction u/s 80 IB but it is only that incomewhich is derived from industrial undertaking and comes within the first degree of nexus between profit andindustrial undertaking as found by the Hon’ble SupremeCourt in the case of Liberty India (supra), that can bemade available for allowing the deduction u/s 80 IB of theIT Act. We, therefore, do not find any infirmity in theorders of lower authorities for declining claim of deductionu/s 80 IB in respect of extra income surrendered duringsurvey on account of excess stock physically found ascompared to the stocks indicated in the regular books ofaccount.” 7. The Tribunal had specifically recorded that the assessee had failed to show that the amount which was invested in the excessstock and was surrendered at the time of survey was derived fromindustrial undertaking. In the absence of any such finding or nexusestablished by the assessee, the Tribunal had rightly declined theclaim of deduction under Section 80 IB of the Act in respect ofexcess income surrendered during survey on account of excessstock which was not reflected in the regular books of accounts.Learned counsel for the assessee was unable to show any perversityor illegality in the findings which may warrant interference by thisCourt. 8.So far as the judgments relied upon by the counsel areconcerned, suffice it to notice that in those cases a finding came tobe recorded that the income which was unaccounted in the books ofaccounts was the result of business activities and, therefore, the saidincome of the assessee was deductible under Section 80 IB of theAct. The judgments relied upon, therefore, being on different facts do not advance the case of the assessee. No substantial question oflaw, thus, arises for the consideration of this Court. Finding no meritin the appeal, the same is dismissed. (AJAY KUMAR MITTAL) JUDGE May 24, 2011*rkmalik* (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE